CASCADE SYSTEMS INC, S-1/A, 1997-11-12

CASCADE SYSTEMS INC
S-1/A, 1997-11-12
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997

REGISTRATION NO. 333-36219>

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1

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

CASCADE SYSTEMS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 7373 04-3236319
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

300 BRICKSTONE SQUARE, ANDOVER, MASSACHUSETTS 01810
(978) 749-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

MALCOLM P. MCGRORY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CASCADE SYSTEMS INCORPORATED
300 BRICKSTONE SQUARE, ANDOVER, MASSACHUSETTS 01810
(978) 749-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:

<TABLE>
<S> <C>
JOHN A. BURGESS, ESQ. STEVEN P. ROSENTHAL, ESQ.
HALE AND DORR LLP MINTZ, LEVIN, COHN, FERRIS,
60 STATE STREET GLOVSKY AND POPEO, P.C.
BOSTON, MASSACHUSETTS 02109 ONE FINANCIAL CENTER
(617) 526-6000 BOSTON, MASSACHUSETTS 02111
(617) 542-6000
</TABLE>

------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
- ------------

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

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 SECTION 8(a), MAY
DETERMINE.

================================================================================
<PAGE> 2

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

NOVEMBER 12, 1997

2,800,000 SHARES

[Cascade Systems Incorporated Logo]
COMMON STOCK

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

Of the 2,800,000 shares of Common Stock offered hereby, 2,250,000 are being
sold by Cascade Systems Incorporated ("Cascade" or the "Company") and 550,000
shares are being sold by certain Selling Stockholders (the "Selling
Stockholders"). The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $9.00 and $11.00 per share. See "Underwriting" for the factors
to be considered in determining the initial public offering price. Application
has been made for the listing of the Common Stock on the Nasdaq National Market
under the symbol "CSCD."

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

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================

<TABLE>
<S> <C> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1) SELLING STOCKHOLDERS
- ----------------------------------------------------------------------------------------------------------

Per Share......... $ $ $ $
- ----------------------------------------------------------------------------------------------------------
Total(2).......... $ $ $ $
</TABLE>

================================================================================

(1) Before deducting expenses of the offering estimated at $750,000, all of
which will be paid by the Company.

(2) The Company and certain of the Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 420,000 additional shares of
Common Stock solely to cover over-allotments, if any. If such 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. See
"Underwriting."

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

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated on or about , 1997.

BT ALEX. BROWN HAMBRECHT & QUIST
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
- -------------------------------------------------------------------------------
CASCADE SYSTEMS INCORPORATED MANAGING CONTENT--THE RAW MATERIAL OF PUBLISHING
- -------------------------------------------------------------------------------

[CASCADE SYSTEMS LOGO]

Cascade's asset and workflow management systems enable publishers to leverage
their content and prepare themselves for the multi-media future:

DATAFLOW

[ ] Track History -- Track individual objects through the production process,
keeping a record of those who have used the file and changes of status.

[ ] Manage Workflow -- Automatically move a job in digital form through the
various steps of a defined production workflow.

[ ] Archive -- Store the elements associated with a particular job from
individual text or image files to pages and complete publications.

[ ] Retrieve -- Find and recall all the elements related to a particular job or
publication.

MEDIASPHERE

( ) Store -- Store and index multimedia data in a secure archive ready for
re-use in future projects.

( ) Search -- Search with a probabilistic search engine using natural language
queries. Results are ranked in order of relevance to the original query.

( ) Browse -- Browse through the results to select media objects required for a
project or refine the search to produce a closer match.

( ) Retrieve -- Retrieve the chosen objects and deliver them to a defined
location such as a network folder, desktop, news agency or CD-ROM.

/W3

[ ] Web-based client access to both

( ) MediaSphere and DataFlow* via the Internet or an Intranet. Applications
include remote proofing/approval, and remote access to distributed assets.

* Scheduled for release in December 1997.

[PICTURES]

Graphic diagram depicting three vertical sections, connected with
arrows, each entitled, from top to bottom,: Acquire & Retain Assets, Process
Assets, and Leverage Assets.

The "Acquire & Retain Assets" section depicts the Company's acquisition
and retention sequence, accompanied by a symbolic icon, in the form of a
flowchart as follows: Still Photos, Graphics, Text Files, Page Elements, Saved
Pages, Video Sequences, and Sound Clips.

The "Process Assets" section outlines the Company's Workflow Content
Management Solution in a central box with DataFlow and MediaSphere captions
running along the left side. The outline reads: Workflow Management, Track
History, Manage Workflow, Archive, Retrieve, Optimize Assets, Edit, Manipulate,
Layout, Compose, Content Management, Store, Search, Browse, and Retrieve.

The "Leverage Assets" section contains captions and icons similar to
the flow chart in the first section as follows: Output to On, Demand, Master to
Video, Output to Print, Publish to Web and Master to CD.

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

Cascade Systems is a registered servicemark of the Company and MediaSphere is a
registered trademark of the Company. Other trademarks, servicemarks or trade
names that appear in this Prospectus are the property of their respective
owners.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

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<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Upon the closing of this offering, all
of the Company's issued and outstanding shares of Convertible Preferred Stock
will be converted into, and the Company will issue to the holders of such
preferred stock, 2,100,000 shares of Common Stock. Prospective investors should
consider carefully the information under "Risk Factors."

THE COMPANY

The worldwide publishing industry is undergoing significant change in
response to competitive pressures. Publishers of newspapers and magazines are
consolidating into larger organizations with multiple titles, formats and
geographic locations. Publishing enterprises are also facing competition from
alternative publishing on new media such as the Internet. Increased competition
for subscribers has resulted in a trend toward more demographically targeted
editorial, feature and advertising content. As a result, publishers are
beginning to view their content assets, such as photos, graphics, illustrations,
text and captions, as key competitive differentiators. Newspapers, publishers
and other organizations are seeking ways to improve content management and
utilization while continuing to meet demanding time schedules and reduce costs.

The Company believes it has established a pre-eminent position in the
newspaper marketplace for workflow and content management solutions. The
Company's products are designed to handle complex data formats and large files
associated with the pre-press production process and are able to fit seamlessly
with other pre-press applications, while maintaining a record of job status
throughout the process. As part of its strategy, the Company intends to continue
to leverage opportunities created by its technology and client base to expand
its position in the newspaper market in the U.S. and internationally, both for
advertising and other editorial applications. The Company also intends to
continue to leverage its technology through enhancements to support the Internet
and other evolving technologies. In addition, the Company believes that the
expertise that it has acquired in developing workflow and content management
solutions for time-critical applications in the newspaper industry will permit
it to expand to other publishing markets which face similar requirements for
workflow and content management solutions, such as magazines, catalogs, and
special purpose publishers. The Company is developing a workgroup content
management solution to address the requirement of commercial printers and trade
shops, and intends to apply its solutions to meet the needs of other
organizations, such as retailers and consumer product companies, that manage a
high volume of text and images internally.

The Company intends to expand its global sales capabilities by increasing
the size of its direct sales organization in major markets to target strategic
accounts and by developing VAR and OEM relationships to target specific vertical
markets. The Company markets its products and services

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primarily through its own direct sales force and distributors in certain
overseas markets. The Company has a sales and marketing organization of 27
persons, as well as a services and support organization of 35 persons. In
addition, the Company has established a strategic relationship with Applied
Graphics Technologies, Inc. for selling its solutions to corporate customers.

The Company was initially incorporated in February 1994 under the name
Cascade Systems International Inc., the parent company of Cascade Systems
Limited, a United Kingdom based company, and Cascade Systems Incorporated, a
Massachusetts corporation, both of which were organized in 1993. In 1996, the
Massachusetts corporation was merged into the Company and the Company changed
its name to Cascade Systems Incorporated.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company............................... 2,250,000 shares
Common Stock offered by the Selling Stockholders.................. 550,000 shares
Common Stock to be outstanding after the offering................. 7,125,525 shares(1)
Use of proceeds................................................... For working capital and
other general corporate
purposes.
Proposed Nasdaq National Market symbol............................ CSCD
</TABLE>

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

(1) Excludes 1,917,650 shares of Common Stock issuable upon the exercise of
options outstanding as of August 31, 1997 at a weighted average exercise
price of $4.51 per share, of which options to purchase 311,730 shares were
then exercisable. Includes 1,700,000 shares of Common Stock issuable upon
conversion of 1,700,000 shares of Series A Preferred Stock and 400,000
shares of Common Stock issuable upon conversion of 400,000 shares of Series
B Preferred Stock, effective upon the closing of this offering. See
"Capitalization," "Management -- Executive Compensation," and "Description
of Capital Stock."

4
<PAGE> 6

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

<TABLE>
<CAPTION>
INCEPTION SIX MONTHS
(FEBRUARY 5, 1993) YEAR ENDED ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------- ---------------
1993 1994 1995 1996 1996 1997
------------------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Software license
revenues................. $ 494 $ 2,658 $ 4,905 $5,913 $2,558 $4,386
Maintenance and service
revenues................. 236 1,177 2,243 4,428 1,653 2,639
Hardware and other
revenues................. 2,071 8,238 10,564 8,170 5,067 2,334
------------------- ------- ------- ------ ------ ------
Total revenues...... 2,801 12,073 17,712 18,511 9,278 9,359
Income (loss) from
operations............... (312) (793) (1,390) 4 (204) 172
Net income (loss).......... $ (313) $ (745) $(1,400) $ 93 $ (114) $ 231
Pro forma net income per
common and common
equivalent share......... $ 0.02 $ 0.04
Weighted average common and
common equivalent shares
outstanding.............. 6,008 6,066
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash......................................................... $2,071 $ 22,246
Working capital.............................................. 1,260 21,435
Total assets................................................. 6,933 27,108
Total stockholders' equity................................... 2,305 22,480
</TABLE>

- ---------------
(1) As adjusted to give effect to the sale of the 2,250,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $10.00 per share, after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by the Company.

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

Except as otherwise indicated, all information in this Prospectus (i)
reflects the conversion of all outstanding shares of the Company's Series A
and Series B Preferred Stock into an aggregate of 2,100,000 shares of Common
Stock upon the closing of this offering, (ii) reflects the further amendment
and restatement of the Company's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of this offering, to remove
the Company's existing series of Preferred Stock and to create a class of
authorized but undesignated Preferred Stock, and (iii) assumes no exercise
of the Underwriters' over-allotment option.

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RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Common
Stock offered by this Prospectus. This Prospectus 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, the Risk Factors discussed below.

Limited Operating History. The Company's predecessor was founded in 1993,
and until 1996 the Company operated primarily as a systems integrator. The
Company shipped its first software product in 1994. Accordingly, the Company has
a limited operating history and, although the Company has experienced growth in
recent periods, continued growth at the same rate may not be sustainable and
past operating results are not necessarily indicative of future operating
results. The limited operating history of the Company makes the prediction of
future results difficult and, therefore, there can be no assurance that the
Company will sustain revenue growth or profitability on a consistent basis. The
Company's future prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in their early stage of
development, particularly companies in a new and rapidly evolving market. To
address these risks, the Company must, among other things, respond to
competitive developments, complete development of its product lines, continue to
attract, retain and motivate qualified persons, commercialize products and
services incorporating its technologies and successfully execute its sales and
distribution strategy. There can be no assurance that the Company will be
successful in addressing such risks, or that the Company will achieve or sustain
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Selected Consolidated Financial Data."

Potential Fluctuations in Quarterly Results; Seasonality. As a result of
the Company's limited operating history, the Company does not have historical
financial data for a significant period on which to base planned operating
expenses. The Company's expense levels are fixed in advance and are based in
part on its expectations as to future revenues. As a result, quarterly sales and
operating results will generally depend on the volume and timing of and ability
to fulfill orders received within the quarter and the closing of orders which
are difficult to forecast. The Company's sales cycles have in the past been long
and a significant lead time is, at times, required to sell the Company's
products. Revenues from sales efforts initiated in one quarter may not be
recognized until subsequent quarters, and the delay in the closing of a
significant sale from one quarter to the next may cause wide variations in the
Company's quarterly results. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenues shortfall. Accordingly,
any significant shortfall in demand for the Company's products and services in
relation to the Company's expectations would have an immediate adverse impact on
the Company's business, operating results and financial condition.

In addition, the Company plans to continue to increase its operating
expenses to fund greater levels of research and development, increase its sales
and marketing operations, develop new distribution channels and broaden its
customer support capabilities. There could be a material adverse effect on the
Company's business, operating results and financial condition to the extent that
such expenses precede or are not followed by increased revenues. The Company
expects in the future to experience significant fluctuations in quarterly
operating results that may be caused by many factors, including demand for the
Company's products, introduction or enhancement of products by the Company and
its competitors, market acceptance of new products, mix of distribution channels
through which products are sold, pricing and mix of products and services sold,
changes in pricing policies by its competitors, seasonality in the demand for
its products and general economic conditions. In particular, the Company has
experienced seasonality in the demand for its products from the newspaper
industry, with fewer orders being placed in the fourth calendar quarter of the
year, when newspapers typically are focused on their own holiday advertising
demands. As a result, the Company believes that period-to-period comparisons of
its results of

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operations may not be necessarily meaningful and should not be relied upon as an
indication of future performance. Due to all of the foregoing factors, it is
likely that in some future quarter the Company's operating results will be below
the expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock would likely be materially adversely
affected.

Lengthy Sales and Implementation Cycles. The license of the Company's
software products involves significant investment by customers which in many
cases have complex approval
procedures, fixed capital budgets and limited experience with technological
innovation. The Company generally experiences a lengthy sales cycle (typically
six months), and the Company is often required to provide a significant level of
education to prospective customers regarding the use and benefits of the
Company's products. In addition, the implementation by customers of the
Company's products involves a significant commitment of resources over an
extended period of time and is commonly associated with substantial
implementation efforts. For these and other reasons, the sales and customer
implementation cycles are subject to a number of significant delays over which
the Company has little or no control. Delay of a limited number of sales or
customer implementations could have a material adverse effect on the Company's
business, operating results and financial condition and could cause the
Company's operating results to vary significantly from quarter to quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Sales and Marketing."

Industry Concentration. To date, a substantial portion of the Company's
revenues have been derived from sales to the newspaper industry. Historically,
newspapers have often been relatively slow to innovate technologically, and
their willingness to make significant capital expenditures on technology
solutions has varied significantly, depending upon such factors as the technical
sophistication and union work rules of production personnel and the level of
overall production costs, including the cost of newsprint. These factors can
adversely affect the Company's efforts to market its products both in specific
instances and across the newspaper industry generally. Furthermore, the
Company's future results will depend upon its ability to expand beyond these
markets to other publishing markets such as magazines, catalogs and special
purpose publishers. The failure of the Company to attract and retain customers
in this broader market could have a material adverse effect on the Company's
business, operating results and financial condition.

Developing Market; Unproven Acceptance of the Company's Products. The
market for the Company's products and services has only recently begun to
develop, is rapidly evolving and is characterized by an increasing number of
market entrants. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty. Because the market for the
Company's products and services is new and evolving, it is difficult to predict
with any assurance the future growth rate, if any, and size of this market.
There can be no assurance that the market for the Company's products and
services will continue to develop or that the Company's products or services
will continue to be adopted. If the market fails to develop, develops more
slowly than expected or becomes saturated with competitors, or if the Company's
products fail to achieve market acceptance, such conditions could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Industry Background."

Dependence on Principal Products. The Company believes that sales of its
DataFlow and MediaSphere systems will account for a majority of the Company's
revenues in 1997 and for the foreseeable future. Therefore, the Company's future
operating results, particularly in the near term, are substantially dependent on
the continued market acceptance of these products, including improvements and
enhancements thereto. Any factors adversely affecting the sales of the Company's
applications, such as price competition or the introduction of technologically
superior products, could have a material adverse effect on the Company. There
can be no assurance that the Company will continue to achieve market acceptance
for these products or that the Company will be successful in developing
improvements and enhancements to such products. A decline in the

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demand for these products as a result of competition, technological change or
other factors would have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Products."

Dependence upon Product Development; Risks of Technological Change and
Evolving Industry Standards. The Company's success will depend upon its ability
to develop new products and provide new services that meet changing customer
requirements. The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, emerging competition, short
product life cycles and frequent new product and service introductions. There
can be no assurance that the Company can successfully identify new product
opportunities and develop and bring new products and services to market in a
timely manner. Failure of the Company, for technological or other reasons, to
develop and introduce new products, product enhancements and new services that
are compatible with industry standards and that satisfy customer requirements
would have a material adverse effect on the Company's business, operating
results and financial condition. In particular, the Company, as part of its
strategy, is currently developing a new workgroup content management system for
use by commercial printers, trade shops, advertisers and similar organizations.
Any failure to develop this product on a timely basis or the failure to gain
market acceptance of this product once released would have a material adverse
effect on the Company's business, operating results and financial condition.

In addition, the Company or its competitors may announce enhancements to
existing products or services, or new products or services embodying new
technologies, industry standards or customer requirements, that have the
potential to replace or provide lower cost alternatives to the Company's
existing products and services. The introduction of such enhancements or new
products and services could render the Company's existing products and services
obsolete and unmarketable. There can be no assurance that the announcement or
introduction of new products or services by the Company or its competitors or
any change in industry standards will not cause customers to defer or cancel
purchases of existing products or services, which could have a material adverse
effect on the Company's business, operating results and financial condition.

Furthermore, introduction by the Company of products or services with
reliability, quality or compatibility problems could result in reduced orders,
delays in collecting accounts receivable and additional service costs. The
failure to introduce a new product, service or product enhancement on a timely
basis could delay or hinder market acceptance of the Company's products and
services. Any such event could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Products."

New Distribution Strategy. The Company's distribution strategy
contemplates expansion of its indirect sales channels, including both systems
integrators and service providers selling its solutions to corporate customers
as well as VARs and OEMs selling its workgroup content management solution
product, currently under development, to customers in the commercial print,
trade shop and advertising markets. To date, the Company has sold its products
only through its direct sales organization and select distributors. The Company
has begun marketing its products through strategic alliances with technology
partners and expects to continue to seek strategic relationships with
significant computer software service and equipment providers. Any failure by
the Company to broaden its distribution channels, including any failure or delay
in introducing products for such channels, to maintain its relationship with
existing strategic partners, to attract additional technology partners that will
be able to market the Company's products effectively, or to manage conflicts
among its channels as they evolve, could have a material adverse effect on the
Company's business, operating results and financial condition. Sales to VARs and
OEMs generally provide lower gross margins, and an increase in sales to VARs and
OEMs as a percentage of net sales could contribute to a decrease in the
Company's gross profits and/or gross profit margin and could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Sales and Marketing."

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The Company also plans to expand its direct sales and support organization.
There can be no assurance that such internal expansion will be successfully
completed, that the cost of such expansion will not exceed the revenues
generated, or that the Company's sales and marketing organization will be able
to successfully compete against the significantly more extensive and well-funded
sales and marketing operations of certain of the Company's current or potential
competitors. The Company's inability to effectively manage its internal
expansion could have a material adverse effect on the Company's business,
operating results and financial condition.

Competition. The market for software and services is highly competitive,
rapidly evolving and subject to rapid technological change. The Company expects
competition to increase in the future. The Company believes that while it
competes with no single organization across its entire product line, a variety
of companies offer products which compete either with its DataFlow or its
MediaSphere systems. In addition, desktop publishing vendors such as Quark, Inc.
("Quark") or Adobe Systems Incorporated ("Adobe") may in the future offer
functionality competitive with the Company's products as part of their own
product offerings. Also, potential customers of the Company's products may elect
to develop internal applications that provide the functionality of the Company's
products, or obtain such functionality from third-party service bureaus. Such
competition could materially adversely affect the Company's business, operating
results or financial condition. As the Company expands its target markets to
include large organizations outside the printing industry, it anticipates that
it will encounter additional competitors.

Competitive factors in the software and services market include core
technology, breadth of product features, product quality, marketing and
distribution resources, customer service and support and price. The Company
believes it presently competes favorably with respect to each of these factors.
However, the market and competition are still relatively new and rapidly
emerging, and there can be no assurance that the Company's current and potential
competitors will not develop software and services that may be more effective or
achieve greater market acceptance than the Company's current or future products
or services, or that the Company's technology products or services would not be
rendered obsolete by such developments. Also, the Company's current and
prospective competitors include companies that have substantially greater name
recognition and financial, technical and marketing resources than the Company.
See "Business -- Competition."

Management of Growth. The rapid execution necessary for the Company to
fully exploit the market for its products and services requires an effective
planning and management process. The Company's rapid growth has placed, and is
expected to continue to place, a significant strain on the Company's management,
operations and systems. The Company expects to hire personnel at a rapid pace.
In addition, the Company employs personnel engaged in research and development
in the U.S., the U.K. and Canada. To manage its growth and geographically
dispersed operations, the Company must continue to implement and improve its
operational and financial systems and to expand, train and manage its employee
base. Due to the level of technical and management expertise necessary to
support growth, the Company must recruit and retain highly qualified and
well-trained personnel. Competition for all such personnel is intense, and there
can be no assurance that the Company will be able to attract, assimilate or
retain other highly qualified technical, managerial and sales personnel in the
future. There may be only a limited number of persons with the requisite skills
to serve in these positions, and it may become increasingly difficult for the
Company to hire such personnel over time.

Furthermore, the Company will be required to manage multiple relationships
with various customers and other third parties and to continue to provide to
them ongoing and comprehensive customer support and services by trained Company
personnel. Although the Company believes that it has properly planned for the
costs and risks associated with this expansion, there can be no assurance that
the Company's systems, procedures, controls or personnel will be adequate to
support the Company's operations or that Company management will be able to
achieve the rapid execution necessary to fully exploit the market for the
Company's products and services. The Company's future operating results will
also depend on its ability to expand its sales and marketing

9
<PAGE> 11

organizations, implement a distribution channel to penetrate different and
broader markets and expand its support organization commensurate with the
increasing base of its installed products. Many of the Company's sales personnel
have been employed by the Company for less than one year and there can be no
assurance that they will develop the skills necessary to sell the Company's
products effectively. The failure of the Company to manage its growth
effectively would have a material adverse effect on the Company's business,
operating results and financial condition.

International Revenues; International Operations. The Company maintains a
sales office in the United Kingdom and has derived a large portion of its
revenues from international operations. In 1994, 1995, 1996 and the six months
ended June 30, 1997, international revenues accounted for 52%, 52%, 51% and 41%
of the Company's total revenues, respectively, primarily from sales in the
United Kingdom. There can be no assurance that the Company will be able to
maintain international sales of its products or that, as the Company implements
its distribution strategy, international distribution channels will develop or
be able to effectively market, sell, service and support the Company's products.
International operations generally are subject to certain risks, including
difficulties in staffing and managing operations, dependence on independent
relicensors, fluctuations in foreign currency exchange rates, compliance with
foreign regulatory and market requirements, unexpected changes in regulatory
requirements, variability of foreign economic conditions and changing
restrictions imposed by United States export laws. Additional risks inherent in
the Company's international business activities generally include tariffs and
other trade barriers, costs of localizing products for foreign countries, lack
of acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences, including restrictions on the repatriation
of earnings, and the burdens of complying with a wide variety of foreign laws.
There can be no assurance that such factors will not have a material adverse
effect on the Company's future international sales and, consequently, the
Company's business, results of operations and financial condition. The Company
does not engage in any hedging transactions through the purchase of derivative
securities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Sales and Marketing" and
" -- Customers."

Dependence on Key Personnel. The Company's performance depends
substantially on the performance of its executive officers and key employees,
none of whom has had experience in managing a public company. Given the
Company's early stage of development, the Company is dependent on its ability to
retain and motivate high quality personnel, especially its management and highly
skilled development team. The Company does not have employment contracts with
any of its key personnel. The loss of the services of any of the Company's
executive officers or other key employees could have a material adverse effect
on the business, operating results and financial condition of the Company. See
"Business -- Employees" and " -- Management."

Dependence on Proprietary Rights. The Company's success is heavily
dependent upon proprietary technology. The Company relies primarily on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights. The
Company seeks to protect its software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection. The
Company presently has no patents or patent applications pending. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. In addition, many companies
do business under or use the name "Cascade." The Company holds a servicemark for
the name in connection with services and has applied for a trademark for the
name in connection with its products. There can be no assurance that claims will
not be made by third parties alleging that the Company's use of its corporate or
product names infringes upon their rights or that the name will be available to
the Company in the future.

Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be

10
<PAGE> 12

expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not claim infringement by the Company with respect to
current or future products. The Company expects that software product developers
will increasingly be subject to infringement claims as the number of products
and competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
cause product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, operating results and
financial condition.

The Company relies on certain software that it licenses from third parties,
including software that is integrated with internally developed software and
used in the Company's products, to perform key functions, including the
MediaSphere search engine. There can be no assurances that such firms will
remain in business, that they will continue to support their products or that
their products will otherwise continue to be available to the Company on
commercially reasonable terms. The loss or inability to maintain any of these
software licenses could result in delays or reductions in product shipments
until equivalent software can be developed, identified, licensed and integrated,
which would have a material adverse effect on the Company's business, operating
results and financial condition.

Product Liability; Potential for Undetected Errors. The Company's license
agreements with its customers generally contain provisions designed to limit the
Company's exposure to potential product liability claims. However, it is
possible that the limitation of liability provisions contained in the Company's
license agreements may not be effective as a result of federal, state or local
laws or ordinances enacted in the future or unfavorable judicial decisions.
Although the Company has not experienced any product liability claims to date
and carries product liability insurance, there can be no assurance that the
Company will not be subject to such claims in the future. A successful product
liability claim brought against the Company could have a material adverse effect
upon the Company's business, operating results and financial condition.

Software products as complex as those offered by the Company may contain
undetected errors or failures when first introduced or as new versions or
enhancements are released. There can be no assurance that, despite significant
testing by the Company and by current and potential customers, errors will not
be found in new products, versions or enhancements after commencement of
commercial shipment. In addition, third-party products, upon which the Company's
products are dependent, such as the MediaSphere search engine, and various
hardware components, may contain defects that could reduce the performance of
the Company's products. Although the Company has not experienced any material
adverse effects resulting from any such errors or defects to date, there can be
no assurance that errors or defects will not be discovered in the future, which
could cause delays in product introduction and shipments or require design
modifications that could have a material adverse effect on the Company's
business, operating results and financial condition.

Concentration of Stock Ownership. Upon completion of this offering, the
Company's present directors, executive officers and their respective affiliates
and other principal stockholders, including Adobe, will beneficially own
approximately 37% of the outstanding Common Stock. As a result, these
stockholders, if acting together, will be able to influence all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. Further, such stockholders, if acting
together, could prevent the election of any person nominated to the Board of
Directors by any other stockholder. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of the Company.
See "Description of Capital Stock -- Delaware Law and Certain Charter and By-Law
Provisions" and "Principal and Selling Stockholders."

11
<PAGE> 13

Broad Discretion Over Use of Proceeds. The Company expects to use the net
proceeds of this offering for working capital and other general corporate
purposes. A portion of the net proceeds of the offering may also be used to
acquire or invest in products, technologies or businesses which broaden or
enhance the Company's current product offerings or expand its distribution
channels. There are no current agreements or negotiations with respect to any
acquisitions, investments or other transactions. As of the date of this
Prospectus, the Company has no specific plans as to the use of the net proceeds
from this offering. Pending any such uses, the net proceeds will be invested in
investment grade, interest-bearing securities. The Company's management will
have discretion over the use and investment of such net proceeds. See "Use of
Proceeds."

No Prior Public Market for the Common Stock; Potential Limited Trading
Market; Volatility of 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 or be sustained after the offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial offering price will be determined by negotiation
between the Company and the representatives of the Underwriters based upon
several factors. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The market price of
the Company's Common Stock is likely to be highly volatile and could be subject
to wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, changes in financial estimates by securities analysts, or other
events or factors. In addition, the stock market has experienced significant
price and volume fluctuations that have particularly affected the market price
of equity securities of many high technology companies and that often have been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect on the Company's business, operating results and
financial condition. See "Underwriting."

Benefits of the Offering to Existing Stockholders. After this offering, it
is expected that a public market will exist for the Common Stock. At an assumed
initial offering price of $10.00 per share, there will be a substantial increase
in the market value of the Common Stock held by management and existing
stockholders over their original purchase price. As of September 15, 1997, the
directors, officers and 5% stockholders of the Company would have beneficially
held an aggregate of 3,141,281 shares of Common Stock having an aggregate
original purchase price of $3,987,680 and a market value, based on an assumed
initial public offering price of $10.00 per share, of approximately $31,412,810.
The Selling Stockholders are selling an aggregate of 550,000 shares of Common
Stock in this offering, an aggregate of 144,500 of which shares are among the
3,141,281 shares of Common Stock beneficially held by the directors, officers
and 5% stockholders of the Company. None of the executive officers or directors
of the Company will be participating in such sale of Common Stock. In the event
that the overallotment option is exercised by the Underwriters, certain
executive officers of the Company will sell 120,000 of such shares of Common
Stock. See "Dilution," "Management" and "Principal and Selling Stockholders."

Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the net tangible book value per share of the currently
outstanding Common Stock of the Company. Investors participating in this
offering therefore will incur immediate, substantial dilution to the tangible
net book value of their investment from the initial public offering price. To
the extent outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Dilution."

Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of shares of Common Stock in the public market following this offering
could adversely affect the market price

12
<PAGE> 14

of the Common Stock. On the date of this Prospectus, in addition to the
2,800,000 shares offered hereby, approximately 8,500 shares of Common Stock,
which are not subject to 180-day or 270-day lock-up agreements (the "Lock-Up
Agreements") with the Representatives of the Underwriters, will be eligible for
immediate sale in the public market pursuant to Rule 144(k) under the Securities
Act of 1933, as amended (the "Securities Act"). Approximately 59,452 additional
shares of Common Stock, which are not subject to the Lock-Up Agreements, will be
eligible for sale in the public market in accordance with Rule 144 or Rule 701
under the Securities Act beginning 90 days after the date of this Prospectus.
Upon expiration of the Lock-Up Agreements 180 days and 270 days after the date
of this Prospectus, approximately 3,906,817 and 350,756 additional shares of
Common Stock, respectively, will be available for sale in the public market,
subject to the provisions of the Lock-Up Agreements and Rule 144 under the
Securities Act. In addition, Adobe will hold 1,300,500 shares eligible for
resale pursuant to Rule 144 under the Securities Act after the expiration of the
180-day lock-up period. Any subsequent disposition by Adobe of its holdings or
distribution by Adobe of such shares to its own stockholders for resale could,
as noted above, have an adverse impact on the market price for the Company's
stock. Promptly following the consummation of this offering, the Company intends
to register an aggregate of 400,000 shares of Common Stock issuable under its
1997 Director Stock Option Plan and 1997 Employee Stock Purchase Plan. In
addition, the Company intends to register approximately 2,384,350 shares of
Common Stock issuable under its Second Amended 1994 Stock Option Plan and 1997
Stock Incentive Plan following the 90th day after the date of this Prospectus.
Holders of approximately 4,086,888 shares of Common Stock (including 180,071
shares of Common Stock which may be acquired pursuant to the exercise of vested
options held by them) and 350,756 shares of Common Stock have agreed, pursuant
to the Lock-Up Agreements, not to sell, offer, contract or grant any option to
sell, pledge, transfer establish an open put equivalent position or otherwise
dispose of such shares for 180 days and 270 days, respectively, after the date
of the final Prospectus. The Company is unable to predict the effect that sales
made under Rule 144, or otherwise, may have on the then prevailing market price
of the Common Stock. The holders of approximately 4,245,073 shares of Common
Stock are entitled to certain piggyback and demand registration rights with
respect to such shares. By exercising their registration rights, such holders
could cause a large number of shares to be registered and sold in the public
market. Sales pursuant to Rule 144 or other exemptions from registration, or
pursuant to registration rights, may have an adverse effect on the market price
for the Common Stock and could impair the Company's ability to raise capital
through a subsequent offering of its equity securities. See "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."

Certain Anti-Takeover Effect Provisions Affecting Stockholders. The
Company's Certificate of Incorporation and Amended and Restated Bylaws requires
reasonable advance notice by a stockholder of a proposal or director nomination
which such stockholder desires to present at any annual or special meeting of
stockholders and that special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer (or, if none, the President)
or by the Board of Directors. The Certificate of Incorporation and Bylaws also
provides for a classified Board of Directors, and that members of the Board of
Directors may be removed only for cause. In addition, the Board of Directors has
the authority, without further action by the stockholders, to fix the rights and
preferences of, and issue shares of, authorized Preferred Stock with rights
senior to the Common Stock. These provisions may have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management of
the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. In addition,
these provisions may limit the ability of stockholders to approve transactions
that they may deem to be in their best interests. See "Description of Capital
Stock -- Preferred Stock" and "-- Delaware Law and Certain Charter and By-law
Provisions."

No Present Intention to Pay Dividends; Restrictions on Payment of
Dividends. The Company currently intends to retain future earnings, if any, to
fund development and growth of its business and does not anticipate paying any
cash dividends on the Common Stock in the foreseeable future.

13
<PAGE> 15

In addition, the Company's existing credit facilities prohibit the payment of
cash dividends without the consent of the lenders. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

14
<PAGE> 16

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,250,000 shares of
Common Stock offered by the Company hereby are estimated to be $20,175,000
($22,013,210 if the Underwriters' over-allotment option is exercised in full)
assuming an initial public offering price of $10.00 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 shares of Common Stock by the Selling Stockholders. See "Principal
and Selling Stockholders."

The Company intends to use the net proceeds of this Offering for general
corporate purposes, including working capital. A portion of the net proceeds may
also be used for investments in or acquisitions of complementary businesses,
products or technologies, although the Company has no plans, commitments or
agreements, nor is it engaged in any negotiations, with respect to any such
transactions as of the date of this Prospectus. However, the Company has not yet
identified specific uses for such proceeds and will have discretion over their
use and investment. See "Risk Factors -- Board Discretion Over Use of Proceeds."
Pending such uses, the Company expects to invest the net proceeds in short-term,
interest-bearing, investment grade securities.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain any future earnings for use in
developing and growing its business and, therefore, does not anticipate paying
any cash dividends on its capital stock in the foreseeable future. The Company
is subject to certain restrictions on the payment of dividends imposed by its
commercial bank.

15
<PAGE> 17

CAPITALIZATION

The following table sets forth as of June 30, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
as described in Note 1 below, and (iii) the pro forma capitalization of the
Company as adjusted to reflect the issuance and sale by the Company of the
2,250,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $10.00 per share and receipt of the net proceeds therefrom,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. This table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, $.001 par value; no shares
authorized, issued or outstanding (actual);
1,000,000 shares authorized, no shares issued or
outstanding (pro forma and pro forma as
adjusted).......................................... $ -- $ -- $ --
Series A Preferred Stock, $.001 par value; 1,700,000
shares authorized, issued and outstanding (actual);
no shares authorized, issued or outstanding (pro
forma and pro forma as adjusted)................... 1,700 -- --
Series B Preferred Stock, $.001 par value; 400,000
shares authorized, issued and outstanding (actual);
no shares authorized, issued or outstanding (pro
forma and pro forma as adjusted)................... 2,000 -- --
Common Stock, $.001 par value; 7,500,000 shares
authorized, 2,777,276 shares issued (actual);
25,000,000 shares authorized, 4,877,276 shares
issued (pro forma); and 25,000,000 shares
authorized, 7,127,276 shares issued (pro forma as
adjusted)(2)....................................... 3 5 7
Additional paid-in capital............................ 612 4,310 24,483
Accumulated deficit................................... (2,110) (2,110) (2,110)
Cumulative translation adjustment..................... 101 101 101
Treasury stock, 2,344 shares at cost.................. (1) (1) (1)
------ -------- -------
Total stockholders' equity............................ 2,305 2,305 22,480
------ -------- -------
Total capitalization.................................. $2,305 $2,305 $22,480
====== ======== =======
</TABLE>

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

(1) Presented on a pro forma basis to give effect to (i) the conversion of all
outstanding shares of the Company's Series A and Series B Preferred Stock
into an aggregate of 2,100,000 shares of Common Stock upon the closing of
this offering, and (ii) the further amendment and restatement of the
Company's Amended and Restated Certificate of Incorporation, to be effective
upon the closing of this offering, removing the Company's existing series of
Preferred Stock and creating a class of authorized but undesignated
Preferred Stock. See Note 13 of Notes to Consolidated Financial Statements.

(2) Excludes an aggregate of 1,841,900 shares of Common Stock issuable upon the
exercise of options outstanding as of June 30, 1997 at a weighted average
exercise price of $4.37 per share, of which options to purchase 300,080
shares were then exercisable. See "Management -- Stock Plans" and Note 8 of
Notes to Consolidated Financial Statements.

16
<PAGE> 18

DILUTION

The pro forma net tangible book value of the Company as of June 30, 1997
was approximately $2,286,000 or $0.47 per share of Common Stock. "Pro forma net
tangible book value" represents the amount of the Company's total tangible
assets reduced by the amount of its total liabilities and divided by the total
number of shares of Common Stock outstanding, after giving effect upon closing
of this offering to the conversion of the Convertible Preferred Stock into
2,100,000 shares of Common Stock. After giving effect to the sale by the Company
of 2,250,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $10.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the pro forma net tangible book value of the Company as of June
30, 1997 would have been approximately $22,462,000 or $3.15 per share. This
represents an immediate increase in pro forma net tangible book value of $2.68
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $6.85 per share to new investors purchasing Common Stock
in the offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................................... $10.00
Pro forma net tangible book value at June 30, 1997.......................... $0.47
Increase per share attributable to new investors............................ 2.68
Pro forma net tangible book value per share after the offering(1)................... 3.15
------
Dilution per share to new investors................................................. $ 6.85
======
</TABLE>

- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value after this offering would be approximately
$24,300,000, resulting in dilution to new investors in the offering of $6.68
per share. See "Underwriting."

The following table sets forth, on a pro forma basis as of June 30, 1997,
after giving effect to the conversion of all outstanding shares of Convertible
Preferred Stock into 2,100,000 shares of Common Stock upon the closing of this
offering, the difference between the total consideration and the average price
per share paid by the existing stockholders for their shares of the Company's
Common Stock and that paid by the purchasers of shares offered by the Company
hereby at an assumed initial public offering price of $10.00 per share and
before deducting estimated underwriting discounts and commissions and estimated
offering expenses by the Company.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).............. 4,874,932 68.4% $ 4,366,000 16.3% $ 0.90
New investors......................... 2,250,000 31.6% 22,500,000 83.7% 10.00
--------- ----- ----------- -----
Total....................... 7,124,932 100.0% $26,866,000 100.0%
========= ===== =========== =====
</TABLE>

- ---------------
(1) Sales by the Selling Stockholders in this offering will cause the number of
shares held by existing stockholders to be reduced to 4,324,932 shares, or
60.7% of the total number of shares of Common Stock outstanding after this
offering, and will increase the number of shares held by new investors to
2,800,000, or 39.3% (3,220,000 shares, or 44.0% if the Underwriters'
overallotment option is exercised in full) of the total number of shares of
Common Stock outstanding after this offering. See "Principal and Selling
Stockholders."

As of June 30, 1997, there were 1,841,900 shares of Common Stock issuable
upon the exercise of options outstanding on that date at a weighted average
exercise price of $4.37 per share. The issuance of shares upon exercise of these
options is not reflected in the preceding tables. If all of the outstanding
options were exercised in full, the dilution per share to new investors would be
$6.60.

17
<PAGE> 19

Such exercises would (i) increase the number of shares held by existing
stockholders to 6,166,832 shares, or 68.8% of the total number of shares of
Common Stock to be outstanding after this offering, (ii) decrease the number of
shares held by the new investors to 31.2% of the total number of shares of
Common Stock to be outstanding after this offering, (iii) increase the total
consideration paid to the Company by existing stockholders to approximately
$12,416,000, or 30.7% of the total consideration paid to the Company, and (iv)
increase the average price per share paid by existing stockholders to $2.01.

18
<PAGE> 20

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data set forth below for
each of the fiscal years ended December 31, 1994, 1995 and 1996 and the balance
sheet data as of December 31, 1995 and 1996 have been derived from the Company's
consolidated financial statements, which have been audited by Arthur Andersen
LLP, independent 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 have been audited by
Arthur Andersen LLP and are not included in this Prospectus. The data presented
as of and for the period ended December 31, 1993 are derived from the Company's
unaudited financial statements which are not included in this Prospectus. The
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. In the opinion of management, all unaudited
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the 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 the
Notes thereto and with Management's Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 5,
1993) SIX MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------------- -----------------
1993 1994 1995 1996 1996 1997
------------ ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license revenues.............................. $ 494 $ 2,658 $ 4,905 $ 5,913 $2,558 $4,386
Maintenance and service revenues....................... 236 1,177 2,243 4,428 1,653 2,639
Hardware and other revenues............................ 2,071 8,238 10,564 8,170 5,067 2,334
-------- ------- ------- ------- ------ ------
Total revenues................................... 2,801 12,073 17,712 18,511 9,278 9,359
-------- ------- ------- ------- ------ ------
Cost of revenues:
Cost of software license revenues...................... 159 913 1,223 1,551 787 801
Cost of maintenance and service revenues............... 180 790 2,157 2,981 1,298 1,640
Cost of hardware and other revenues.................... 1,657 6,797 8,851 5,311 3,314 1,687
-------- ------- ------- ------- ------ ------
Total cost of revenues........................... 1,996 8,500 12,231 9,843 5,399 4,128
-------- ------- ------- ------- ------ ------
Gross profit............................................. 805 3,573 5,481 8,668 3,879 5,231
-------- ------- ------- ------- ------ ------
Operating expenses:
Research and development............................... -- 444 1,177 1,890 859 1,170
Sales and marketing.................................... 339 1,957 3,171 4,061 1,958 2,267
General and administrative............................. 778 1,965 2,523 2,713 1,266 1,622
-------- ------- ------- ------- ------ ------
Total operating expenses......................... 1,117 4,366 6,871 8,664 4,083 5,059
-------- ------- ------- ------- ------ ------
Income (loss) from operations............................ (312) (793) (1,390) 4 (204) 172
Other income (expense)................................... (1) 54 12 109 65 106
-------- ------- ------- ------- ------ ------
Income (loss) before provision (benefit) for income
taxes.................................................. (313) (739) (1,378) 113 (139) 278
Provision (benefit) for income tax....................... -- 6 22 20 (25) 47
-------- ------- ------- ------- ------ ------
Net income (loss)........................................ $ (313) $ (745) $(1,400) $ 93 $ (114) $ 231
======== ======= ======= ======= ====== ======
Pro forma net income per common share.................... $ 0.02 $ 0.04
======= ======
Pro forma weighted average common shares and common share
equivalents outstanding................................ 6,008 6,066
======= ======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------
DECEMBER 31, AS
--------------------------------------- ADJUSTED
1993 1994 1995 1996 ACTUAL (1)
------ ------ ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................................... $ 213 $1,100 $1,327 $3,103 $2,071 $22,246
Working capital (deficit)................................ 104 434 (936) 1,014 1,260 21,435
Total assets............................................. 2,542 4,204 6,497 7,699 6,933 27,108
Total stockholders' equity (deficit)..................... (35) 1,270 (83) 2,075 2,305 22,480
</TABLE>

- ---------------
(1) As adjusted to give effect to the sale of the 2,250,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $10.00 per share after deducting the Underwriters discounts and
commissions and estimated offering expenses payable by the Company.

19
<PAGE> 21

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, and the other financial
information included elsewhere in this Prospectus.

OVERVIEW

The Company designs, develops, markets and supports software solutions
designed to permit newspapers, magazines and large organizations to address
critical workflow and content management needs on a timely and cost-effective
basis. The Company's DataFlow system manages the process of publishing
information by providing data management, tracking, workflow and archiving
functionality. The Company's MediaSphere system is designed to meet the
archiving, search and retrieval needs of organizations dealing with large
amounts of multimedia data. The Company's products are client/server based and
support leading industry standards, permitting users to access, manipulate,
store and reuse content on a scalable basis across different media. The Company
introduced Internet capability to its MediaSphere system in 1996 and is
scheduled to make generally available Internet capability for its DataFlow
system in October 1997. These features are designed to enable users both to
exploit the Internet as a delivery medium, and also to make use of the Internet
(and corporate Intranets) as a communications channel to facilitate the
production process within their organizations.

From 1994 through early 1996, the Company operated primarily as a systems
integrator, providing a "turn-key solution," including hardware, software and
services. As a result, the Company derived a significant portion of its revenues
from the resale of hardware, principally Sun Microsystems servers and related
peripherals. During 1996, the Company revised its strategy and began to unbundle
its offering to focus on the software and service elements of the solution. The
resale of hardware was de-emphasized and is being phased out. The emphasis on
the software and service elements has led to a more rapid growth in software
license fees and maintenance and service revenues.

Software license revenues include revenues from noncancellable software
license agreements entered into between the Company and its customers with
respect to the Company's products. Additionally, the Company has entered into
selected arrangements with distributors that are authorized to relicense the
Company's products to end-users. See "Business -- Sales and Marketing." Software
license revenues are recognized in accordance with Statement of Position 91-1,
Software Revenue Recognition or Statement of Position 81-1, Contract Accounting,
depending upon the nature of the transaction. See Note 2 of Notes to
Consolidated Financial Statements. The Company offers a server and per client
license for each of its systems. Depending upon the specific configuration, the
license fee paid by a specific customer can vary significantly. Server license
fees range from $60,000 to $100,000 and the average fee for a typical system is
approximately $250,000.

The Company's maintenance and service revenues are comprised of software
maintenance revenues and consulting services and training revenues. Maintenance
revenues are billed separately and are recognized ratably over the period of the
maintenance agreement, which is typically one year. Consulting services and
training revenues are recognized as the services are performed.

Hardware and other revenues include revenues derived from the resale of
hardware including hardware maintenance fees by the Company to its customers.
Such revenues are recognized upon shipment of the hardware, or in the case of
hardware maintenance fees, over the service period. As noted above, the Company
has been phasing out the resale of hardware and does not expect hardware and
other revenues to represent a material portion of its business in the future.

20
<PAGE> 22

The table below summarizes the Company's transition from a systems
integration business model to an application software business model company and
the corresponding change in the composition and growth in the Company's revenue
components.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Software license revenues............... $ 2,658 $ 4,905 $ 5,913 $2,558 $4,386
Maintenance and service revenues........ 1,177 2,243 4,428 1,653 2,639
Hardware and other revenues............. 8,238 10,564 8,170 5,067 2,334
------- ------- ------- ------ ------
Total revenues................ $12,073 $17,712 $18,511 $9,278 $9,359
======= ======= ======= ====== ======
</TABLE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the Company's
consolidated statement of operations data expressed as a percentage of total
revenues.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ---------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license revenues...................... 22% 28% 32% 27% 47%
Maintenance and service revenues............... 10% 13% 24% 18% 28%
Hardware and other revenues.................... 68% 59% 44% 55% 25%
--- --- --- --- ---
Total revenues......................... 100% 100% 100% 100% 100%
--- --- --- --- ---
Cost of revenues:
Cost of software license revenues.............. 8% 7% 8% 8% 9%
Cost of maintenance and service revenues....... 6% 12% 16% 14% 17%
Cost of hardware and other revenues............ 56% 50% 29% 36% 18%
--- --- --- --- ---
Total cost of revenues................. 70% 69% 53% 58% 44%
--- --- --- --- ---
Gross profit..................................... 30% 31% 47% 42% 56%
--- --- --- --- ---
Operating expenses:
Research and development....................... 4% 7% 10% 9% 13%
Sales and marketing............................ 16% 18% 22% 21% 24%
General and administrative..................... 16% 14% 15% 14% 17%
--- --- --- --- ---
Total operating expenses............... 36% 39% 47% 44% 54%
--- --- --- --- ---
Income (loss) from operations.................... (6)% (8)% --% (2)% 2%
Other income (expense)........................... -- -- 1% 1% 1%
Provision for income taxes....................... -- -- -- -- 1%
--- --- --- --- ---
Net income(loss)................................. (6)% (8)% 1% (1)% 2%
=== === === === ===
</TABLE>

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

Revenues

Total revenues were $9.4 million for the six months ended June 30, 1997 as
compared to $9.3 million for the six months ended June 30, 1996. In line with
the Company's transition strategy, this increase in total revenues was
attributable to an increase in software license revenues, offset in part by a
decrease in hardware and other revenues. Software license revenues increased 71%
to $4.4 million for the six months ended June 30, 1997 from $2.6 million for the
six months ended June 30, 1996, primarily due to increased sales of the
Company's DataFlow and MediaSphere products.

21
<PAGE> 23

Maintenance and service revenues increased 60%, to $2.6 million for the six
months ended June 30, 1997 from $1.7 million for the six months ended June 30,
1996. This increase was primarily attributable to an increase in the installed
base of customers, leading to an increase in maintenance revenues, and new
customer implementations, resulting in increased consulting services and
training revenues. Hardware and other revenues decreased 54% to $2.3 million for
the six months ended June 30, 1997 from $5.1 million for the six months ended
June 30, 1996. This decrease was attributable to the Company's decision in 1996
to phase out the resale of hardware. International revenues decreased 3% to $3.8
million for the six months ended June 30, 1997 from $3.9 million for the six
months ended June 30, 1996. International revenues as a percentage of total
revenues decreased to 40.5% for the six months ended June 30, 1997 from 42.1%
for the six months ended June 30, 1996.

Cost of Revenues

Cost of Software License Revenues. Cost of software license revenues
consists primarily of costs of sublicensing third party software products,
product media and duplication. Cost of software license revenues increased 2%,
to $801,000 for the six months ended June 30, 1997 from $787,000 for the six
months ended June 30, 1996. The increase was primarily due to the corresponding
increase in software license revenues. Cost of software license revenues as a
percentage of software license revenues decreased to 18% for the six months
ended June 30, 1997 from 31% for the six months ended June 30, 1996. The
decrease as a percentage of revenues was due to fewer third party products being
embedded in the Company's product offerings, thereby reducing royalties due to
third parties.

Cost of Maintenance and Service Revenues. Cost of maintenance and service
revenues consists of the costs of consulting engineers and support personnel and
the related facilities, computers and communications costs to provide training,
technical support and implementation consulting services to licensees of the
Company's products. Cost of maintenance and service revenues was $1.6 million
for the six months ended June 30, 1997 and $1.3 million for the six months ended
June 30, 1996. Cost of maintenance and service revenues as a percentage of
maintenance and service revenues declined to 62% for the six months ended June
30, 1997 from 79% for the six months ended June 30, 1996. The decrease as a
percentage of revenues resulted primarily from operating efficiencies.

Cost of Hardware and Other Revenues. Cost of hardware and other revenues
consists primarily of the costs of third-party hardware products. The cost of
hardware and other revenues decreased 49% to $1.7 million for the six months
ended June 30, 1997 from $3.3 million for the six months ended June 30, 1996,
primarily due to the Company's shift in business strategy to phase out the
resale of hardware. Cost of hardware and other revenues as a percentage of
hardware and other revenues increased to 72% for the six months ended June 30,
1997 from 65% for the six months ended June 30, 1996.

Operating Expenses

Research and Development. Research and development expenses include
expenses associated with the development of new products, enhancements of
existing products and quality assurance activities and consist primarily of
engineering personnel costs and the related facilities, computers and
communications costs. Research and development expenses increased 36% to $1.2
million for the six months ended June 30, 1997 from $859,000 for the six months
ended June 30, 1996. Research and development expenses as a percentage of total
revenues were 12.5% for the six months ended June 30, 1997 and 9.3% for the six
months ended June 30, 1996 due to the hiring of additional engineers to support
the Company's software development activities. The Company anticipates that
research and development spending in total and as a percentage of revenues will
continue to increase.

22
<PAGE> 24

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses, travel, promotional expenses, facilities,
computers and communications costs. Sales and marketing expenses increased 16%
to $2.3 million for the six months ended June 30, 1997 from $2.0 million for the
six months ended June 30, 1996. Sales and marketing expenses as a percentage of
total revenues increased to 24.2% for the six months ended June 30, 1997 from
21.1% for the six months ended June 30, 1996. The increase in dollar amount and
as a percentage of total revenues was attributable to the increase in the number
of direct sales personnel and increased software revenues resulting in increased
commissions. The Company anticipates that sales and marketing spending in total
and as a percentage of revenues will continue to increase as the Company
launches new products, continues to invest in its direct and indirect sales
force, and builds new sales channels.

General and Administrative. General and administrative expenses consist
primarily of salaries of executive, administrative and financial personnel, as
well as provisions for doubtful accounts and outside professional fees. General
and administrative expenses increased 28% to $1.6 million for the six months
ended June 30, 1997 from $1.3 million for the six months ended June 30, 1996.
General and administrative expenses as a percentage of total revenues increased
to 17.3% for the six months ended June 30, 1997 from 13.6% for the six months
ended June 30, 1996. The increase in dollar amount and as a percentage of total
revenues was attributable primarily to severance payments of approximately
$144,000 expensed in the first quarter of 1997 relating to the termination of
certain members of the Company's UK management personnel also in the first
quarter of 1997 as well as additional provisions to the allowance for doubtful
accounts.

Provision for Income Taxes. In accordance with generally accepted
accounting principles, the Company provides for income taxes on an interim
basis, using its estimated effective annual income tax rate. The Company
anticipates an effective annual income tax rate for 1997 of approximately 17%,
which is less than the combined federal, state and foreign tax rates. The
Company's effective annual income tax rate is less than the combined federal,
state and foreign statutory rates primarily due to the utilization of net
operating loss and tax credit carryforwards. The Company provided for minimum
state income taxes only in 1996 due to the fact that the Company was in a net
operating loss position.

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

Revenues

Total revenues were $18.5 million for the year ended December 31, 1996 as
compared to $17.7 million for the year ended December 31, 1995, which was
primarily attributable to an increase in software license revenues and
maintenance and service revenues, offset by a decrease in hardware and other
revenues, as the Company transitioned from a systems integration business model
to an application software business model. Software license revenues increased
21% to $5.9 million for the year ended December 31, 1996 from $4.9 million for
the year ended December 31, 1995. This increase was attributable to increased
sales of DataFlow and the initial market acceptance of MediaSphere, which was
introduced in the latter part of 1995. Maintenance and service revenues
increased 97% to $4.4 million for the year ended December 31, 1996 from $2.2
million for the year ended December 31, 1995. This increase was primarily
attributable to an increase in the installed base of customers, leading to an
increase in maintenance revenues and new customer implementations, driving the
increase in consulting services and training revenues. Hardware and other
revenues decreased 23% to $8.2 million for the year ended December 31, 1996 from
$10.6 million for the year ended December 31, 1995. This decrease was
attributable to the Company's decision in 1996 to phase out the resale of
hardware. International revenues increased 2% to $9.4 million for the year ended
December 31, 1996 from $9.2 million for the year ended December 31, 1995.
International revenues decreased to 51% of total revenues in 1996 as compared to
52% of total revenues in 1995.

23
<PAGE> 25

Cost of Revenues

Cost of Software License Revenues. Cost of software license revenues
increased 27% to $1.6 million for the year ended December 31, 1996 from $1.2
million for the year ended December 31, 1995. Cost of software license revenues
as a percentage of software license revenues increased to 26% for the year ended
December 31, 1996 from 25% for the year ended December 31, 1995. The increase in
dollar amount as well as percentage of revenues was primarily due to the
corresponding increase in software license fees resulting in increased
commissions partially offset by a change in the mix of products sold to those
which carried lower royalties to third parties.

Cost of Maintenance and Service Revenues. Cost of maintenance and service
revenues increased 38% to $3.0 million for the year ended December 31, 1996 from
$2.2 million for the year ended December 31, 1995. The increase related
primarily to the hiring of additional consulting service engineers. Cost of
maintenance and service revenues as a percentage of maintenance and service
revenues declined to 67% for the year ended December 31, 1996 from 96% for the
year ended December 31, 1995. The decline in percentage of revenues related
primarily to operating efficiencies.

Cost of Hardware and Other Revenues. The cost of hardware and other
revenues decreased 40% to $5.3 million for the year ended December 31, 1996 from
$8.9 million for the year ended December 31, 1995, primarily due to a
corresponding decline in hardware and other revenues.

Operating Expenses

Research and Development. Research and development expenses increased 61%
to $1.9 million for the year ended December 31, 1996 from $1.2 million for the
year ended December 31, 1995. Research and development expenses as a percentage
of total revenues increased to 10.2% for the year ended December 31, 1996 from
6.6% for the year ended December 31, 1995 due to the hiring of additional
engineers to support the Company's software development activities.

Sales and Marketing. Sales and marketing expenses increased 28% to $4.1
million for the year ended December 31, 1996 from $3.2 million for the year
ended December 31, 1995. Sales and marketing expenses as a percentage of total
revenues increased to 21.9% for the year ended December 31, 1996 from 17.9% for
the year ended December 31, 1995. The increase in dollar amount and as a
percentage of total revenues was attributable to the increase in the number of
direct sales personnel and increased software revenues resulting in increased
commissions.

General and Administrative. General and administrative expenses increased
8% to $2.7 million for the year ended December 31, 1996 from $2.5 million for
the year ended December 31, 1995. General and administrative expenses as a
percentage of total revenues increased to 14.7% for the year ended December 31,
1996 from 14.2% for the year ended December 31, 1995. The increase in dollar
amount and as a percentage of total revenues was attributable primarily to
normal salary increases for management and administrative personnel.

Provision for Income Taxes. The provision for income taxes in 1996 and
1995 represents minimum federal and state income taxes. As of December 31, 1996
the Company had available U.K. net operating loss carryforwards of approximately
$637,000, which can be carried forward indefinitely to offset U.K. income. In
addition, the Company had available U.S. operating loss carryforwards of
approximately $354,000 and research and development tax credits of approximately
$44,000. The Company has provided a full valuation allowance against the net
operating loss and tax credit carryforwards, as management believes that it is
more likely than not that the net operating loss and tax credit carryforwards
will not be realized.

24
<PAGE> 26

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

Revenues

Total revenues were $17.7 million for the year ended December 31, 1995 as
compared to $12.1 million for the year ended December 31, 1994. Software license
revenues increased 85% to $4.9 million for the year ended December 31, 1995 from
$2.7 million for the year ended December 31, 1994. This increase was
attributable to increased sales of DataFlow, introduced in mid-1994 and
available for all of 1995, as well as the initial market acceptance of
MediaSphere, which was introduced in the latter part of 1995. Maintenance and
service revenues increased 91% to $2.2 million for the year ended December 31,
1995 from $1.2 million for the year ended December 31, 1994. The increase was
primarily attributable to an increase in the installed base of customers,
leading to an increase in maintenance revenues, and new customer
implementations, driving an increase in consulting services and training
revenues. Hardware and other revenues increased 28% to $10.6 million for the
year ended December 31, 1995 from $8.2 million for the year ended December 31,
1994. The increase was primarily due to increased system sales in 1995.
International revenues increased 46% to $9.2 million for the year ended December
31, 1995 from $6.3 million for the year ended December 31, 1994. International
revenues were 52% of total revenues in 1995 and 1994.

Cost of Revenues

Cost of Software License Revenues. Cost of software license revenues
increased to $1.2 million for the year ended December 31, 1995 from $913,000 for
the year ended December 31, 1994. The increase in dollar amount was primarily
due to the corresponding increase in software license fees. Cost of software
license revenues as a percentage of software license revenues decreased to 24.9%
for the year ended December 31, 1995 from 34.3% for the year ended December 31,
1994. The decrease as a percentage of software license revenues reflected the
change in the mix of products sold to those which carried lower royalties to
third parties.

Cost of Maintenance and Service Revenues. Cost of maintenance and service
revenues increased to $2.2 million for the year ended December 31, 1995 from
$790,000 for the year ended December 31, 1994. Cost of services as a percentage
of service revenues increased to 96.2% for the year ended December 31, 1995 from
67.1% for the year ended December 31, 1994 due to the hiring of additional
consulting service engineers to support the growth in customers and introduction
of new products.

Cost of Hardware and Other Revenues. The cost of hardware and other
revenues increased to $8.9 million for the year ended December 31, 1995 from
$6.8 million for the year ended December 31, 1994, primarily due to a
corresponding increase in hardware and other revenues.

Operating Expenses

Research and Development. Research and development expenses increased
165.1% to $1.2 million for the year ended December 31, 1995 from $444,000 for
the year ended December 31, 1994. Research and development expenses as a
percentage of total revenues increased to 6.6% for the year ended December 31,
1995 from 3.7% for the year ended December 31, 1994, due to the hiring of
additional engineers.

Sales and Marketing. Sales and marketing expenses increased 62% to $3.2
million for the year ended December 31, 1995 from $2.0 million for the year
ended December 31, 1994. Sales and marketing expenses as a percentage of total
revenues increased to 17.9% for the year ended December 31, 1995 from 16.2% for
the year ended December 31, 1994. The increase in dollar amount and as a
percentage of total revenues was attributable primarily to the increase in the
number of direct sales personnel and increased sales leading to increased
commissions.

25
<PAGE> 27

General and Administrative. General and administrative expenses increased
28.4% to $2.5 million for the year ended December 31, 1995 from $2.0 million for
the year ended December 31, 1994. General and administrative expenses as a
percentage of total revenues decreased to 14.2% for the year ended December 31,
1995 from 16.3% for the year ended December 31, 1994. The increase in dollar
amount related primarily to the hiring of additional management and
administrative personnel.

Provision for Income Taxes. The provision for income taxes in 1995 and
1994 represents minimum state income taxes.

SELECTED QUARTERLY OPERATING RESULTS

The following tables present certain consolidated financial information for
the last six fiscal quarters. In management's opinion, this unaudited
information has been prepared on the same basis as the audited Consolidated
Financial Statements and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information for
the quarters presented, when read in conjunction with the audited Consolidated
Financial Statements and Notes thereto, included elsewhere in this Prospectus.
The results of operations for any quarter are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1996 1996 1996 1996 1997 1997
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license revenues............... $1,238 $1,320 $ 1,452 $1,903 $2,076 $2,310
Maintenance and service revenues........ 594 1,059 1,442 1,333 1,308 1,331
Hardware and other revenues............. 3,079 1,988 1,398 1,705 1,355 979
------ ------ ------ ------ ------ ------
Total revenues.................. 4,911 4,367 4,292 4,941 4,739 4,620
------ ------ ------ ------ ------ ------
Cost of revenues:
Cost of software license revenues....... 480 307 392 372 324 477
Cost of maintenance and service
revenues............................. 606 692 838 845 849 791
Cost of hardware and other revenues..... 2,006 1,308 898 1,099 961 726
------ ------ ------ ------ ------ ------
Total cost of revenues.......... 3,092 2,307 2,128 2,316 2,134 1,994
------ ------ ------ ------ ------ ------
Gross profit.............................. 1,819 2,060 2,164 2,625 2,605 2,626
------ ------ ------ ------ ------ ------
Operating expenses:
Research and development................ 401 458 474 557 608 562
Sales and marketing..................... 976 982 1,034 1,069 1,097 1,170
General and administrative.............. 688 578 648 799 854 768
------ ------ ------ ------ ------ ------
Total operating expenses........ 2,065 2,018 2,156 2,425 2,559 2,500
------ ------ ------ ------ ------ ------
Income (loss) from operations............. (246) 42 8 200 46 126
Other income, net......................... 15 50 29 15 44 62
------ ------ ------ ------ ------ ------
Income (loss) before provision for income
taxes................................... (231) 92 37 215 90 188
Provision (benefit) for income taxes...... (42) 17 7 38 15 32
------ ------ ------ ------ ------ ------
Net income (loss)......................... $ (189) $ 75 $ 30 $ 177 $ 75 $ 156
====== ====== ====== ====== ====== ======
</TABLE>

26
<PAGE> 28

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license revenues........... 25% 30% 34% 39% 44% 50%
Maintenance and service revenues.... 12% 24% 34% 27% 28% 29%
Hardware and other revenues......... 63% 46% 32% 34% 28% 21%
--- --- --- --- --- ---
Total revenues.............. 100% 100% 100% 100% 100% 100%
--- --- --- --- --- ---
Cost of revenues:
Cost of software license revenues... 10% 7% 9% 8% 7% 10%
Cost of maintenance and service
revenues......................... 12% 16% 20% 17% 18% 17%
Cost of hardware and other
revenues......................... 41% 30% 21% 22% 20% 16%
--- --- --- --- --- ---
Total cost of revenues...... 63% 53% 50% 47% 45% 43%
--- --- --- --- --- ---
Gross profit.......................... 37% 47% 50% 53% 55% 57%
--- --- --- --- --- ---
Operating expenses:
Research and development............ 8% 11% 11% 11% 13% 12%
Sales and marketing................. 20% 22% 24% 22% 23% 25%
General and administrative.......... 14% 13% 15% 16% 18% 17%
--- --- --- --- --- ---
Total operating expenses.... 42% 46% 50% 49% 54% 54%
--- --- --- --- --- ---
Income (loss) from operations......... (5)% 1% -- 4% 1% 3%
Other income, net..................... -- 1% 1% -- 1% 1%
--- --- --- --- --- ---
Income (loss) before provision for
income taxes........................ (5)% 2% 1% 4% 2% 4%
Provision (benefit) for income
taxes............................... (1)% -- -- -- -- 1%
--- --- --- --- --- ---
Net income (loss)..................... (4)% 2% 1% 4% 2% 3%
=== === === === === ===
</TABLE>

The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results may fluctuate as
a result of a variety of factors, including the timing of large software license
transactions, the Company's lengthy sales cycle, the proportion of revenues
attributable to license revenues versus maintenance and service revenues,
changes in the level of operating expenses, demand for the Company's products,
the introduction of new products and product enhancements by the Company or its
competitors, changes in customer budgets, competitive conditions in the industry
and general economic conditions. The Company typically pursues one or more large
orders in each fiscal quarter, and the achievement of its quarterly revenue
plans are dependent upon concluding and shipping at least one such order within
the quarter. The Company has experienced seasonality in the demand for its
products from the newspaper industry, with fewer orders being placed in the
fourth calendar quarter of the year, at which time newspapers typically are
focused on their own holiday advertising demands. The Company has often
recognized a substantial portion of its revenues in the last month of the
quarter and often in the last week of that month. As a result, license fees in
any quarter are substantially dependent on orders booked and shipped in the last
month or last week of that quarter. See "Risk Factors -- Potential Fluctuations
in Quarterly Results; Seasonality," and "-- Lengthy Sales and Implementation
Cycles."

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations principally through
cash flows from operating activities, equipment financing arrangements and
private placements of capital stock to venture capital investors in 1994 and
1996.

27
<PAGE> 29

The Company's principal sources of cash have been the private placements of
1,700,000 shares of Series A Preferred Stock for $1,700,000 in 1994 and 400,000
shares of Series B Preferred Stock for $2,000,000 in 1996. The principal uses of
cash were to fund operations and lease and purchase computers and equipment.

As of June 30, 1997, the Company had cash and cash equivalents of $2.1
million as compared to $3.1 million at December 31, 1996. This decrease was
primarily due to utilization of cash to fund operations, a reduction in accounts
payable in the first six months of 1997, as well as expenditures related to
certain fixed asset purchases in that period.

The Company presently has available a $2.0 million working capital
revolving line of credit with a bank, which is secured by the Company's accounts
receivable. This facility is limited to the lesser of a percentage of the
Company's qualifying accounts receivable or $2.0 million and will expire in June
1998. The agreement under which the line of credit was established contains
certain covenants, including provisions requiring the Company to maintain
minimum levels of tangible net worth, profitability and cash flows. The Company
has not made any borrowings under this facility and no amounts were outstanding
at August 31, 1997. See Note 6 of Notes to Consolidated Financial Statements.

The Company does not currently have commitments for any material capital
expenditures. The Company believes that the net proceeds from this offering,
cash flows from operations and funds available under the line of credit will be
sufficient to fund its operations for the foreseeable future.

CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS

In 1995, the Company dismissed Coopers & Lybrand L.L.P. and engaged Arthur
Andersen LLP, as its independent public accountants. The decision was made by
the Company's Board of Directors, upon the recommendation of management, and was
not due to any disagreement with the former accountants. During the fiscal year
ended December 31, 1994 and the subsequent interim period immediately preceding
the date of this change, the Company had no disagreements with the former
accountants on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement if not
resolved to the satisfaction of the former accountants would have caused Coopers
& Lybrand L.L.P. to make reference thereto in their report on the Company's
financial statements; and the reports of the former accountants on the Company's
financial statements for 1994 did not contain any adverse opinion, disclaimer of
opinion or qualification or modification as to uncertainty, audit scope or
accounting principles.

FORWARD-LOOKING INFORMATION

This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
"Risk Factors," which could cause actual results to differ materially from those
indicated by such forward-looking statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 128, Earnings Per Share, which is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted. This statement requires restatement of all prior-period earnings per
share data presented. The Company has not yet determined the impact of this
statement on the earnings per share data presented.

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.

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<PAGE> 30

BUSINESS

OVERVIEW

Cascade Systems Incorporated ("Cascade" or the "Company") designs,
develops, markets and supports workflow and content management software
solutions for newspapers, magazine and book publishers, commercial printers,
retailers and other corporate publishers. The Company's DataFlow system manages
the process of publishing information by providing content and data management,
tracking, workflow and archiving functionality. The Company's MediaSphere system
is designed to meet the archiving, search and retrieval needs of organizations
dealing with large amounts of multimedia data. The Company's products are
client/server based and support leading industry standards, permitting operators
to access, manipulate, store and reuse content on a scalable basis across
different media. The Company introduced Internet capability to its MediaSphere
system in 1996 and is scheduled to make generally available Internet capability
for its DataFlow system in October 1997. These features are designed to enable
users both to exploit the Internet as a delivery medium and also to make use of
the Internet (and corporate Intranets) as a communications channel to facilitate
the production process within their organizations. The Company's newspaper
customers include The Los Angeles Times, Newsday, The Miami Herald, The Mirror
Group PLC (U.K.), The Boston Globe and The Daily Telegraph (U.K.). Other
customers include magazine publishers such as The McGraw-Hill Companies, Inc.
and Conde Nast Publications Inc., commercial printers such as Bowne & Co., Inc.
and R.R. Donnelley & Sons Company, and retailers and catalog publishers
including Amway Corporation and Val-Pak Direct Marketing Systems, Inc.

The Company believes that its products are the leading solutions for
tracking and managing production of advertisements by large newspapers. The
Company intends to leverage the opportunities created by its technology and
client base to expand its position in the newspaper market in the U.S. and
internationally, both for advertising and for other editorial applications. The
Company is also developing a workgroup content management solution to address
the requirements of commercial printers and trade shops, and intends to apply
its solutions to meet the needs of large organizations, such as retailers and
consumer product companies, that manage a high volume of text and images
internally. The Company markets its products and services primarily through its
own direct sales force and distributors in certain overseas markets. The Company
has a sales and marketing organization of 27 persons in locations throughout the
United States, Canada and in the United Kingdom, as well as a services and
technical support organization of 35 persons supporting custom implementation of
its systems and ongoing maintenance. In addition, the Company has established a
strategic relationship with Applied Graphics Technologies, Inc. for selling its
solutions to corporate customers, and intends to establish a new channel of VARs
and OEMs selling the workgroup content management solution in its targeted
markets.

INDUSTRY BACKGROUND

The worldwide publishing industry is undergoing significant change in
response to competitive pressures. Publishers of newspapers and magazines are
consolidating into larger organizations with multiple titles, formats and
geographic locations. Publishing enterprises are also facing competition from
alternative publishing on new media such as the Internet. Increased competition
for subscribers has resulted in a trend toward more demographically targeted
editorial, feature and advertising content. As a result, publishers are
beginning to view their content assets, such as photos, graphics, illustrations,
text and captions, as key competitive differentiators. Publishers are seeking
ways to improve the management and utilization of that content both within their
organizations and with their customers, while continuing to meet demanding time
schedules and reduce costs.

Traditionally, publishers used highly labor-intensive systems for
production of printed materials, such as manual typesetting. As computer
technology evolved during the 1960's and 1970's, publishers invested in
mainframe-based computer equipment which automated and emulated these
traditional production processes. Mainframe systems shortened the production
process but were expensive, difficult to access, inflexible to use and required
significant training, support and service.

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<PAGE> 31

These limitations were addressed by the widespread adoption during the late
1980's of PC-based solutions for desktop publishing that were cost-effective,
easy to use and highly flexible. For the first time, personnel across the
editorial and production process could use software supplied by Quark, Aldus
Corporation and Adobe to perform typesetting and page-making functions at the
desktop, bringing reporters, writers and editors closer to the final, printed
product. This software also enabled users outside the traditional publishing
industry to publish and distribute high-quality printed materials in-house.

TRADITIONAL PUBLISHING SOLUTION

[GRAPHIC DESCRIPTION: Picture diagram depicting six bubbles each with a
computer inside and a phrase describing one element of the Company's products.
The phrases are as follows (clockwise from top right): Manage Workflow, Text
Archiving, Manage Output, Web Publishing, Photo Archiving, and File Server OPI.]

These developments have presented new challenges. In the absence of any
automated content management system, the creation, manipulation, and storage of
content by geographically dispersed workers with varying skills and
responsibilities has remained inefficient and error prone. The need to transfer
content to disks and to subsequently transfer such disks among operators, as
well as the lack of any method to manage content and monitor job status,
resulted in critical delays and errors. These challenges have been magnified and
exacerbated by the advent of the Internet, presenting publishers and their
customers with greater amounts of content to be managed.

Publishers therefore require workflow and content management systems which
can:

- simplify and automate the tasks of manipulating content during the
production process across an organization, regardless of geographic
location or stage in the production process;

- permit reliable, real time monitoring of the production process to assure
that jobs meet applicable quality standards and are completed on time;

- ensure that content can be located on a timely basis;

- leverage content such as photos, graphics, illustrations, text and
captions to be reused as a corporate asset; and

- support complementary media and new delivery and communications channels,
including the Internet, as they evolve.

THE CASCADE SOLUTION

Cascade offers software solutions designed to permit publishers and large
organizations to address critical workflow and content management needs in a
rapidly evolving business and

30
<PAGE> 32

technological environment on a timely and cost-effective basis. Using the
Company's DataFlow system, publishers can manage data, track job progress,
monitor workflow and archive content. The Company's MediaSphere system applies
intelligent indexing and search technology to accelerate search and retrieval,
thereby permitting content reuse on a timely basis. These products are
client/server based, support industry standards and permit operators to access,
manipulate, store and reuse large amounts of content on a scalable basis across
media.
[GRAPHIC DESCRIPTION: Picture diagram depicting one computer in the center
surrounded by six bubbles, each one containing a phrase that describes one
element of the Company's product, with the product written beneath each bubble.
Captions as follows (proceeding clockwise from left to right starting at top
right): Manage Workflow -- DataFlow, Text Archiving -- MediaSphere, Manage
Output -- DataFlow, Web Publishing -- W3 Extensions, Photo
Archiving -- MediaSphere, File Server OPI -- DataFlow. Arrows point from each of
the bubbles to the computer.]

The Company's products deliver the following critical business benefits:

- Automated Content Manipulation and Tracking. Because the Company's
solutions permit the retrieval, search, manipulation and use of content
on an automated basis, unnecessary manual production steps are
eliminated. Operators can access content from files regardless of size
without the use of disks, and each job can be tracked automatically from
operator to operator across functions, reducing risks of errors attendant
to manual intervention or data transfer.

- Job Management Reporting. In addition, the DataFlow system permits
real-time monitoring of scheduling and quality requirements by allowing a
supervisor or user to identify the status of any job within the system,
access the job, review its status, measure productivity and, if
necessary, change the job's priority.

- Timely, Reliable Access and Version Control. Because the Company's
DataFlow system records the relationship between content, pages and jobs,
production workers can find components of a particular page or job
quickly and monitor that content is accurately manipulated at the
appropriate stage of the production process, thereby reducing the need
for costly rework.

- Support of Multimedia and Internet Communications. The Company's
MediaSphere system permits users to archive and retrieve data regardless
of media type, including images, text, video and audio, to meet content
management requirements as they evolve. In addition, the Company has
added Internet capability to both MediaSphere and DataFlow. As a result,
customers can exploit the Internet for access to content within their
organizations and also as a delivery medium to their customers.

STRATEGY

The Company's objective is to become a leading supplier of comprehensive
automated workflow and content management solutions for the publishing industry
and other large organiza-

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<PAGE> 33

tions, building on its strong base in the newspaper and other publishing
markets. The Company's strategy incorporates the following key elements:

- Extend Leadership in Core Market. The Company believes that its products
are the leading solution for tracking and managing production of
advertisements by large newspapers. The ability of the Company's products
to handle complex data formats and large files associated with the
pre-press production process, and their ability to fit seamlessly within
demanding production schedules, has permitted the Company to establish
what it believes to be a pre-eminent position in the newspaper
marketplace. The Company intends to continue to leverage opportunities
created by its technology, client base and industry expertise to expand
its position in the newspaper market in the U.S. and internationally,
both for advertising and other applications.

- Extend Functionality to Address New Technologies. The Company intends to
continue to leverage the value of its technology through enhancements to
support the Internet and other evolving technologies. These solutions
enable the Company's users to utilize the Internet as a delivery medium,
and make use of the Internet and Intranets as a communications channel to
facilitate the production process within organizations and between
organizations and customers. For example, publishers can provide proofs
of advertisements or catalog pages to customers for their approval over
the Internet, reducing delays and improving output and quality, all at
reduced cost.

- Leverage Expertise to Broaden Markets. The Company believes that its
expertise in developing workflow and content management solutions for
time-critical applications in the newspaper industry will permit it to
expand to other publishing markets which face similar challenges, such as
magazines, catalogs, retailers, and corporate and special purpose
publishers. The Company is developing a workgroup content management
solution to address the requirements of commercial printers and trade
shops, and intends to apply its solutions to meet the needs of large
organizations, such as retailers and consumer products companies, that
manage a high volume of text and images internally as part of in-house
publishing and similar functions.

- Expand Distribution Capabilities. The Company intends to expand its
global sales capabilities by increasing the size of its direct sales
organization in major markets to target strategic accounts. The Company
plans to expand its direct sales and marketing activities in both North
America and Europe, while expanding its distribution network elsewhere. To
achieve these goals, the Company is actively engaged in the development of
localized versions of its workflow and content management solutions. In
addition, the Company has established a strategic relationship with
Applied Graphics Technologies for selling its solutions to corporate
customers, and intends to establish a new channel of VARs and OEMs to sell
the workgroup content management solution in its targeted markets.

PRODUCTS

The Company's principal products, DataFlow and MediaSphere, monitor and
control the collaborative efforts required to integrate images, graphics and
texts in the production and publication of newspapers, magazines and catalogs,
and automate and accelerate the access, manipulation, storage and reuse of
publishing assets. Its DataFlow system manages the process of publishing
information by providing content management, tracking, workflow and archiving
functionality. The MediaSphere system is designed to meet the archiving, search
and retrieval needs of organizations dealing with large amounts of multimedia
data. Cascade introduced Internet capability to its MediaSphere system in 1996,
and is scheduled to make generally available Internet capability for its
DataFlow system in October 1997. These features are designed to enable users
both to exploit the Internet as a delivery medium, and also to make use of it
(and corporate Intranets) as a communications channel to facilitate the
production process within organizations. These systems

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<PAGE> 34

can be purchased and used separately, or operated together to provide users an
integrated content management solution.

DataFlow System

First introduced in 1994, the Company's DataFlow system manages the process
of publishing information by providing content management, tracking, workflow
and archiving functionality. Text, images and pages developed by production
operators using desktop publishing software are organized in the DataFlow system
and routed through pre-defined workflows which include each step in the
production process, such as creation, editing, proofing, correction, output and
archiving.

Using the DataFlow system, any job can be tracked against deadlines imposed
for each step of the production process on a fully automated basis, while
providing users with progress reports and an overview status of the entire
production process. The DataFlow system eliminates many of the problems commonly
associated with managing large amounts of data, tracking all production elements
for efficient reuse of data and eliminating lost or duplicated information.
DataFlow currently runs on a Sun server platform, using a Sybase relational
database, and supports clients using PC or Macintosh workstations across a user
network.

DataFlow client software consists of a basic module that provides the
functionality required for typical users, including the ability to access
objects, move them through the production workflow process, archive them and
restore them. In addition to the system's core functionality, modules may be
purchased to fulfill specific production tasks, including:

- Askme Reporting provides production reports for real time management of
jobs and analysis of the production process. Every event in the DataFlow
system is stored with details of time, user, and comments regarding each
event. This information permits managers to monitor whether jobs are on
schedule, check the overall load or productivity of any user or group,
and change the priority of work to be completed.

- Cascade Quark Xtension Suite consists of six Quark Xtensions that perform
utility functions on an integrated basis with Quark XPress, a widely used
page make-up application. These utilities can be used to expedite and
facilitate the production process by updating pictures and images,
modifying text slug lines, automatically placing ads on a page and
automatically generating encapsulated PostScript files.

- Cascade DataFlow Xtension enables users to access content from the
DataFlow system without leaving a Quark XPress application, eliminating
the need to run a DataFlow client as a separate application on each
workstation.

- ScanClients tracks non-electronic content across the production process
through the use of bar code scanning devices, permitting users to manage
the workflow of non-digitized content within the DataFlow environment.

- ViewFlow provides a pictorial representation of the real time status of
components on a page, permitting users to determine when material is
ready for the printer.

Additional components of the DataFlow system include:

- Business System Interfaces. DataFlow Business System Interfaces provide
a method for initializing work orders in the production process, assuring
that job scheduling and delivery requirements are integrated into the
system on an automated basis.

- Ad Stacking automates make-up and layout of advertisements on a page (the
"Ad Stack"), so that individual advertisements can be appropriately
scaled to fit space allocated without the need for manual intervention,
thereby accelerating the production process.

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<PAGE> 35

- ImageFlow provides Open Pre-press Interface (OPI) functionality, allowing
page makeup and image placement to be carried out using low resolution
images that are swapped out for high resolution images at the conclusion
of the job. Users therefore do not have to wait for long periods while
pages physically print at intervals during the production process,
eliminating network bottlenecks and production delays.

- SureCast supports complete merchandising planning of advertising events
in catalog and retail publishing environments by interfacing with a
user's SKU itemization system to access product and price information.
Merchandisers and buyers may plan events, assign products to pages,
generate promotional copy and pricing, and then electronically
communicate the plan to the DataFlow system, further automating the
document planning and production process.

The Company licenses certain technology incorporated into the DataFlow
system from a third party under a perpetual license agreement pursuant to which
the Company pays royalties to such third party.

MediaSphere

First introduced in 1995, the MediaSphere system is designed to meet the
content management needs of organizations dealing with large amounts of
multimedia data. The system works on an integrated basis with client
applications to index all relevant metadata, search for items using
sophisticated search tools and retrieve them for usage or redistribution. Like
the DataFlow system, MediaSphere currently runs on a Sun server platform, using
a Sybase relational database, supports clients using either PC or Macintosh
workstations and supports leading mass storage technology such as RAID and
CD-ROM jukeboxes.

MediaSphere was developed to meet the demand by publishers and other
organizations for a multi-user library/archive system that can handle all types
of digital objects: text, graphics, images, pages, video and audio. By
eliminating the need to maintain separate retrieval systems for each form of
media, MediaSphere allows users to easily find items of interest across multiple
data types from a single system. This also eliminates the need for systems
administrators and library/archiving staffs to update, maintain and monitor more
than one archiving and retrieval system.

The MediaSphere system supports multiple databases and indices, while
providing scalable performance across an organization. As a result, the
MediaSphere system can meet the requirements of large organizations to access
both small, localized archives, as well as large data repositories involving
terabytes of information. MediaSphere can be installed in various network
configurations, ranging from small LAN workgroup environments to large
distributed network environments.

The MediaSphere system permits users to access data and multimedia objects
across multiple storage platforms. Key components of the MediaSphere system
include:

- The index stores and references all metadata. Data is entered into the
index through a series of customized processes that appear as network
drop areas or directories called "funnels." These funnels are
configurable and customizable to adapt to the changing and evolving
requirements of data archiving and data format. A general funnel indexes
and stores standard image formats automatically (together with all
associated metadata) and generates a thumbnail and preview file for each
image. Quark XPress funnels add the ability to index and store complete
Quark XPress pages and related graphics, text files and embedded header
data, and text funnels offer the ability to index and store text files
with all associated header information.

- The search engine is a natural language indexing and search engine that
uses probabilistic theory and the user's own actions to define and search
for relevant information. Users may apply category, date and time
filters, as well as Boolean operators to help narrow the searches, and
search results are ranked by relevance, permitting users to establish
subsequent preferences.

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<PAGE> 36

- The database manages the allocation of archive files and the data is
stored on disk, RAID or CD-ROM jukeboxes. The database is also used to
keep an audit trail of information and relationships, such as who
accessed the specific image and at what time.

The Company licenses certain technology which comprises the MediaSphere
search engine from a third party under a license agreement which expires on
March 18, 2004 and pursuant to which the Company pays royalties to such third
party.

Internet Enhancements and New Products

Cascade introduced Internet capability to its MediaSphere system in 1996
and is scheduled to make generally available Internet capability for its
DataFlow system in October 1997. These features are designed to enable users
both to exploit the Internet as a delivery medium, and also to make use of the
Internet (and corporate Intranets) as a communications channel to facilitate the
production process within organizations. Use of Intranets can generate
substantial cost savings by eliminating the expense associated with traditional
communications methods (including courier and mail services) while leveraging
the use of the Company's systems across organizations. For example, publishers
can provide proofs of advertisements or catalog pages to customers for approval
on the Internet, reducing delays and improving output quality, while eliminating
the need to mail or deliver physical copy.

The Company's DataFlow/W3 Internet client software is designed to
facilitate the reuse of content by allowing an organization to manage remotely
disbursed content, drawing on processes tailored to the needs of each specific
customer. The software is configurable to allow publishers to control
presentation and content available to users. The Company's MediaSphere/W3
interface provides web accessibility to MediaSphere data from standard browsers
such as Netscape's Navigator or Microsoft's Internet Explorer, and can be easily
integrated with electronic commerce systems. The MediaSphere system supports the
use of HTML, Java applets and Javascript in order to facilitate the integration
of the MediaSphere system with customer applications and processes.

The Company is also building upon its content management expertise to
introduce a compact, easily-configured content management solution for
workgroups at organizations such as commercial printers, trade shops and
advertising agencies. Built using Internet standards and technologies such as
CORBA and Java, the system will be fully integrated with Netscape servers and
support the Sun Solaris operating system, Windows NT, and a wide range of
relational databases including Oracle, Sybase, Microsoft SQL/Server and
Informix. The system is designed to be easy to configure and use, and to
integrate directly with Quark or Adobe pre-press and page make-up applications.

CUSTOMER APPLICATIONS

- The Los Angeles Times ("The LA Times"), one of the largest U.S.
newspapers, relied on a mainframe-based, legacy system to manage and
track its advertising production. The legacy system could not support the
geographically dispersed advertising sales and composition network
developed by The LA Times for zoned advertising in the southern
California market, necessitating the use of line printer reports and
paper links between offices to track the status of jobs. As a result, The
LA Times was unable to effectively implement its advertising strategy and
incurred lost revenues and increased expenses due to late, missing or
inaccurate advertisements. To solve the problem, the Company installed 11
DataFlow systems over a two-year period to support a distributed ad
tracking system involving over 200 users. This system receives over
20,000 retail and classified advertising bookings weekly and retains the
completed ads for up to 90 days on an automated, highly reliable basis,
providing the functionality and flexibility needed by The LA Times to
meet its requirements for effective ad-tracking in a highly competitive
market.

- Channel 4, one of the U.K.'s leading independent television stations,
purchased Cascade's MediaSphere and MediaSphere/W3 web extension software
to create an Extranet to provide

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<PAGE> 37

promotional publicity images to magazine and newspaper publishers. The
web based service has been completely branded in the Channel 4 corporate
style to provide a consistent corporate image. Before purchasing
MediaSphere, Channel 4 used a bulletin board on a proprietary service,
mail, couriers and hard copy press packs to provide publicity photographs
to the press. Channel 4 faced the problems of maintaining a hard copy
library, with the consequent staffing costs, along with the high costs of
postage and couriers to deliver information. The MediaSphere system has
enabled Channel 4 to provide a faster, better and more up-to-date
information service to the press as well as creating an on-line archive,
while reducing the high costs previously associated with the maintenance
of the hard copy system.

- Newsday, with a daily circulation of more than 570,000 on Long Island and
in New York City, traditionally relied on a manual process for production
of advertising, using job bags to physically transfer copy work from
stage to stage. At the same time, it relied on a legacy system to provide
automation of its editorial processes. To automate Newsday's workflow
requirements, the Company developed an interface between the legacy
editorial system and the DataFlow system, to allow the Newsday staff to
monitor the status of individual page elements at each stage of the
production process. By capturing changes in status and translating those
changes into a color-coded "picture" of each page, the Newsday staff can
monitor progress and take appropriate action as deadlines approach. At
the same time, by off-loading CPU-intensive tasks to the DataFlow system,
Newsday has been able to increase sections and page counts significantly
without making further investment in its legacy system. In addition,
automation of its page make-up process has also reduced the high labor
costs associated with traditional paste-up operations.

- In addition to its DataFlow system, Newsday has implemented a MediaSphere
system to assist with photo archiving. Newsday traditionally relied on a
photo-archiving system with limited text indexing capabilities that held
only basic details of date, photographer, storage location and picture
number. Consequently, editors could not find images relating to a
particular event or subject on a reliable basis, and were forced to
resort to the expensive and time-consuming alternatives of using a wire
service or library, often ordering the same photographs on a repetitive
basis. Newsday has avoided these delays and costs by digitizing its
photographs and loading them onto a MediaSphere system. Once a picture
for a particular page has been selected, MediaSphere transmits the
information to DataFlow to be incorporated onto the page, thus
facilitating layout, while assuring access to photographs on a reliable
and timely basis, and eliminating the costs associated with multiple
orders for the same photograph.

SALES AND MARKETING

The Company has historically sold its products in the United States and the
United Kingdom through its direct sales organization and in South America and
Europe through distributors. As of August 31, 1997, the Company's direct sales
force included 11 sales professionals and six dedicated technical specialists.

As part of its growth strategy, the Company intends to increase the size of
its direct sales organization and is seeking to expand and enhance its channels
of distribution. The Company has entered into a strategic business alliance with
Applied Graphics Technologies, Inc., a third-party pre-press service provider,
for sales to magazine and other publishers. In addition, the Company maintains
alliances with certain technology providers, including Sun Microsystems, to
market the Company's products on a collaborative basis. The Company anticipates
that the percentage of its total revenues derived from indirect sales,
particularly through value-added resellers and systems integrators, will
increase in the future. There can be no assurance, however, that the Company
will be successful in establishing or maintaining these distribution channels.
See "Risk Factors -- Evolving Distribution Strategy."

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<PAGE> 38

The Company's marketing organization consists of five persons and is
responsible for evaluating and developing market opportunities and providing
sales support. The Company's marketing activities include generation of client
leads, targeted direct mail campaigns, advertising and public relations efforts.
In addition, the Company attends major trade shows and technology conferences
relating to its target markets.

CUSTOMERS

Traditionally, the majority of the Company's revenues have been derived
from the newspaper industry, reflecting the Company's experience and established
reputation in that market. The Company also markets its products to
organizations in the broader publishing industry or companies which are
otherwise involved in producing a printed product. The Company's target sectors
include newspapers, magazine and book publishers, commercial printers, retailers
and catalog, corporate and directory publishers.

As of August 31, 1997 the Company had licensed its products to over 140
customers. In 1996, one newspaper accounted for 13% of the Company's revenues.
In 1995 and for the six months ended June 30, 1997 no one customer accounted for
more than 10% of the Company's revenues. The following list includes customers
in each of the Company's target markets:

<TABLE>
<CAPTION>
NEWSPAPERS COMMERCIAL PRINTERS
- --------------------------------------------------------------------------------------------
<S> <C>
The Los Angeles Times Bowne & Co., Inc.
Newsday Royle Communications Group Inc.
The Minneapolis Star Tribune R.R. Donnelley & Sons Company
The Pittsburgh Post -- Gazette Wace Group PLC
The Seattle Times Banta Corp.
The Miami Herald
Associated Newspapers (U.K.) Limited
Mirror Group PLC
The Boston Globe
The Telegraph PLC
</TABLE>

<TABLE>
<CAPTION>
RETAILERS, CATALOG PUBLISHERS
MAGAZINE/BOOK PUBLISHERS AND OTHER CORPORATE PUBLISHERS
- --------------------------------------------------------------------------------------------
<S> <C>
The McGraw-Hill Companies, Inc. Viking Office Products
Miller Freeman Incorporated United States Gypsum Company
Miller Freeman PLC Amway Corporation
Addison-Wesley Publishing Company TransWestern Publishing
Conde Nast Publications Inc. Val-Pak Direct Marketing Systems, Inc.
BBC Worldwide Limited Avon Products, Inc.
Random House Limited Circuit City Stores, Inc.
</TABLE>

CUSTOMER SUPPORT AND TRAINING

The Company believes that its success is highly dependent upon a satisfied
customer base. The Company has developed and implemented a multi-faceted
strategy which provides a range of professional customer services designed to
ensure successful product implementations, and currently employs 35 persons
worldwide in its services and support organization. The two primary components
of this strategy are the Company's Consulting Services group, which provides a
wide range of professional services, and its standard maintenance services,
which include telephone technical support.

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<PAGE> 39

Consulting and Training

The Company's Consulting Services group is responsible for implementing the
Company's software products to meet the customers' production requirements
through project management, systems engineering and training. Key accounts are
assigned a project manager to assist customers in defining requirements and
specifications, and to coordinate installation, testing and training. Consulting
engineers provide customization services and direct technical support during
implementation, as well as integration services related to a customer's
database, to assure successful customer roll-out and to meet specific customer
requirements. Training services offered by the Consulting Services group include
end-user training on the Company's products and a variety of system
administration courses to assist the customer's production personnel in the
management and customization of the Company's products.

Support

The Company offers maintenance contracts to its customers at an annual fee
equal to 15% of the list price of the product to which the contract relates. The
Company's standard maintenance contract includes telephone technical support
during regular business hours which is provided by the Company's highly trained
Help Desk staff. Help Desk support is supplemented by 7-by-24 support on a
per-call fee basis. Maintenance customers also receive maintenance releases and
new versions of the product which are released during the maintenance term.
Historically, more than 95% of the Company's customers have renewed their
maintenance service contracts on an annual basis.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

The Company's success is heavily dependent upon proprietary technology. The
Company relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection. The Company presently has no patents or patent applications
pending. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary.

Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as the laws of the United States. There
can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not claim
infringement by the Company with respect to current or future products. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be
time-consuming to defend, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company or at all, which could have a material adverse effect
upon the Company's business, operating results and financial condition.

In addition, the Company relies on certain software that it licenses from
third parties that is integrated with internally developed software and used in
the Company's products to perform key functions, including the MediaSphere
search engine. There can be no assurances that such firms will remain in
business, that they will continue to support their products or that their
products will otherwise continue to be available to the Company on commercially
reasonable terms. The loss of or inability to maintain any of these software
licenses could result in delays or reductions in product

38
<PAGE> 40

shipments until equivalent software can be developed, identified, licensed and
integrated, which would adversely affect the Company's business, operating
results and financial condition.

COMPETITION

The market for software and services is very competitive, rapidly evolving
and subject to rapid technological change. The Company believes that while it
competes with no single organization across its entire product line, a variety
of companies offer products which compete either with its DataFlow or
MediaSphere systems. Autologic offers products competitive with DataFlow.
Companies offering products competitive with MediaSphere include T/One, Inc.,
The Bulldog Group USA, Inc., Gannett Media Technologies International, a
division of Gannett Company, Inc. and Archetype, Inc., a subsidiary of Bitstream
Inc. Other potential competition may come from desktop publishing vendors such
as Quark or Adobe who may in the future offer functionality competitive with the
Company's products or from potential customers who elect to develop internally
applications that provide the functionality of the Company's products, or obtain
such functionality from third-party service bureaus. As the Company expands its
target markets to include large organizations outside the publishing industry,
it anticipates that it will encounter additional competitors.

The Company believes that the principal competitive factors affecting its
market include product features and functionalities, such as scalability, ease
of integration, ease of implementation, ease of use, quality, performance,
price, customer service and support, and effectiveness of sales and marketing
efforts. Although the Company believes that it currently competes effectively
with respect to such factors, there can be no assurance that the Company will be
able to maintain its competitive position against current and potential
competitors.

EMPLOYEES

As of August 31, 1997 the Company had a total of 108 employees, of which 66
were located in the United States, 40 in the United Kingdom, and two in Canada.
Of the total, 27 were engaged in sales and marketing, 26 in product development,
35 in services and support, and 20 in administration and finance. The loss of
the services of one or more of the Company's key employees could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's future success also depends on its continuing ability
to attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company can retain its key technical, sales and managerial
personnel in the future. None of the Company's employees is represented by a
labor union. The Company has not experienced any work stoppages and considers
its relations with its employees to be good.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

FACILITIES

The Company's principal administrative, sales, marketing, support and
research and development facilities are located in sites of approximately 20,000
square feet and 7,000 square feet in Andover, Massachusetts and Needham Market,
England, respectively. The Company also leases a facility in London, England.
The Andover lease expires in June 2001. The Needham Market lease expired in
August 1997, and the Company is in the process of moving these operations.

39
<PAGE> 41

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES

The executive officers, directors and other key employees of the Company
and their ages as of August 31, 1997 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ----------------------------------------------------
<S> <C> <C>

Executive Officers
Malcolm P. McGrory................... 40 President, Chief Executive Officer and Director
Andrew J. Zimmon..................... 34 Senior Vice President, Operations
Timothy M. Cunningham................ 35 Vice President, Finance, Chief Financial Officer,
Treasurer and Secretary
David J. Green....................... 33 Vice President, Research and Development
Brian F. Gorman...................... 44 Vice President, Sales

Key Employees
Ian L. Bryson........................ 41 Director of Marketing
Ian Smith............................ 37 Director of United Kingdom Sales and Marketing

Other Directors
Peter Jarrold (1)(2)................. 64 Director
Gordon C. Murray (1)(2).............. 50 Director
Standish H. O'Grady (1)(2)........... 37 Director
</TABLE>

- ---------------
(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

Mr. McGrory has been President of the Company since its inception in
February 1993 and Chief Executive Officer and a Director of the Company since
July 1996. From October 1988 to February 1993, Mr. McGrory was engaged in
various capacities with Hyphen Ltd. ("Hyphen"), a pre-press systems vendor,
serving as President of Hyphen Incorporated, a U.S. affiliate of Hyphen, from
March 1989 to October 1992.

Mr. Zimmon has been Senior Vice President, Operations, of the Company since
the Company's inception in February 1993. From July 1995 to February 1996, Mr.
Zimmon also served as interim Managing Director of Cascade Systems Limited, a
wholly owned subsidiary of the Company in the United Kingdom ("Cascade
Limited"). From October 1992 to February 1993, Mr. Zimmon was engaged in various
capacities with Hyphen Ltd. From April 1990 to October 1992, Mr. Zimmon served
as Vice President of Operations of Hyphen Incorporated.

Mr. Cunningham has been the Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary of the Company since November 1996. From
January 1991 to November 1996, Mr. Cunningham was the Corporate Controller with
Infinium Software, Inc. (formerly, Software 2000, Inc.), an application software
company. Earlier in his career, Mr. Cunningham was a Certified Public Accountant
with Price Waterhouse LLP.

Mr. Green has been Vice President, Research and Development, of the Company
since January 1994. From February 1993 to January 1994, Mr. Green served as
Technical Director of Cascade Limited. From March 1987 to February 1993, Mr.
Green was Technical Director of Hyphen.

Mr. Gorman has been Vice President, Sales of the Company since December
1993. From November 1991 through October 1993, Mr. Gorman served as Vice
President, Sales of Hyphen Incorporated.

Mr. Bryson has been Director of Marketing of the Company since June 1997.
From October 1996 to May 1997, Mr. Bryson was Sales and Marketing Director of
International Imaging Ltd., a microfilm

40
<PAGE> 42

and document scanning services provider. From June 1994 to September 1996, Mr.
Bryson was Business Development Director of Wace Group PLC, a pre-press and
specialist printing services provider. From May 1990 to January 1994, Mr. Bryson
was Marketing Manager of Hyphen.

Mr. Smith has been Director of United Kingdom Sales and Marketing of
Cascade Limited since September 1993. From September 1989 to September 1993, Mr.
Smith served in various sales capacities with Hyphen, becoming Sales Director in
April 1992.

Mr. Jarrold has been a director of the Company since July 1994. Mr. Jarrold
is presently Chairman of Jarrold & Sons Ltd., a printer, publisher and retailer
in the United Kingdom and has served in such capacity since 1956.

Dr. Murray has been a director of the Company since July 1994. Dr. Murray
is presently a professor at the Warwick Business School, University of Warwick
(U.K.), and has taught and conducted research in such capacity since 1989.

Mr. O'Grady has been a director of the Company since July 1994. Mr. O'Grady
is a Managing Director in the venture capital department of Hambrecht & Quist
California, a subsidiary of Hambrecht & Quist Group, a venture capital,
investment banking and securities brokerage firm specializing in emerging growth
companies. Mr. O'Grady has served in various positions with Hambrecht & Quist
California's venture capital department since 1986. Moreover, he has been the
President of H&Q Adobe Ventures Management Corp., the General Partner of H&Q
Adobe Ventures Management, L.P., the General Partner of Adobe Ventures L.P.,
since its inception in 1994.

BOARD OF DIRECTORS

Upon the closing of the offering, the Company's Board of Directors will be
divided into three classes. Dr. Murray and Mr. O'Grady will serve in Class I,
the term of which expires on the date of the Company's 1998 Annual Meeting of
Stockholders; Mr. McGrory will serve in Class II, the term of which expires on
the date of the Company's 1999 Annual Meeting of Stockholders; and Mr. Jarrold
will serve in Class III, the term of which expires on the date of the Company's
2000 Annual Meeting of Stockholders.

Mr. O'Grady and Mr. Jarrold were elected to the Board of Directors in July
1994 pursuant to a Voting Agreement, dated as of July 25, 1994, by and among the
Company and certain of its stockholders named therein. The Voting Agreement will
terminate upon the closing of this offering.

COMMITTEES OF THE BOARD OF DIRECTORS

In February 1996, the Board of Directors established a Compensation
Committee and in September 1997, the Board of Directors established an Audit
Committee. The Compensation Committee (i) establishes the compensation,
including bonuses, and compensation policies applicable to all executive
officers of the Company, and (ii) exercises all rights, authority and functions
of the Board of Directors under the Company's Second Amended 1994 Stock Option
Plan, 1997 Stock Incentive Plan, 1997 Director Stock Option Plan and 1997
Employee Stock Purchase Plan. The Audit Committee is responsible for (i) making
recommendations regarding the appointment or replacement of and reviewing the
scope and results of audits and other services provided by the Company's
independent public accountants, and (ii) making recommendations and implementing
any changes to the Company's audit procedures.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to February 1996, the Company had no separate compensation or stock
option committee or other board committee performing equivalent functions, and
these functions were performed by the Company's Board of Directors. In February
1996, the Company's Board of Directors established a Compensation Committee,
which currently consists of Messrs. Jarrold and O'Grady and Dr. Murray. No
member of the Compensation Committee serves as a member of the board of
directors or

41
<PAGE> 43

compensation committee of any entity that has one or more executive officers
serving as a member of the Board or Compensation Committee.

DIRECTOR COMPENSATION

1997 Director Stock Option Plan. The Company's 1997 Director Stock Option
Plan (the "Director Plan") was adopted by the Board of Directors and approved by
the stockholders of the Company in September and October 1997, respectively.
Under the terms of the Director Plan, directors of the Company who are not
full-time employees of the Company or any subsidiary of the Company are eligible
to receive nonstatutory options to purchase shares of Common Stock. Options to
purchase 100,000 shares of Common Stock may be granted under the Director Plan.

Pursuant to the Director Plan, each non-employee director who is first
elected or appointed to the Board of Directors after September 1, 1997 receives
an initial option to purchase 10,000 shares of Common Stock upon the date on
which he or she first is so elected or appointed. Each non-employee director
also receives an option to purchase 5,000 shares of Common Stock on the date of
each Annual Meeting of Stockholders commencing with the 1998 Annual Meeting of
Stockholders, provided that he or she is a non-employee director immediately
prior to such Annual Meeting and continues to serve as a director immediately
following such Annual Meeting. The exercise price per share of such options will
be the closing price of a share of Common Stock on the Nasdaq National Market or
on a nationally recognized securities exchange on the date of grant or, if the
Common Stock is not then traded on the Nasdaq National Market or a nationally
recognized securities exchange, the fair market value per share on the date of
grant as determined by the Board of Directors. All options granted under the
Director Plan vest in full on the first anniversary of the date of grant
provided that the optionee continues to serve as a director of the Company.

Dr. Murray receives an annual retainer of $10,000, paid quarterly, for his
service on the Company's Board of Directors. No other director of the Company is
compensated for services rendered as a director.

In May 1997, each of Messrs. Jarrold and O'Grady and Dr. Murray received an
option to purchase 25,000 shares of Common Stock under the Company's 1997 Stock
Incentive Plan.

42
<PAGE> 44

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation for the fiscal year ended December 31, 1996 for the following
officers of the Company (collectively, the "Named Executive Officers"): (i) the
Company's Chief Executive Officer, (ii) the one other person who served as chief
executive officer in 1996, and (iii) the four other most highly compensated
executive officers of the Company having annual compensation in 1996 greater
than $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION(1) SALARY BONUS COMPENSATION(2) UNDERLYING OPTIONS
- ------------------------------- -------- ------- --------------- ------------------
<S> <C> <C> <C> <C>
Malcolm P. McGrory............. $121,407 $25,000 $ 6,153 --
President and Chief Executive
Officer
Richard L. Patterson(3)........ $107,200 $27,334 $ 9,600
Former Chief Executive
Officer
Andrew J. Zimmon............... $111,579 $15,000 $ 3,688 --
Senior Vice President,
Operations
Brian F. Gorman................ $ 60,008 $82,548(4) -- 40,000
Vice President, Sales
David J. Green................. $105,112 $10,000 $ 6,962 --
Vice President, Research &
Development
Graham Frankland(5)............ $104,714 -- -- 100,000
Former Managing Director of
United Kingdom Operations
</TABLE>

- ---------------
(1) Timothy M. Cunningham joined the Company as Vice President, Finance, and
Chief Financial Officer in November 1996.

(2) Represents amounts paid for automobile allowances.

(3) Mr. Patterson resigned as Chief Executive Officer in July 1996.

(4) Includes bonus equal to $3,000 and commissions equal to $79,548 earned in
1996.

(5) Mr. Frankland resigned from his position in March 1997. The option was
cancelled pursuant to the terms of Mr. Frankland's option agreement upon his
departure from the Company in March 1997.

43
<PAGE> 45

The following table sets forth grants of stock options to each of the Named
Executive Officers during the fiscal year ended December 31, 1996. No stock
appreciation rights were granted during the fiscal year ended December 31, 1996.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION --------------------
NAME GRANTED YEAR PER SHARE(1) DATE 5% 10%
- ------------------------ ---------- ---------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Malcolm P. McGrory...... -- -- -- -- -- --
Richard L. Patterson.... -- -- -- -- -- --
Andrew J. Zimmon........ -- -- -- -- -- --
Brian F. Gorman......... 40,000 9.8% $ 5.00 10/17/01 $ 55,256 $122,102
David J. Green.......... -- -- -- -- -- --
Graham Frankland(3)..... 100,000 24.6% $ 2.00 2/9/01 $ 55,256 $122,102
</TABLE>

- ---------------
(1) All options were granted at fair market value as determined by the Board of
Directors of the Company on the date of grant.

(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules promulgated
by the Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Common Stock. There can be no
assurance that the rates of appreciation assumed in this table will be
achieved or that the amounts reflected will be received by the individuals.
The values shown do not consider non-transferability, vesting or termination
of the options upon termination of employment.

(3) The option was cancelled pursuant to the terms of Mr. Frankland's option
agreement upon his departure from the Company in March 1997.

In May 1997, the Company granted Mr. McGrory an option to purchase 160,000
shares of Common Stock and each of Messrs. Zimmon, Gorman, Green and Cunningham
an option to purchase 80,000 shares of Common Stock. All of such options have an
exercise price of $5.75 per share and vest over a four year period, becoming
exercisable with respect to (i) 25% of the shares underlying the option one year
from the date of grant and (ii) 6.25% of the shares underlying the option at the
end of each three month period thereafter.

44
<PAGE> 46

The following table sets forth information regarding unexercised stock
options held by each of the Named Executive Officers as of December 31, 1996. No
Named Executive Officer exercised stock options during fiscal 1996.

AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END(1)
NAME (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- -------------------------------- ------------------------------- ---------------------------------
<S> <C> <C>
Malcolm P. McGrory.............. 12,375/9,625 $ 58,163/$45,238
Richard L. Patterson............ 16,875/13,125 $ 79,313/$61,688
Andrew J. Zimmon................ 12,375/9,625 $ 58,163/$45,238
Brian F. Gorman................. 10,937/64,063 $ 32,811/$72,189
David J. Green.................. 12,375/9,625 $ 58,162/$45,238
Graham Frankland................ --/100,000 --/$300,000
</TABLE>

- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1996, which was $5.00, as determined by the
Company's Board of Directors, minus the exercise price.

STOCK PLANS

Second Amended 1994 Stock Option Plan. The Company's Second Amended 1994
Stock Option Plan (the "1994 Plan") was originally adopted by the Board of
Directors in November 1994 and approved by the stockholders of the Company in
January 1995. Under the 1994 Plan, 745,300 shares of the Company's Common Stock
are reserved for issuance. As of August 31, 1997, options to purchase 729,650
shares of Common Stock (of which options to purchase 311,730 shares were then
exercisable) at a weighted average exercise price of $2.33 per share were
outstanding under the 1994 Plan. Generally, options granted under the 1994 Plan
vest over a four year period, becoming exercisable with respect to (i) 25% of
the shares underlying the option one year from the date of grant and (ii) 6.25%
of the shares underlying the option at the end of each three-month period
thereafter. Options granted under the 1994 Plan expire five years from the date
of grant. In May 1997 the Company's Board of Directors resolved that no
additional option grants would be made under the 1994 Plan.

1997 Stock Incentive Plan. The Company's 1997 Stock Incentive Plan (the
"Incentive Plan") was adopted by the Board of Directors and approved by the
stockholders of the Company in May 1997 and July 1997, respectively. The
Incentive Plan is intended to replace the Company's 1994 Plan. Up to 1,654,700
shares of Common Stock (subject to adjustment in the event of stock splits and
other similar events) may be issued pursuant to awards granted under the
Incentive Plan. As of August 31, 1997, options to purchase 1,188,000 shares of
Common Stock (none of which were then exercisable) at a weighted average
exercise price of $5.85 per share were outstanding under the Incentive Plan.

The Incentive Plan provides for the grant of incentive stock options
intended to qualify as such under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), nonstatutory stock options, restricted stock
awards and other stock-based awards, including the grant of shares based upon
certain conditions, the grant of securities convertible into Common Stock and
the grant of stock appreciation rights (collectively, "Awards").

Officers, employees and directors of, and consultants and advisors to the
Company are eligible to be granted Awards under the Incentive Plan. However,
both the Incentive Plan and present tax law prohibit the granting of incentive
stock options to persons other than employees. The maximum

45
<PAGE> 47

number of shares with respect to which an Award may be granted to any
participant under the Incentive Plan may not exceed 200,000 shares per calendar
year.

Optionees may receive the right to purchase a specified number of shares of
Common Stock at a specified option price and are subject to such other terms and
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). The Incentive Plan permits the Board to determine the
manner of payment of the exercise price of options, including through payment by
cash, check or in connection with a "cashless exercise" through a broker, by
surrender to the Company of shares of Common Stock, by delivery to the Company
of a promissory note, or by any combination of the permitted forms of payment.

As of August 31, 1997, approximately 108 persons were eligible to receive
Awards under the Incentive Plan, including the Company's executive officers and
directors. The granting of Awards under the Incentive Plan is discretionary.

The Incentive Plan is administered by the Board of Directors. The Board has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the Incentive Plan and to interpret the provisions
thereof. Pursuant to the terms of the Incentive Plan and to the extent permitted
by applicable law, the Board of Directors may delegate any or all of its
authority under the Incentive Plan to one or more committees of the Board, and
subject to certain limitations, to one or more executive officers of the
Company. The Board has authorized the Compensation Committee to administer the
Incentive Plan, including the granting of options to executive officers. Subject
to any applicable limitations contained in the Incentive Plan, the Board of
Directors, the Compensation Committee, or any other committee or executive
officer to whom the Board delegates authority, as the case may be, selects the
recipients of Awards, may amend, modify or terminate any outstanding Award and
determines (i) the number of shares of Common Stock covered by options and the
dates upon which such options became exercisable, (ii) the exercise price of
options, (iii) the duration of options, and (iv) the number of shares of Common
Stock subject to any restricted stock or other stock-based Awards and the terms
and conditions of such Awards, including conditions for repurchase, issue price
and repurchase price.

In the event of a merger, liquidation or other Acquisition Event (as
defined in the Incentive Plan), the Board of Directors is authorized to provide
for outstanding options or other stock-based Awards to be assumed or substituted
by the successor corporation or a parent or subsidiary thereof, or if not
assumed or substituted, to provide for acceleration of the Awards to make them
fully exercisable or free from all conditions or restrictions, as applicable to
each such Award, prior to the Acquisition Event. In addition, all assumed or
substituted Awards will provide for acceleration of vesting during the first
year after the Acquisition Event under certain circumstances, such as
termination without cause.

No award may be made under the Incentive Plan after May 2007, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the Incentive Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or vested
(to the extent such amendment was required to grant such Award) unless and until
such amendment is approved by the Company's stockholders.

1997 Employee Stock Purchase Plan. The Company's 1997 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
September 1997 and is expected to be approved by the stockholders of the Company
in October 1997, respectively. The Purchase Plan authorizes the issuance of up
to a total of 300,000 shares of Common Stock to participating employees.

46
<PAGE> 48

All employees of the Company, including directors of the Company who are
employees, and all employees of any designated subsidiaries are eligible to
participate in the Purchase Plan if they are employees of the Company or such a
subsidiary on the first day of the applicable Offering Period (as defined
below). Employees who would immediately after the grant own 5% or more of the
total combined voting power or value of the stock of the Company or any
subsidiary are not eligible to participate. As of August 31, 1997, approximately
108 of the Company's employees would have been eligible to participate in the
Purchase Plan.

On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock.
The employee may authorize an amount (a whole percentage from 1% to 15% of such
employee's base pay) to be deducted by the Company from such pay during the
Offering Period. On the last day of the Offering Period, the employee is deemed
to have exercised the option, at the option exercise price, to the extent of
accumulated payroll deductions. Under the terms of the Purchase Plan, the option
price is an amount equal to 85% of the Average Market Price (as defined in the
Purchase Plan) of the Common Stock on either the first day or the last day of
the Offering Period, whichever is lower. In no event may an employee be granted
an option under the Purchase Plan which permits his or her rights to purchase
Common Stock under the Purchase Plan and any other stock purchase plan of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock, as determined on the first day of the
applicable Offering Period, for each calendar year in which the Option is
outstanding at any time.

If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason,
whether as a result of the employee's voluntary or involuntary termination,
retirement, death or otherwise.

401(k) PROFIT SHARING PLAN

The Company maintains a tax-qualified profit sharing plan for eligible
employees that also includes a 401(k) component (the "Profit Sharing Plan"). All
full-time employees are eligible to participate in the Profit Sharing Plan upon
the attainment of age 18. Under the Profit Sharing Plan, an employee may elect
to defer up to 15% of his compensation and direct the Company to contribute such
deferred amounts to the Profit Sharing Plan. Each year the Company will
determine whether to make a discretionary matching contribution equal to a
percentage, determined by the Company, of the employee's deferred compensation
contribution. The Company has not made any matching contributions to the Profit
Sharing Plan to date. All contributions to the Profit Sharing Plan by or on
behalf of employees are subject to annual limits prescribed by the Code.

CERTAIN TRANSACTIONS

Mr. O'Grady, a director of the Company, is an employee and Managing
Director of Hambrecht & Quist California and is also president of H&Q Adobe
Ventures Management Corp., both of which are related parties of Hambrecht &
Quist LLC, a co-managing underwriter of this offering which will receive
compensation in the form of the underwriters' discount. See "Underwriting." H&Q
Adobe Management Ventures Corp. is the general partner of H&Q Adobe Ventures
Management, L.P., the general partner of Adobe Ventures, L.P., which, prior to a
distribution of 1,445,000 shares of Common Stock to Adobe Systems Incorporated
in September 1997, was a greater than five percent stockholder of the Company.

In March 1996, the Company sold 400,000 shares of Series B Preferred Stock
to Adobe Ventures, L.P., a greater than five percent stockholder of the Company,
for aggregate consideration of $2,000,000.

47
<PAGE> 49

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of September 15, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers, (iv) all directors and executive
officers of the Company as a group, and (v) each of the other Selling
Stockholders.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(2) AFTER OFFERING(2)(3)
NAME AND ADDRESS OF ------------------------ NUMBER OF ------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT(3) SHARES OFFERED NUMBER PERCENT(4)
- -------------------------- --------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Adobe Systems
Incorporated............ 1,445,000 29.6% 144,500 1,300,500 18.3%
345 Park Avenue
P.O. Box 2704
San Jose, CA 95110-2704
Jarrold & Sons Ltd........ 400,000 8.2 -- 400,000 5.6
White Friars
Norwich England NR3 1SH
NAMED EXECUTIVE OFFICERS
AND DIRECTORS
Malcolm P. McGrory(5)..... 384,784 7.9 -- 384,784 5.4
Brian Gorman(6)........... 76,750 1.6 -- 76,750 1.1
David Green(7)............ 186,625 3.8 -- 186,625 2.6
Andrew J. Zimmon(8)....... 219,625 4.5 -- 219,625 3.1
Richard Patterson(9)...... 326,250 6.7 126,900 196,350 2.8
Graham Frankland.......... 1,000 * -- 1,000 *
Standish H. O'Grady(10)... 1,700,000 34.9 144,500 255,000 3.6
Gordon C. Murray(11)...... 13,125 * -- 13,125 *
Peter Jarrold(12)......... 400,500 8.2 -- 400,500 5.6
OTHER SELLING STOCKHOLDERS
Linda Patterson(13)....... 326,250 * 3,000 196,350 *
Paul Baker(14)............ 173,885 3.6 53,854 104,531 1.7
Ann Baker(15)............. 173,885 * 5,000 104,531 *
Wayne Sadlowski(16)....... 164,450 3.4 -- 164,450 2.3
Timothy Bosworth(17)...... 160,560 3.3 -- 160,560 2.3
Ian Smith(18)............. 159,872 3.3 -- 159,872 2.2
Philip Williams(19)....... 109,875 2.3 40,000 59,875 *
Karen Elizabeth
Williams(20)............ 109,875 2.3 10,000 59,875 *
Ian Castleton(21)......... 89,875 1.8 -- 89,875 1.3
Judith Andree
Castleton(22)........... 89,875 1.8 -- 89,875 1.3
Shirley Farrow(23)........ 79,750 1.6 -- 79,750 1.1
Karl Vickers(24).......... 76,000 1.6 -- 76,000 1.1
Paul M. Breedon........... 74,750 1.5 56,063 18,687 *
Philip Cook(25)........... 68,500 1.4 -- 68,500 *
Andrew Robert
Melville(26)............ 57,500 1.2 9,111 48,389 *
Sean Barnes............... 42,188 1.0 31,641 10,547 *
Maria M. Bosworth(27)..... 38,064 * -- 38,064 *
Paul R. Bosworth(28)...... 38,064 * -- 38,064 *
Simon Crowfoot(29)........ 29,000 * 12,450 16,550 *
Emma Philip(30)........... 29,000 * 6,550 22,450 *
Sarah Elizabeth Gates..... 27,500 * 7,000 20,500 *
Caralyn Harvey(31)........ 26,250 * -- 26,250 *
</TABLE>

48
<PAGE> 50

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(2) AFTER OFFERING(2)(3)
NAME AND ADDRESS OF ------------------------ NUMBER OF ------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT(3) SHARES OFFERED NUMBER PERCENT(4)
- -------------------------- --------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
John Norton David
Harvey(32).............. 26,250 * -- 26,250 *
Valerie Hale(33).......... 25,000 * -- 25,000 *
Andrew John Hale(34)...... 25,000 * -- 25,000 *
William David Smith....... 25,000 * 15,000 10,000 *
Nigel Lubbock............. 22,250 * 1,200 21,050 *
James W. Spurrell,
Jr.(35)................. 22,000 * -- 22,000 *
Glyn Burton(36)........... 20,125 * -- 20,125 *
Bruce C. McDowell(37)..... 20,125 * -- 20,125 *
Thomas O. Mooney(38)...... 16,700 * -- 16,700 *
Nicholas Barber(39)....... 16,375 * -- 16,375 *
John Cole(40)............. 16,125 * -- 16,125 *
Paul & Ann E. Baker as
Trustees for Edmund
Thomas Baker, Emmelyn
Rose Baker & Harold
Charles David Baker
under "The Paul Baker
1996 Interest in
Possession Trust"....... 15,000 * 7,500 7,500 *
Thomas J. Hall(41)........ 12,250 * -- 12,250 *
Julie Goodwin(42)......... 10,750 * -- 10,750 *
Ian Castleton, Judith
Castleton & John Harvey
as Trustees for Anna
Castleton, David
Castleton & Nicholas
Castleton under "Ian
Castleton 1996 Interest
in Possession Trust".... 10,000 * -- 10,000 *
Thomas Oliver Lubbock..... 10,000 * 1,000 9,000 *
Judith Elizabeth Lubbock... 10,000 * 1,200 8,800 *
Anna Lubbock.............. 10,000 * 1,000 9,000 *
Dorothy M. Lourie......... 10,000 * -- 10,000 *
Shirley Farrow and
Catherine Cheney as
Trustees for Claire
Farrow under "S. Farrow
1996 Interest in
Possession Trust"....... 7,500 * -- 7,500 *
Caralyn Harvey and John
Norton David Harvey for
Lucy Elizabeth Harvey
and David William Norton
Harvey under "The C.
Harvey 1996 Interest in
Possession Trust"....... 7,000 * -- 7,000 *
Philip Rugile............. 6,359 * 3,750 2,609 *
Guy Bushnell.............. 6,031 * 4,523 1,508 *
Jillian Ann McDowell...... 3,250 * -- 3,250 *
Olive Rose Lubbock........ 2,000 * 2,000 -- --
Doris Lillian Barrow...... 2,000 * 2,000 -- --
Michael DePalo............ 2,000 * -- 2,000 *
Nicholas Beadman.......... 1,758 * 1,758 -- --
Harold Charles David
Baker................... 1,000 * 1,000 -- --
Emmelyn Rose Baker........ 1,000 * 1,000 -- --
Edmund Thomas Baker....... 1,000 * 1,000 -- --
</TABLE>

49
<PAGE> 51

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

* Less than 1%
(1) The address for each director and officer of the Company is c/o Cascade
Systems Incorporated, 300 Brickstone Square, Andover, Massachusetts 01810.
(2) Each stockholder has sole voting and investment power with respect to the
shares listed, except as otherwise noted. Shares of Common Stock which an
individual or group has a right to acquire within the 60-day period
following September 15, 1997 pursuant to the exercise of options or
warrants are deemed to be outstanding for purposes of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for purposes of computing the percentage ownership of any other
person shown in the table.
(3) The number of shares deemed outstanding includes 4,875,252 shares
outstanding as of September 15, 1997 and any shares subject to stock
options held by the person in question that are currently exercisable or
exercisable within the 60-day period following September 15, 1997. The
number of shares deemed outstanding after this offering includes the
additional 2,250,000 shares of Common Stock which are being offered by the
Company hereby.
(4) In the event that the Underwriter's overallotment option is exercised in
full, the following Selling Stockholders will sell the number of shares
immediately following their names: Mr. McGrory, 50,000; Mr. Gorman, 2,000;
Mr. Green, 16,000; Mr. Zimmon, 35,000; Mr. Sadlowski, 15,000; Mr. T.
Bosworth, 18,000; Mr. I. Smith, 17,000; Mr. Vickers, 8,000; Ms. Farrow,
7,500; Mr. Cook, 8,000; Mr. Castleton, 8,400; Ms. Bosworth, 1,902;
Mr. P. Bosworth, 1,903; Mr. Spurrell, 3,000; Ms. Castleton, 1,500; Mr.
Cole, 2,000; Mr. Burton, 2,000; Mr. Barber, 2,000; Mr. McDowell, 2,500; Ms.
Harvey, 900; Ian Castleton, Judith Castleton and John Harvey as Trustees,
1,000; Ms. Lourie, 5,000; Mr. Hall, 2,000; Ms. Goodwin, 1,000; Ms. Hale,
1,000; Shirley Farrow and Catherine Cheney as Trustees, 750; Caralyn Harvey
and John Norton David Harvey for Lucy Elizabeth Harvey and David William
Norton Harvey, 300; Mr. Mooney, 1,788; Mr. Harvey, 900; Mr. Melville,
1,000; Ms. McDowell, 500; Mr. Hale, 3,500 and Mr. DePalo, 1,000.
(5) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997. Also includes 16,000 shares held by Mr. McGrory's minor children, as
to which shares Mr. McGrory disclaims beneficial ownership.
(6) Includes 27,500 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997. Also includes 6,000 shares held by Mr. Gorman as custodian for his
minor children, as to which shares Mr. Gorman disclaims beneficial
ownership.
(7) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(8) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(9) Mr. Patterson resigned from his positions with the Company in January 1997.
Includes 3,000 shares of Common Stock held by Mr. Patterson's spouse, 3,000
of which shares will be sold in this offering, and an aggregate of 6,000
shares of Common Stock held by three minor children of Mr. Patterson.
(10) Consists of 1,445,000 shares of Common Stock held by Adobe Systems
Incorporated (the "Adobe Shares"), 240,404 shares of Common Stock held by
Adobe Ventures, L.P. (the "Partnership Shares") and 14,596 shares of Common
Stock held by H&Q Adobe Ventures Management L.P. (the "H&Q Shares"). Mr.
O'Grady is a limited partner of H&Q Adobe

50
<PAGE> 52

Ventures Management, L.P. H&Q Adobe Ventures Management, L.P. is the
general partner of Adobe Ventures, L.P. Pursuant to a Voting Agreement,
Adobe Ventures, L.P. exercises voting control over the Adobe Shares. Of the
Adobe Shares, 144,500 are being sold in this offering. Upon the closing of
this offering, the Voting Agreement will terminate and Adobe Ventures, L.P.
will no longer have voting control over the Adobe Shares. Mr. O'Grady
disclaims beneficial ownership of the Adobe Shares, and disclaims
beneficial ownership of the Partnership Shares and the H&Q Shares, except
to the extent of his pecuniary interest therein.
(11) Consists of 13,125 shares of Common Stock subject to outstanding stock
options which are exercisable within the 60-day period following September
15, 1997.
(12) Includes 400,000 shares of Common Stock held by Jarrold & Sons Ltd. Mr.
Jarrold is Chairman of Jarrold & Sons Ltd. Mr. Jarrold disclaims beneficial
ownership as to such shares.
(13) Includes 317,250 shares held by the stockholder's spouse, 126,900 of which
shares will be sold in this offering, and an aggregate of 6,000 shares of
Common Stock held by three minor children of the stockholder.

(14) Includes 15,000 shares of Common Stock held by the stockholder's spouse,
5,000 of which shares will be sold in this offering, 3,000 shares of Common
Stock held by the stockholder's children, 3,000 of which shares will be
included in this offering, and 15,000 shares of Common Stock held by a
trust of which the stockholder is a trustee, 7,500 of which shares will be
included in this offering and as to which shares the stockholder disclaims
beneficial ownership.

(15) Includes 140,885 shares of Common Stock held by the stockholder's spouse,
53,854 of which shares will be included in this offering, 3,000 shares of
Common Stock held by the stockholder's children, 3,000 shares of which will
be included in this offering, and 15,000 shares held by a trust of which
the stockholder is a trustee, 7,500 of which shares will be included in
this offering and as to which shares the stockholder disclaims beneficial
ownership.

(16) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(17) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(18) Includes 17,875 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(19) Includes 40,000 shares of Common Stock held by the stockholder's spouse,
10,000 of which shares will be sold in this offering.
(20) Includes 69,875 shares of Common Stock held by the stockholder's spouse,
40,000 of which shares will be sold in this offering.
(21) Includes 15,000 shares held by the stockholder's spouse, 10,000 shares held
by a trust of which the stockholder is a trustee and 17,875 shares of
Common Stock subject to outstanding stock options which are exercisable
within the 60-day period following September 15, 1997.
(22) Includes 47,000 shares of Common Stock held by the stockholder's spouse,
17,875 shares of Common Stock subject to outstanding stock options held by
the stockholder's spouse which are exercisable within the 60-day period
following September 15, 1997 and 10,000 shares held by a trust of which the
stockholder is a trustee.
(23) Includes 500 shares of Common Stock held by the stockholder's child, 7,500
shares of Common Stock held by a trust of which the stockholder is a
trustee and 750 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(24) Includes 1,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(25) Includes 1,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(26) Includes 5,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.

51
<PAGE> 53

(27) Includes 19,033 shares of Common Stock held by the stockholder's spouse.
(28) Includes 19,032 shares of Common Stock held by the stockholder's spouse.
(29) Includes 10,000 shares of Common Stock held by the stockholder's spouse,
6,550 shares of which will be sold in the offering.
(30) Includes 19,000 shares of Common Stock held by the stockholder's spouse,
12,450 of which shares will be sold in this offering.
(31) Includes 3,500 shares of Common Stock held by the stockholder's spouse,
7,000 shares of Common Stock held by a trust of which the stockholder is a
trustee and 750 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(32) Includes 15,000 shares of Common Stock held by the stockholder's spouse,
7,000 shares of Common Stock held by a trust of which the stockholder is a
trustee and 750 shares of Common Stock subject to outstanding stock options
held by the stockholder's spouse which are exercisable within the 60-day
period following September 15, 1997.
(33) Includes 9,375 shares of Common Stock held by the stockholder's spouse and
6,250 shares of Common Stock subject to outstanding stock options held by
the stockholder's spouse which are exercisable within the 60-day period
following September 15, 1997.
(34) Includes 9,375 shares of Common Stock held by the stockholder's spouse and
6,250 shares of Common Stock subject to outstanding stock options which are
exercisable within the 60-day period following September 15, 1997.
(35) Includes 3,000 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(36) Includes 5,125 shares of Common Stock subject to outstanding stock options
exercisable within the 60-day period following September 15, 1997.
(37) Includes 3,250 shares held by the stockholder's spouse and 1,875 shares of
Common Stock subject to outstanding stock options exercisable within the
60-day period following September 15, 1997.
(38) Includes 13,125 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(39) Includes 1,375 shares of Common Stock subject to outstanding stock options
exercisable within the 60-day period following September 15, 1997.
(40) Includes 1,125 shares of Common Stock subject to outstanding stock options
exercisable within the 60-day period following September 15, 1997.
(41) Includes 2,750 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(42) Includes 1,375 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.
(43) Includes 94,250 shares of Common Stock subject to outstanding stock options
which are exercisable within the 60-day period following September 15,
1997.

52
<PAGE> 54

DESCRIPTION OF CAPITAL STOCK

Effective upon the closing of this offering, the authorized capital stock
of the Company will consist of 25,000,000 shares of Common Stock, $.001 par
value per share, and 1,000,000 shares of Preferred Stock, $.001 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 the provisions of the
Company's Amended and Restated Certificate of Incorporation, as further amended
and restated upon the closing of this offering (the "Certificate of
Incorporation"), which is included as an exhibit to the Registration Statement
of which this Prospectus is a part.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future.

PREFERRED STOCK

Under the terms of the Certificate of Incorporation, the Board of Directors
is authorized, subject to any limitations prescribed by law, without stockholder
approval, to issue such shares of Preferred Stock in one or more series. Each
such series of Preferred Stock shall have such rights, preferences, privileges
and restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by the
Board of Directors.

The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.

DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

Section 203 of the General Corporation Law of Delaware 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
business combination is approved in a prescribed manner. A "business
combination" includes 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 has elected not to be subject to the
provisions of Section 203.

53
<PAGE> 55

The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. See "Management." In addition, the Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the Company issued and outstanding and entitled to vote. Under the Certificate
of Incorporation, any vacancy on the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, may only be
filled by vote of a majority of the directors then in office. The classification
of the Board of Directors and the limitations on the removal of directors and
filling of vacancies could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of the Company.

The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual meeting or
special meeting of stockholders may only be taken if it is properly brought
before such meeting. The Certificate of Incorporation further provides that
special meetings of the stockholders may only be called by the Chairman of the
Board of Directors, the Chief Executive Officer or, if none, the President of
the Company or by the Board of Directors. Under the Company's Amended and
Restated Bylaws (the "Bylaws"), in order for any matter to be considered
"properly brought" before a meeting, a stockholder must comply with certain
requirements regarding advance notice to the Company. The foregoing provisions
could have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or Bylaws, unless
a corporation's Certificate of Incorporation or Bylaws, as the case may be,
requires a greater percentage. The Bylaws require the affirmative vote of the
holders of at least 75% of the shares of capital stock of the Company issued and
outstanding and entitled to vote to amend or repeal any of the provisions
described in the prior two paragraphs.

The Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law.
Further, the Certificate of Incorporation contains provisions to indemnify the
Company's directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Boston EquiServe
LP.

54
<PAGE> 56

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the securities
of the Company. Upon completion of this offering, based upon the number of
shares outstanding at August 31, 1997, there will be 7,125,525 shares of Common
Stock of the Company outstanding (assuming no exercise of the Underwriters'
over-allotment option or outstanding warrants or options of the Company). Of
these shares, the 2,800,000 shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below.

SALES OF RESTRICTED SHARES

The remaining 4,325,525 shares of Common Stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, approximately 8,500
shares of Common Stock, which are not subject to 180-day or 270-day lock-up
agreements (the "Lock-Up Agreements") with the Representatives of the
Underwriters, will be eligible for immediate sale in the public market pursuant
to Rule 144(k) under the Securities Act. Approximately 59,452 additional shares
of Common Stock which are not subject to Lock-Up Agreements, will be eligible
for sale in the public market in accordance with Rule 144 or Rule 701 under the
Securities Act beginning 90 days after the date of this Prospectus. Upon
expiration of the Lock-Up Agreements 180 days and 270 days after the date of
this Prospectus, approximately 3,906,817 and 350,756 additional shares of Common
Stock, respectively, will be available for sale in the public market, subject to
the provisions of Rule 144 under the Securities Act; provided that the resale of
the 350,756 shares eligible for resale upon the expiration of the 270-day
lock-up agreements will, pursuant to the terms of the 270-day lock-up
agreements, be additionally restricted as follows: (i) the resale of 196,350
shares of Common Stock by the holders thereof will be limited to one-sixth of
such amount per 90-day period for the six immediately succeeding 90-day periods
and (ii) the resale of 154,406 shares of Common Stock by the holders thereof
will be limited to one-fourth of such amount per 90-day period for the four
immediately succeeding 90-day periods.

The officers and directors of the Company, and certain securityholders,
which executive officers directors and securityholders in the aggregate hold
approximately 4,086,888 and 350,756 shares of Common Stock (including 180,071
shares of Common Stock, respectively, that may be acquired pursuant to the
exercise of vested options and warrants held by them) on the date of this
Prospectus, have agreed that, for a period of 180 days and 270 days,
respectively, after the date of this Prospectus, they will not sell, consent to
sell or otherwise dispose of any shares of Common Stock, or any shares
convertible into or exchangeable for shares of Common Stock, owned directly by
such persons or with respect to which they have the power of disposition,
without the prior written consent of the Representatives of the Underwriters.

In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 71,255 shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at

55
<PAGE> 57

the time of sale and has not been an Affiliate of the Company for at least three
months prior to the sale is entitled to sell the shares immediately without
compliance with the foregoing requirement under Rule 144.

Securities issued in reliance on Rule 701 (such as shares of Common Stock
acquired pursuant to the exercise of certain options granted under the Company's
stock plans) are also restricted securities and, beginning 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
may be sold by stockholders other than Affiliates of the Company subject only to
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144
without compliance with its one-year holding period requirement.

OPTIONS

The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1994
Plan, Incentive Plan, Director Plan and Purchase Plan. The Company intends to
file registration statements on Form S-8 with respect to the shares of Common
Stock issuable under the Director Plan and the Purchase Plan promptly following
the consummation of this offering, but has agreed with the Underwriters that it
will not file any registration statements on Form S-8 relating to the 1994 Plan
and the Incentive Plan until at least 90 days after the effective date of the
Registration Statement of which this Prospectus is a part. Shares issued upon
the exercise of stock options after the effective date of the Form S-8
registration statements will be eligible for resale in the public market without
restriction, subject to Rule 144 limitations applicable to Affiliates and the
Lock-up Agreements noted above, if applicable.

REGISTRATION RIGHTS

Certain persons and entities (the "Rightsholders") are entitled to certain
rights with respect to the registration under the Securities Act of a total of
approximately 4,245,073 shares of Common Stock (the "Registrable Shares")
pursuant to the terms of the Rights Agreement, as amended (the "Rights
Agreement"). The Rights Agreement generally provides that, in the event the
Company proposes to register any of its securities under the Securities Act, the
Rightsholders shall be entitled to include Registrable Shares in such
registration, subject to the right of the managing underwriter of any
underwritten offering to limit for marketing reasons the number of Registrable
Shares included in such "piggyback" registration.

The Rightsholders have the right at any time and from time to time to
require the Company to prepare and file registration statements under the
Securities Act with respect to their Registrable Shares; provided, however, that
(a) such demand requests the registration of Registrable Shares (i) representing
at least 40% of the aggregate outstanding Registrable Shares held by the
Rightsholders, or (ii) having an anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $5,000,000 (b) the Company
need only effect two such demand registrations, (c) once in any twelve month
period, the Company shall have the right to delay any such demand registration
up to 60 days if the Board of Directors resolves in good faith that a materially
disadvantageous condition exists at that time and (d) the Company is not
required to file a demand registration statement within 180 days after the
closing of this offering.

EFFECT OF SALES OF SHARES

Prior to the offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of the Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through a subsequent
offering of its equity securities.

56
<PAGE> 58

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated and Hambrecht & Quist LLC, have severally agreed to
purchase from the Company and the Selling Stockholders the following respective
numbers of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------- ----------
<S> <C>
BT Alex. Brown Incorporated....................................................
Hambrecht & Quist LLC..........................................................

---------
Total.......................................................................... 2,800,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.

The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters 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 not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives of
the Underwriters.

The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 197,657 and 222,343 additional shares of
Common Stock, respectively, at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 420,000 and the Company and such Selling
Stockholders will be obligated, pursuant to the option, to sell such shares to
the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those on which the 2,800,000 shares are being offered.

57
<PAGE> 59

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

The Company, the Selling Stockholders and each of the Company's directors
and executive officers and certain of its securityholders, who in the aggregate
will hold after this offering 4,257,573 shares of Common Stock and options to
purchase 955,344 shares of Common Stock, have agreed not to offer, sell,
contract to sell, pledge or otherwise dispose of any shares of Common Stock or
any securities convertible into shares of Common Stock for a period of 180 days
(270 days with respect to securityholders holding an aggregate of 350,756 of
such shares) after the date of this Prospectus without the prior written consent
of BT Alex. Brown Incorporated. In addition, individuals who will hold, after
this offering, 196,350 and 154,406 shares, respectively, have agreed to limit
their sales or transfer of shares to one-sixth and one-fourth of their holdings
in the six and four 90-day periods, respectively, beginning 270 days after the
date of this Prospectus. See "Shares Eligible for Future Sale."

To facilitate the offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such over-
allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.

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

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 by negotiations among the Company, the Selling
Stockholders and the Representatives of the Underwriters. Among the factors to
be considered in such negotiations will be prevailing market conditions, the
results of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies which the Company
and the Representatives of the Underwriters believed to be comparable to the
Company, estimates of the business potential of the Company, the present stage
of the Company's development and other factors deemed relevant.

Adobe Systems Incorporated ("Adobe Systems") owns 1,445,000 shares of
Common Stock, which Adobe Systems received in a partial distribution from Adobe
Ventures, L.P. ("Adobe Ventures") in September 1997. Adobe Ventures originally
purchased such shares from the Company in July 1994 and in March 1996. The
General Partner of Adobe Ventures is H&Q Adobe Ventures Management, L.P., a
partnership related to Hambrecht & Quist LLC, one of the Representatives of the
Underwriters. Through a voting agreement which expires upon the closing of this
offering, Adobe Ventures directs the voting of Adobe Systems' shares in the
Company. Standish O'Grady, a Director of the Company, is President of H&Q Adobe
Ventures Management Corp., the general partner of H&Q Adobe Ventures Management,
L.P. Mr. O'Grady is also a Managing Director of Hambrecht & Quist California,
the parent corporation of Hambrecht & Quist LLC. William R. Hambrecht is a
Director of Adobe Systems and is Chairman of Hambrecht & Quist Group and
Hambrecht & Quist LLC. Pursuant to Section 2720(b) of the Conduct Rules of the
National Association of Securities Dealers, Inc., Adobe Systems may be deemed to
be an "affiliate" of Hambrecht & Quist LLC as such term is defined in Section
2720(b). For the above reasons, the Underwriters have determined to conduct this
Offering in accordance with Rule 2720(c) of the

58
<PAGE> 60

Conduct Rules. In particular, the public offering price of the Common Stock can
be no higher than that recommended by a "qualified independent underwriter"
meeting certain standards. In accordance with this requirement, BT Alex. Brown
Incorporated will serve in such capacity and will recommend the public offering
price in compliance with the requirements of Rule 2720. BT Alex. Brown
Incorporated, in its role as qualified independent underwriter, is participating
in due diligence investigations and is reviewing and participating in the
preparation of this Prospectus and the Registration statement of which this
Prospectus forms a part. See "Management," "Certain Transactions" and "Principal
and Selling Stockholders."

Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CSCD."

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hale and Dorr LLP, Boston, Massachusetts. Certain legal
matters will be passed upon for the Underwriters by Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., Boston, Massachusetts.

EXPERTS

The audited consolidated financial statements and related schedule of the
Company, included in this Prospectus and elsewhere in the Registration Statement
of which this Prospectus is a part, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Act with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission, to which Registration Statement reference is hereby made. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
may be inspected and copied at prescribed rates at 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 regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

59
<PAGE> 61

CASCADE SYSTEMS INCORPORATED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997
(Unaudited and Pro Forma).......................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and
1996, and for the Six Months Ended June 30, 1996 and 1997 (Unaudited).............. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1994, 1995 and 1996 and for the Six Months Ended June 30, 1997 (Unaudited)......... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996 and for the Six Months Ended June 30, 1996 and 1997 (Unaudited)............... F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>

F-1
<PAGE> 62

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Cascade Systems Incorporated:

We have audited the accompanying consolidated balance sheets of Cascade
Systems Incorporated (a Delaware corporation) and subsidiary as of December 31,
1995 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each
of the three years in the 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 financial statements based on
our audits.

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

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

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Boston, Massachusetts
January 28, 1997

F-2
<PAGE> 63

CASCADE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ JUNE 30, JUNE 30,
1995 1996 1997 1997
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 1,327 $ 3,103 $ 2,071 $ 2,071
Accounts receivable, less reserves of $113, $182
and $273 in 1995, 1996, and 1997,
respectively................................. 2,409 2,358 3,295 3,295
Inventories..................................... 913 605 181 181
Prepaid expenses and other current assets....... 995 572 341 341
------- ------- ------- -------
Total current assets....................... 5,644 6,638 5,888 5,888
Property and equipment, net......................... 742 771 769 769
Other assets, net................................... 111 290 276 276
------- ------- ------- -------
Total assets............................... $ 6,497 $ 7,699 $ 6,933 $ 6,933
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 2,103 $ 1,349 $ 634 $ 634
Accrued expenses................................ 1,463 1,526 2,246 2,246
Deferred revenue................................ 1,182 1,949 1,507 1,507
Customer deposits............................... 1,832 800 241 241
------- ------- ------- -------
Total current liabilities.................. 6,580 5,624 4,628 4,628
------- ------- ------- -------
Commitments (Note 7)
Stockholders' equity:
Preferred stock, $.001 par value; no shares
authorized, issued or outstanding, actual;
1,000,000 shares authorized, no shares issued
or outstanding pro forma..................... -- -- -- --
Convertible preferred stock, $.001 par value-
Authorized -- 2,100,000 shares
Issued and outstanding -- 1,700,000 shares at
December 31, 1995, 2,100,000 shares at
December 31, 1996 and June 30, 1997 (at
liquidation value); none
pro forma at June 30, 1997................. 1,700 3,700 3,700 --
Common stock, $.001 par value-
Authorized -- 7,500,000 shares at June 30,
1997 and 25,000,000 pro forma at June 30,
1997
Issued and outstanding -- 2,886,330 shares at
December 31, 1995, 2,920,299 shares at
December 31, 1996, 2,777,276 shares at
June 30, 1997 and 4,877,276 shares pro
forma at June 30, 1997..................... 3 3 3 5
Additional paid-in capital...................... 631 634 612 4,310
Accumulated deficit............................. (2,434) (2,341) (2,110) (2,110)
Cumulative translation adjustment............... 38 119 101 101
Treasury stock, 103,442 shares in 1995, 189,038
shares in 1996 and 2,344 shares in 1997 and
pro forma, at cost........................... (21) (40) (1) (1)
------- ------- ------- -------
Total stockholders' equity................. (83) 2,075 2,305 2,305
------- ------- ------- -------
Total liabilities and stockholders'
equity................................... $ 6,497 $ 7,699 $ 6,933 $ 6,933
======= ======= ======= =======
</TABLE>

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

F-3
<PAGE> 64

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license revenues................ $ 2,658 $ 4,905 $ 5,913 $2,558 $4,386
Maintenance and service revenues......... 1,177 2,243 4,428 1,653 2,639
Hardware and other revenues.............. 8,238 10,564 8,170 5,067 2,334
------ ------ ------ ------
Total revenues...................... 12,073 17,712 18,511 9,278 9,359
------ ------ ------ ------
Cost of revenues:
Cost of software license revenues........ 913 1,223 1,551 787 801
Cost of maintenance and service
revenues............................... 790 2,157 2,981 1,298 1,640
Cost of hardware and other revenues...... 6,797 8,851 5,311 3,314 1,687
------ ------ ------ ------
Total cost of revenues.............. 8,500 12,231 9,843 5,399 4,128
------ ------ ------ ------
Gross profit........................ 3,573 5,481 8,668 3,879 5,231
------ ------ ------ ------
Operating expenses:
Research and development................. 444 1,177 1,890 859 1,170
Sales and marketing...................... 1,957 3,171 4,061 1,958 2,267
General and administrative............... 1,965 2,523 2,713 1,266 1,622
------ ------ ------ ------
Total operating expenses............ 4,366 6,871 8,664 4,083 5,059
------ ------ ------ ------
Income (loss) from operations....... (793) (1,390) 4 (204) 172
Other income (expense), net................... 54 12 109 65 106
------ ------ ------ ------
Income (loss) before provision
(benefit) for income taxes........ (739) (1,378) 113 (139) 278
Provision (benefit) for income taxes.......... 6 22 20 (25) 47
------ ------ ------ ------
Net income (loss)................... $ (745) $(1,400) $ 93 $ (114) $ 231
====== ====== ====== ======
Pro forma net income per common and common
equivalent share............................ $ 0.02 $ 0.04
======
Pro forma weighted average number of common
and common equivalent shares outstanding.... 6,008 6,066
======
</TABLE>

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

F-4
<PAGE> 65

CASCADE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE
------------------- ---------------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT ADJUSTMENT
--------- ------- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.............. -- $ -- 1,252,080 $1 $ 253 $ (289) $ --
Sale of common stock................. -- -- 1,634,250 2 378 -- --
Sale of Series A convertible
preferred stock.................... 1,700,000 1,700 -- -- -- -- --
Net loss............................. -- -- -- -- -- (745) --
Translation adjustment............... -- -- -- -- -- -- (30)
--
--------- ------ --------- ---- ------- ----
Balance, December 31, 1994.............. 1,700,000 1,700 2,886,330 3 631 (1,034) (30)
Purchase of treasury stock........... -- -- -- -- -- -- --
Net loss............................. -- -- -- -- -- (1,400) --
Translation adjustment............... -- -- -- -- -- -- 68
--
--------- ------ --------- ---- ------- ----
Balance, December 31, 1995.............. 1,700,000 1,700 2,886,330 3 631 (2,434) 38
Stock option exercises............... -- -- 33,969 -- 14 -- --
Compensation expense related to stock
options............................ -- -- -- -- 21 -- --
Sale of Series B convertible
preferred stock, net of issuance
costs of $32....................... 400,000 2,000 -- -- (32) -- --
Purchase of treasury stock........... -- -- -- -- -- -- --
Net income........................... -- -- -- -- -- 93 --
Translation adjustment............... -- -- -- -- -- -- 81
--
--------- ------ --------- ---- ------- ----
Balance, December 31, 1996.............. 2,100,000 3,700 2,920,299 3 634 (2,341) 119
Stock option exercises (unaudited)... -- -- 68,515 -- 22 -- --
Purchase of treasury stock
(unaudited)........................ -- -- -- -- -- -- --
Retirement of treasury stock
(unaudited)........................ -- -- (211,538) -- (44) -- --
Net income (unaudited)............... -- -- -- -- -- 231 --
Translation adjustment (unaudited)... -- -- -- -- -- -- (18)
--
--------- ------ --------- ---- ------- ----
Balance, June 30, 1997 (unaudited)...... 2,100,000 $3,700 2,777,276 $3 $ 612 $ (2,110) $ 101
========= ====== ========= == ==== ======= ====

TREASURY STOCK TOTAL
-------------------- STOCKHOLDER'S
SHARES AMOUNT EQUITY (DEFICIT)
-------- -------- -----------------
<S> <<C> <C> <C>
Balance, December 31, 1993.............. -- $ -- $ (35)
Sale of common stock................. -- -- 380
Sale of Series A convertible
preferred stock.................... -- -- 1,700
Net loss............................. -- -- (745)
Translation adjustment............... -- -- (30)

----- ---- ------
Balance, December 31, 1994.............. -- -- 1,270
Purchase of treasury stock........... (103,442) (21) (21)
Net loss............................. -- -- (1,400)
Translation adjustment............... -- -- 68

----- ---- ------
Balance, December 31, 1995.............. (103,442) (21) (83)
Stock option exercises............... -- -- 14
Compensation expense related to stock
options............................ -- -- 21
Sale of Series B convertible
preferred stock, net of issuance
costs of $32....................... -- -- 1,968
Purchase of treasury stock........... (85,596) (19) (19)
Net income........................... -- -- 93
Translation adjustment............... -- -- 81

----- ---- ------
Balance, December 31, 1996.............. (189,038) (40) 2,075
Stock option exercises (unaudited)... -- -- 22
Purchase of treasury stock
(unaudited)........................ (24,844) (5) (5)
Retirement of treasury stock
(unaudited)........................ 211,538 44 --
Net income (unaudited)............... -- -- 231
Translation adjustment (unaudited)... -- -- (18)

----- ---- ------
Balance, June 30, 1997 (unaudited)...... (2,344) $ (1) $ 2,305
===== ==== ======
</TABLE>

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

F-5
<PAGE> 66

CASCADE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ (745) $(1,400) $ 93 $ (114) $ 231
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Compensation expense related to stock options...... -- -- 21 10 --
Depreciation and amortization...................... 176 328 265 135 203
Changes in current assets and liabilities-
Accounts receivable.............................. 85 (891) (29) (633) (984)
Inventories...................................... (245) (304) 359 603 412
Prepaid expenses and other current assets........ (604) (251) 491 394 225
Accounts payable................................. (272) 1,034 (857) (399) (687)
Deferred revenue................................. 1,036 134 869 767 (405)
Accrued expenses................................. 394 737 (10) 475 743
Customer deposits................................ 86 1,099 (1,121) (1,101) (544)
------ ------- ------- ------- -------
Net cash provided by (used in) operating
activities.................................. (89) 486 81 137 (806)
------ ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................... (575) (458) (243) (54) (179)
(Increase) decrease in other assets.................. (265) 153 (200) (104) 16
------ ------- ------- ------- -------
Net cash used in investing activities......... (840) (305) (443) (158) (163)
------ ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock........ 1,400 -- 1,968 1,968 --
Net proceeds from issuance of common stock........... 380 -- -- -- --
Net proceeds from long-term debt..................... 59 -- -- -- --
Net proceeds from exercise of stock options.......... -- -- 14 -- 22
Purchase of treasury stock........................... -- (21) (19) (8) (5)
------ ------- ------- ------- -------
Net cash provided by (used in) financing
activities.................................. 1,839 (21) 1,963 1,960 17
------ ------- ------- ------- -------
Foreign currency exchange rate effects................. (23) 67 175 (38) (80)
------ ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents... 887 227 1,776 1,901 (1,032)
Cash and cash equivalents, beginning of year........... 213 1,100 1,327 1,327 3,103
------ ------- ------- ------- -------
Cash and cash equivalents, end of year................. $1,100 $ 1,327 $ 3,103 $ 3,228 $ 2,071
====== ======= ======= ======= =======
Supplemental disclosure of cash flow information and
noncash financing activities:
Cash paid for interest................................. $ 23 $ 5 $ 5 $ 3 $ 1
Cash paid for income taxes............................. $ -- $ 102 $ -- $ -- $ 1
Conversion of note payable to preferred stock.......... $ 300 $ -- $ -- $ -- $ --
</TABLE>

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

F-6
<PAGE> 67

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(1) OPERATIONS

Cascade Systems Incorporated (the "Company") designs, develops, markets and
supports software solutions for newspapers, other publishers and large
organizations to address workflow and content management needs. The Company's
products manage the process of publishing information by providing data
management, tracking, workflow, archiving, search and retrieval functionality.

The Company is subject to risks common to companies in similar stages of
development. Principal among these risks are the Company's limited operating
history, developing markets, dependence on principal products, competition from
substitute products and other companies, management of growth, dependence on key
personnel and the ability to obtain adequate financing to fund future
operations.

(2) SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements reflect the application
of certain significant accounting policies, as discussed below and elsewhere in
the notes to consolidated financial statements.

(a) Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary Cascade Systems Ltd. ("Cascade UK"). All
material intercompany transactions and balances have been eliminated in
consolidation.

(b) Use of Estimates

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

The Company generates revenue from licensing the rights to use its software
products directly to end users. The Company also generates revenue from sales of
software maintenance and consulting services to customers who license its
products and from the resale of related hardware products.

Transactions without customer specific acceptance criteria are recognized
in accordance with the AICPA's Statement of Position 91-1,Software Revenue
Recognition. Software license revenues are recognized upon shipment of the
software provided there is a noncancelable agreement, there are no significant
post delivery obligations, payment is due within one year and the services sold
in conjunction with the license agreement are not essential to the functionality
of the base product. The Company does not provide its customers a right of
return with respect to the sale of its products.

Maintenance and service revenues, including those bundled with the initial
license fee, are deferred and recognized ratably over the service period, which
is typically one year. Consulting services and training revenue are recognized
as the services are performed. Hardware and other revenues are recognized when
the equipment is shipped to the customer.

Transactions with customer specific acceptance criteria are recognized in
accordance with the AICPA's Statement of Position 81-1, Contract Accounting.
Revenue on such transactions is recog-

F-7
<PAGE> 68

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

nized as the customer acknowledges achievement of specific milestones under the
arrangement. When contract accounting is followed, hardware and other revenues
are recognized as the milestones are met under the arrangement.

(d) Research and Development Expenses for Software Products

Software development costs are considered for capitalization when
technological feasibility is established in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. The Company sells
software in a market that is subject to rapid technological change, new product
introductions and changing customer needs. Accordingly, the Company has
determined that it cannot determine technological feasibility until the
development of the product is nearly complete. The Company defines technological
feasibility as the completion of a working model. The time period during which
costs could be capitalized from the point of reaching technological feasibility
until the time of general product release is very short and, consequently, the
amounts that could be capitalized are not material to the Company's financial
position or results of operations. Therefore, the Company has charged all
software development costs to operations in the period incurred.

(e) Foreign Currency Translation

The assets and liabilities of Cascade UK were translated using the exchange
rate in effect at the balance sheet date in accordance with SFAS No. 52, Foreign
Currency Translation. Revenue and expense accounts were translated using a
weighted average of exchange rates in effect during the period. The resulting
translation adjustments are excluded from net income and are accumulated as a
separate component of stockholders' equity. Foreign currency transaction gains
or losses are reflected in operations and are not material.

(f) Cash Equivalents

The Company considers all highly liquid debt instruments with maturities of
three months or less at the date of purchase to be cash equivalents. Cash and
cash equivalents at December 31, 1995, December 31, 1996 and June 30, 1997
consist primarily of money market accounts and 30-day government-backed
securities that are valued at cost, which approximates market value.

(g) Inventories

Inventories are stated at the lower of cost (specific identification) or
market and consist primarily of purchased computers and related equipment held
for resale.

(h) Depreciation and Amortization

The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of assets over their
estimated useful lives. The estimated useful lives of computers and equipment
are two to three years; furniture and fixtures are seven years and leasehold
improvements are the life of the lease.

(i) Other Assets

Other assets consist principally of deposits and organization costs.
Organization costs are amortized on a straight-line basis over five years.
Amortization of these costs was $2,500, $8,700 and $9,200 for 1994, 1995 and
1996, respectively.

F-8
<PAGE> 69

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(j) Income Taxes

The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

(k) Third-Party Royalty Agreements

The Company has paid licensing fees to software vendors which entitle the
Company to use, develop, copy, distribute and sublicense software to be used in
the Company's products. The Company also pays royalties to software vendors
based on product sales. These license agreements expire over various terms. The
costs associated with purchasing certain license agreements are capitalized and
amortized over the shorter of the life of the individual agreement, or the
period over which corresponding revenues are recognized.

(l) Postretirement Benefits

The Company has no obligations for postretirement or postemployment
benefits.

(m) Concentrations of Credit Risk

SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments, which potentially subject the Company to
concentrations of credit risk, are principally cash and cash equivalents and
accounts receivable. Concentration of credit risk, with respect to cash and cash
equivalents, is limited because the Company places its investments in rated
financial institutions. Concentration of credit risk with respect to accounts
receivable is limited to certain customers (end users and distributors) to whom
the Company makes substantial sales. To reduce risk, the Company routinely
assesses the financial strength of its customers and, as a consequence, believes
that its accounts receivable credit risk exposure is limited. The Company
maintains an allowance for potential credit losses but historically has not
experienced any significant losses related to individual customers or groups of
customers in any particular industry or geographic area.

(n) Pro Forma Presentation

The pro forma balance sheet as of June 30, 1997 reflects the automatic
conversion of all outstanding shares of Series A and Series B preferred stock
into an aggregate of 2,100,000 shares of common stock, which will occur upon the
closing of the Company's proposed initial public offering.

(o) Pro Forma Net Income per Common and Common Equivalent Share

For the year ended December 31, 1996 and the six months ended June 30,
1997, pro forma net income per common and common equivalent share is based on
the weighted average number of common and common equivalent shares outstanding
during the period, assuming the conversion of all outstanding shares of
convertible preferred stock into 2,100,000 shares of common stock at the time of
issuance. Pursuant to the requirements of the Securities and Exchange Commission
Staff Accounting Bulletin No. 83, common and common equivalent shares issued
during the 12 months

F-9
<PAGE> 70

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

immediately prior to the date of the initial filing of the Company's
registration statement have been included in the calculation of weighted average
number of common and common equivalent shares outstanding for all periods
presented using the treasury stock method. Fair market value for the purpose of
the calculation was assumed to be $10.00. Historical net income per share data
have not been presented, as such information is not considered to be relevant or
meaningful.

(p) Unaudited Interim Financial Statements

In the opinion of the Company's management, the June 30, 1996 and 1997
unaudited interim financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of results
for the respective interim period. 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.

(q) Derivative Financial Instruments and Fair Value of Financial Instruments

The Company does not have any derivative or other financial instruments as
defined by SFAS No. 119, Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments.

SFAS No. 107, Disclosures About Fair Value of Financial Instruments ,
requires disclosure of an estimate of the fair value of certain financial
instruments. The Company's financial instruments consist of cash equivalents,
short-term investments, accounts receivable and accounts payable. The estimated
fair value of these financial instruments approximates their carrying value at
December 31, 1995 and 1996 and at June 30, 1997 due to the short-term nature of
these instruments.

(r) Recently Issued Accounting Standards

In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which is effective for financial statements issued for
periods ending after December 15, 1997; earlier application is not permitted.
This statement requires restatement of all prior-period earnings per share data
presented. The Company has not yet determined the impact of this statement on
the earnings per share data presented.

F-10
<PAGE> 71

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(3) PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Computers and equipment........................ $ 849 $1,196 $1,410
Furniture and fixtures......................... 210 213 215
Leasehold improvements......................... 120 69 69
------ ------ ------
1,179 1,478 1,694
Less -- Accumulated depreciation and
amortization................................. 437 707 925
------ ------ ------
$ 742 $ 771 $ 769
====== ====== ======
</TABLE>

(4) ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued salaries and salary-related
expenses.................................. $ 454 $ 374 $ 366
Accrued software royalties.................. 271 327 689
Other accrued expenses...................... 738 825 1,191
------ ------ ------
$1,463 $1,526 $2,246
====== ====== ======
</TABLE>

(5) OTHER INCOME (EXPENSE)

Other income (expense) consists of the following:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------------------- ---------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income....................... $34 $23 $132 $46 $ 51
Interest expense...................... (23) (6) (5) (3) (1)
Other income (expense)................ 43 (5) (18) 22 56
--- --- ---- --- ----
Total other income.................... $54 $12 $109 $65 $106
=== === ==== === ====
</TABLE>

(6) CREDIT FACILITIES

(a) Working Capital Line of Credit

In August 1997, the Company entered into a working capital line of credit
with a commercial bank. Under the terms of this agreement, the Company can
borrow the lesser of $2,000,000 or 80% of qualified accounts receivable, as
defined. Borrowings under the line of credit bear interest at the higher of the
bank's prime rate or the Federal funds rate plus 1/2% or, at the Company's
option, the LIBOR base rate, as defined, plus 2%. Borrowings are collateralized
by the Company's accounts receivable. In addition, the Company is required to
comply with certain restrictive covenants, which include among other things,
minimum levels of tangible net worth, profitability and cash flows. Unless
renewed, the line of credit expires on June 30, 1998.

F-11
<PAGE> 72

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(b) Equipment Lease Line of Credit

In August 1997, the Company entered into a $500,000 equipment lease line of
credit with the same bank. Borrowings under the equipment lease line of credit
will bear interest at a lease factor which is based on the bank's cost of funds
at the time of the transaction and will be repaid in 36 equal monthly
installments.

(7) CONVERTIBLE PREFERRED STOCK

The Company's Board of Directors has authorized 2,100,000 shares of
preferred stock of which 1,700,000 shares have been designated as Series A and
400,000 shares have been designated as Series B. The rights and preferences of
the Series A and Series B convertible preferred stock are as follows.

(a) Voting

Convertible preferred stockholders are entitled to the number of votes
equal to the number of shares of common stock into which each share of preferred
stock is then convertible.

(b) Dividends

Convertible preferred stockholders are entitled to receive dividends when
and as declared by the Board of Directors. Dividends are not cumulative. To
date, the Board of Directors has not declared any dividends, and as such, the
Company has not accrued any dividends.

In certain events, including liquidation, dissolution or winding up of the
Company, the holders of the Series A and Series B convertible preferred stock
are entitled to $1.00 and $5.00 per share, respectively, plus any accrued and
unpaid dividends before any distribution may be made to common stockholders. If
the assets of the Company shall be insufficient to permit payment in full to the
holders of preferred stock, then the entire assets of the Company that are
available for distribution shall be distributed in proportion to the full
preferential amount to which each such holder is entitled.

(d) Conversion

Each share of convertible preferred stock is convertible into one share of
common stock at any time, subject to certain antidilutive adjustments. The
Company has reserved 2,100,000 shares of common stock for the conversion of
convertible preferred stock. The convertible preferred stock will be
automatically converted into common stock upon the closing of a public stock
offering resulting in minimum net proceeds, as defined.

(e) Reserved Common Stock

As of June 30, 1997, 4,500,100 shares of common stock were reserved for the
following:

<TABLE>
<S> <C>
Conversion of Series A preferred stock.............. 1,700,000
Conversion of Series B preferred stock.............. 400,000
Exercise of stock options........................... 2,400,100
---------
4,500,100
=========
</TABLE>

F-12
<PAGE> 73

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(8) STOCK OPTION PLANS

(a) 1997 Stock Option Plan

During July 1997, the Company's stockholders voted to approve the Company's
1997 Stock Incentive Plan ("the 1997 Plan"). Under the 1997 Plan, the Company
may grant to officers, employees, directors, consultants and advisors of the
Company incentive stock options, nonstatutory stock options, restricted stock
awards and other stock-based awards. An aggregate of 1,654,700 shares of common
stock may be issued pursuant to awards granted under the 1997 Plan. The Board of
Directors determines the dates upon which options become exercisable, the
duration of the options and the terms and conditions of other awards. Generally,
options or awards will become exercisable over four years and expire ten years
from the date of grant. At June 30, 1997, options and awards to purchase 558,200
shares of common stock were available for future grant under the 1997 Plan.

(b) 1994 Stock Option Plan

In addition, the Company has a 1994 stock option plan ("the 1994 Plan").
The aggregate number of stock options that may be granted under the 1994 plan is
1,215,720. Options generally vest over a minimum of four years and expire five
years from the date of grant. In May 1997, the Company's Board of Directors
resolved not to grant additional options under the 1994 Plan.

The following schedule summarizes the activity under all of the Company's
stock option plans:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, December 31, 1994..................... -- $ --
Granted.......................................... 799,650 .96
Canceled......................................... (65,500) .34
---------
Outstanding, December 31, 1995..................... 734,150 $ 1.02
Granted.......................................... 406,200 3.83
Exercised........................................ (33,969) .43
Canceled......................................... (91,581) 1.73
---------
Outstanding, December 31, 1996..................... 1,014,800 $ 2.10
Granted.......................................... 1,108,500 5.74
Exercised........................................ (68,515) .32
Canceled......................................... (212,885) 1.99
---------
Outstanding, June 30, 1997......................... 1,841,900 $ 4.37
=========
Exercisable, June 30, 1997......................... 300,080 $ 1.14
=========
</TABLE>

The exercise price range for outstanding options to purchase 1,841,900
shares of common stock was $0.30 to $5.75 at June 30, 1997. The exercise price
range for exercisable options to purchase 300,080 shares of common stock was
$0.30 to $5.00 at June 30, 1997.

The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation, effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes a fair-value-based
method of accounting for stock-based compensation plans. The Company has adopted
the

F-13
<PAGE> 74

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

disclosure-only alternative under SFAS No. 123, which requires disclosure of the
pro forma effects on earnings as if the fair-value-based method of accounting
under SFAS No. 123 had been adopted, as well as certain other information.

The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted for the years ended December 31, 1995 and 1996
using the Black-Scholes option pricing model prescribed by SFAS No. 123. The
assumptions used for grants during the years ended December 31, 1995 and 1996
included an expected volatility of 62.9% for both periods; dividend yield of
0.0% for both periods; risk-free interest rates of 6.25% for both periods; and
an expected option term of 4 to 5 years for the year ended December 31, 1995 and
5 years for the year ended December 31, 1996.

In addition, the weighted average value of grants for the years ended
December 31, 1995 and 1996 was $0.96 and $3.83, respectively, and the weighted
average remaining contractual life of options outstanding at December 31, 1995
and 1996 was 9.65 years and 8.92 years, respectively.

Had compensation cost for the Company's stock option plans been determined
consistent with SFAS No. 123, pro forma net income (loss) would have been as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1996
------- ------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net income (loss)
As reported.............................. $(1,400) $ 93
Pro forma................................ (1,430) (74)
Pro forma net income per share
As reported.............................. $ 0.02
Pro forma................................ (0.01)
</TABLE>

Because the determination of the fair value of all options granted after
the Company becomes a public entity may involve a different expected volatility
factor and because additional option grants are expected to be made in future
years, the above pro forma disclosures are not representative of pro forma
effects on results for future years.

(9) INCOME TAXES

The provision for income taxes in the accompanying statements of operations
consists primarily of currently payable minimum state income taxes.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
----- ------- -----
<S> <C> <C> <C>
Income (loss) before provision for income taxes
Domestic...................................................... $(429) $ (188) $(455)
Foreign....................................................... (310) (1,190) 568
----- ------- -----
$(739) $(1,378) $ 113
===== ======= =====
</TABLE>

F-14
<PAGE> 75

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

A reconciliation of the provision for income taxes that would be expected
using the appropriate federal statutory income tax rate to the provision for
income taxes as presented in the accompanying statements of operations is as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory rate........ $(251) $ (469) $ 38
Increase (decrease) in tax resulting from:
State tax provision, net of federal benefit................... 6 20 20
Utilization of net operating loss carryforwards............... -- -- (176)
Effect of lower tax rate jurisdictions........................ -- -- 57
Increase in valuation allowance............................... 251 469 66
Other......................................................... -- 2 15
----- ------- -----
Provision for income taxes...................................... $ 6 $ 22 $ 20
===== ======= =====
</TABLE>

As of December 31, 1996, Cascade UK has net operating loss carryforwards of
approximately $637,000, which can be carried forward for an indefinite period of
time and utilized to offset UK income. In addition, the Company has U.S. net
operating loss carryforwards of approximately $354,000 and research and
development credit carryforwards of approximately $44,000 as of December 31,
1996. The Internal Revenue Code contains provisions that may limit the amount of
net operating loss carryforwards that the Company may utilize in any one year,
in the event of certain cumulative changes in ownership, over a three-year
period. In the event the Company has had a change of ownership, as defined,
utilization of the carryforwards may be restricted.

The approximate income tax effect of each type of temporary difference and
carryforward is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Accrued expenses....................................... $117 $143
Net operating loss and research and development credits
carryforwards........................................ 337 317
Depreciation........................................... 35 88
Other temporary differences............................ 65 72
---- ----
Total........................................ 554 620
Less -- Valuation allowance............................ 554 620
---- ----
Net deferred tax asset....................... $ -- $ --
==== ====
</TABLE>

Under SFAS No. 109, the Company cannot recognize a deferred tax asset for
the future benefit of its net operating losses and temporary differences unless
the Company concludes that it is "more likely than not" that the deferred tax
asset would be realized. Due to the Company's short operating history and
limited profitability, the Company has recorded a full valuation allowance
against its otherwise recognizable deferred tax asset, in accordance with SFAS
No. 109.

F-15
<PAGE> 76

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(10) COMMITMENTS

The Company leases its facilities and certain equipment under various
operating leases that expire through 2001. At December 31, 1996, future minimum
payments due under noncancellable operating leases are as follows:

<TABLE>
<CAPTION>
YEAR
------------------------------ AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1997.......................... $ 571
1998.......................... 468
1999.......................... 356
2000.......................... 331
2001.......................... 139
------
$1,865
======
</TABLE>

Rent expense amounted to approximately $146,000, $370,000 and $400,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.

(11) EMPLOYEE BENEFIT PLAN

In January 1996, the Company established the Cascade Systems 401(k) Plan
("the 401(k) Plan") for U.S. employees. The 401(k) plan allows employees to make
pretax contributions up to the allowable amount set by the Internal Revenue
Code. Under the 401(k) plan, the Company may, but is not obligated to, provide
profit sharing to employees. No profit sharing contribution was awarded in 1996.

Cascade UK participates in two defined contribution benefit plans. These
plans are open to all employees of the Company who have been with the Company
for a minimum of three months. Employer contributions are 5% of base salary, and
employee contributions are a minimum of 1.5% of base salary.

The total benefit costs relative to these plans for 1994, 1995 and 1996
were approximately $40,000, $79,000 and $84,000, respectively.

F-16
<PAGE> 77

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(12) GEOGRAPHIC AND SIGNIFICANT CUSTOMER DATA

The Company operates in one business segment (see Note 1). A summary of the
Company's operations by geographic location for the years ended December 31,
1994, 1995 and 1996 is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
United States........................ $ 5,795 $10,481 $10,450
United Kingdom....................... 6,466 7,529 8,061
Eliminations......................... (188) (298) --
------- ------- -------
Consolidated.................... $12,073 $17,712 $18,511
======= ======= =======
Income (loss) from operations
United States........................ $ (477) $ (270) $ (506)
United Kingdom....................... (316) (1,120) 510
Eliminations......................... -- -- --
------- ------- -------
Consolidated.................... $ (793) $(1,390) $ 4
======= ======= =======
Identifiable assets
United States........................ $ 3,456 $ 5,005 $ 5,313
United Kingdom....................... 1,775 2,570 4,005
Eliminations......................... (1,028) (1,078) (1,619)
------- ------- -------
Consolidated.................... $ 4,203 $ 6,497 $ 7,699
======= ======= =======
</TABLE>

Export sales from the United States to unaffiliated customers accounted for
11% of revenues in 1995. Export sales were less than 10% of revenues in 1994 and
1996.

In 1994, two customers accounted for 24% and 14% of net sales,
respectively. In 1995, one distributor accounted for 13% of net sales. In 1996,
one customer accounted for 13% of net sales.

(13) SUBSEQUENT EVENTS

(a) Amended and Restated Certificate of Incorporation

Effective upon the closing of the Company's proposed initial public
offering, and after giving effect to the amendment and restatement of the
Company's Restated Certificate of Incorporation immediately prior to the closing
of the offering, the authorized capital stock of the Company will consist of
25,000,000 shares of common stock, $0.001 par value per share, and 1,000,000
shares of undesignated preferred stock, $0.001 par value per share.

(b) 1997 Director Stock Option Plan

During September 1997, the 1997 Director Stock Option Plan ("the 1997
Director Plan") was approved by the Company's Board of Directors and
stockholders. The 1997 Director Plan provides for the issuance of up to 100,000
shares of common stock to eligible directors. Each director who becomes eligible
after September 1, 1997 shall be granted options to purchase 10,000 shares on
their initial election to the board. Each eligible director shall then receive
an option to purchase 5,000 shares on the date of each annual meeting of
stockholders. Stock options granted pursuant to the 1997 Director Plan will be
made at fair market value, become exercisable on the first anniversary of the
grant date and expire ten years from the grant date.

F-17
<PAGE> 78

CASCADE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

During September 1997, the Company's Board of Directors and stockholders
voted to approve the 1997 Employee Stock Purchase Plan (the "Purchase Plan").
Under the terms of the Purchase Plan, the Company has reserved for issuance and
eligible participants may purchase up to an aggregate of 300,000 shares of
common stock at a price equal to 85% of fair market value, as defined.

F-18
<PAGE> 79

======================================================

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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 THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Financial Data................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 20
Business.................................. 29
Management................................ 40
Certain Transactions...................... 47
Principal and Selling Stockholders........ 48
Description of Capital Stock.............. 53
Shares Eligible for Future Sale........... 55
Underwriting.............................. 57
Legal Matters............................. 59
Experts................................... 59
Additional Information.................... 59
Index to Consolidated Financial
Statements.............................. F-1...
</TABLE>

----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

======================================================
======================================================

2,800,000 SHARES

[Cascade Systems Incorporated Logo]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
BT ALEX. BROWN
HAMBRECHT & QUIST
, 1997

======================================================
<PAGE> 80

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee.

<TABLE>
<S> <C>
SEC Registration Fee........................................................... $ 10,734
NASD Filing Fee................................................................ 4,042
Nasdaq Listing Fee............................................................. 30,313
Blue Sky Fees and Expenses..................................................... 3,000
Transfer Agent and Registrar Fees.............................................. 3,000
Accounting Fees and Expenses................................................... 225,000
Legal Fees and Expenses........................................................ 275,000
Printing, Engraving and Mailing Expenses....................................... 100,000
Miscellaneous.................................................................. 98,911
--------
Total..................................................................... $ 750,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article EIGHTH of the Registrant's Certificate of Incorporation provides
that no director of the Registrant shall be personally liable for any monetary
damages for any breach of fiduciary duty as a director, except to the extent
that the Delaware General Corporation law prohibits the elimination or
limitation of liability of directors for breach of fiduciary duty.

Article NINTH of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a Director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.

Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct

II-1
<PAGE> 81

required for indemnification, or if the Registrant fails to make an
indemnification payment within 60 days after such payment is claimed by such
person, such person is permitted to petition the court to make an independent
determination as to whether such person is entitled to indemnification. As a
condition precedent to the right of indemnification, the director or officer
must give the Registrant notice of the action for which indemnity is sought and
the Registrant has the right to participate in such action or assume the defense
thereof.

Article NINTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the full extent permitted by such law as so
amended.

Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.

Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the Act.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1
hereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In the three years preceding the filing of this Registration Statement, the
Company has issued the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). Also included is the
consideration, if any, received by the Company for such securities, and
information relating to the section of the Securities Act, or rule of the
Securities and Exchange Commission under which the exemption from registration
was claimed.

(a) ISSUANCES OF CAPITAL STOCK

1. On March 28, 1996 the Company issued 400,000 shares of Series B
Preferred Stock to Adobe Ventures, L.P., for aggregate consideration of
$2,000,000.

(b) GRANTS AND EXERCISES OF STOCK OPTIONS

1. From the adoption of the Company's Second Amended 1994 Stock Option
Plan on December 30, 1994, to September 19, 1997, the Company has granted
options to purchase an aggregate of 834,914 shares of Common Stock, net of
cancellations of 382,936 options, at a weighted average exercise price of
$1.43 per share under such plan to certain of it officers and employees. As
of September 19, 1997, the Company had issued an aggregate of 105,920
shares of Common Stock upon the exercise of such options, and options
granted under the Second Amended 1994 Stock Option Plan to purchase an
aggregate of 728,994 shares of Common Stock remained outstanding.

2. From the adoption of the Company's 1997 Stock Incentive Plan on May
16, 1997 to September 19, 1997, the Company has granted options to purchase
an aggregate of 1,188,000 shares of Common Stock, net of cancellations of
7,000 options, at a weighted average exercise price of $5.85 per share
under such plan to certain of its officers, directors and employees. As of

II-2
<PAGE> 82

September 19, 1997, no shares of Common Stock had been issued upon the
exercise of such options, and options granted under the 1997 Stock
Incentive Plan to purchase an aggregate of 1,188,000 shares of Common Stock
remained outstanding.

No underwriters were engaged in connection with any of the foregoing sales
of securities. The shares of capital stock and securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D or Rule
701 promulgated under the Securities Act, relative to sales by an issuer not
involving any public offering.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- --------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of the Registrant, as amended
to date.
3.2*** Form of Certificate of Amendment to Certificate of Incorporation of the
Registrant.
3.3** Form of Second Amended and Restated Certificate of Incorporation.
3.4** Bylaws of the Registrant, as amended to date.
3.5** Form of Amended and Restated Bylaws of the Registrant.
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the
Registrant.
5* Opinion of Hale and Dorr LLP with respect to the validity of the Common Stock
being offered.
10.1** Second Amended 1994 Stock Option Plan.
10.2** 1997 Stock Incentive Plan.
10.3** 1997 Director Stock Option Plan.
10.4** 1997 Employee Stock Purchase Plan.
10.5+** License and Distribution Agreement, dated March 18, 1994, by and between
Footprints International Limited and Cascade Systems Limited, as amended to
date.
10.6+** Source Code License Agreement, dated September 21, 1994, by and between
Midsystems Technology Limited and Cascade Systems Limited, as amended to date.
10.7** Lease, dated February 27, 1996, by and between Andover Mills Realty Limited
Partnership and the Registrant.
10.8** Rights Agreement, dated July 25, 1994, by and among the Company and the other
parties listed therein.
10.9** Loan Agreement, dated August 8, 1997, between BankBoston, N.A. and the
Registrant.
11*** Calculation of shares used in determining pro forma net income per common share.
16** Letter, dated September 16, 1997, from Coopers & Lybrand L.L.P.
21** Subsidiaries of the Registrant.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2*** Consent of Arthur Andersen LLP.
</TABLE>

II-3
<PAGE> 83

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- --------------------------------------------------------------------------------
<S> <C>
24 Powers of Attorney (included on page II-5).
27 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment.

** Previously filed.

*** Filed herewith.

+ Confidential treatment has been requested as to certain portions, which
portions have been omitted and filed separately with the Commission.

(b) FINANCIAL STATEMENT SCHEDULES

Report of Independent Public Accountants on Schedule

Schedule II -- Valuation and Qualifying Accounts

All other schedules have been omitted because they are not required or
because the required information is given in the Financial Statements or Notes
thereto.

ITEM 17. UNDERTAKINGS

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

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.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 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 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-4
<PAGE> 84

SIGNATURES

Pursuant to the requirements of the Act, as amended, the Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Andover, Commonwealth of Massachusetts, on this 12th day of November, 1997.

CASCADE SYSTEMS INCORPORATED

By: /s/ TIMOTHY M. CUNNINGHAM

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

Timothy M. Cunningham

Chief Financial Officer, Treasurer
and Secretary

Pursuant to the requirements of the Act, this Amendment No. 1 to the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

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

* President, Chief Executive November 12, 1997
- ------------------------------------------ Officer and Director
Malcolm P. McGrory (Principal Executive
Officer)

/s/ TIMOTHY M. CUNNINGHAM Vice President, Finance, November 12, 1997
- ------------------------------------------ Chief Financial Officer,
Timothy M. Cunningham Treasurer and Secretary
(Principal Financial and
Accounting Officer)

* Director November 12, 1997
- ------------------------------------------
Peter Jarrold

* Director November 12, 1997
- ------------------------------------------
Gordon Murray

* Director November 12, 1997
- ------------------------------------------
Standish H. O'Grady

*By: /s/ TIMOTHY M. CUNNINGHAM November 12, 1997
-------------------------------------
Timothy M. Cunningham
as Attorney-in-Fact
</TABLE>

II-5
<PAGE> 85

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Cascade Systems Incorporated:

We have audited in accordance with generally accepted auditing standards, the
financial statements of Cascade Systems, Inc. and Subsidiary included in this
registration statement and have issued our report thereon dated January 28,
1997. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index above
are for the purposes of complying with the Securities and Exchange Commissions
rules and are not part of the basic financial statements. These schedules have
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Boston, Massachusetts
January 28, 1997

S-1
<PAGE> 86

CASCADE SYSTEMS INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
YEAR ENDED BALANCE BEGINNING AMOUNTS CHARGED AMOUNTS BALANCE
DECEMBER 31, OF PERIOD TO EXPENSE WRITTEN OFF OTHER END OF PERIOD
- ------------------- ----------------- --------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
1994............... $ 3,500 $ 302 $ (302) $ -- $ 3,500
1995............... 3,500 109,340 -- -- 112,840
1996............... $ 112,840 $ 170,451 $ (51,243) $(50,500) $ 181,548
</TABLE>

S-2
<PAGE> 87

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
-------- --------------------------------------------------------------------------- ----
<S> <C> <C>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of the Registrant, as
amended to date............................................................
3.2*** Form of Certificate of Amendment to Certificate of Incorporation of the
Registrant.................................................................
3.3** Form of Second Amended and Restated Certificate of Incorporation...........
3.4** Bylaws of the Registrant, as amended to date...............................
3.5** Form of Amended and Restated Bylaws of the Registrant......................
4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the
Registrant.................................................................
5* Opinion of Hale and Dorr LLP with respect to the validity of the Common
Stock being offered........................................................
10.1** Second Amended 1994 Stock Option Plan......................................
10.2** 1997 Stock Incentive Plan..................................................
10.3** 1997 Director Stock Option Plan............................................
10.4** 1997 Employee Stock Purchase Plan..........................................
10.5+** License and Distribution Agreement, dated March 18, 1994, by and between
Footprints International Limited and Cascade Systems Limited, as amended to
date.......................................................................
10.6+** Source Code License Agreement, dated September 21, 1994, by and between
Midsystems Technology Limited and Cascade Systems Limited, as amended to
date.......................................................................
10.7** Lease, dated February 27, 1996, by and between Andover Mills Realty Limited
Partnership and the Registrant.............................................
10.8** Rights Agreement, dated July 25, 1994, by and among the Company and the
other parties listed therein...............................................
10.9** Loan Agreement, dated August 8, 1997, between BankBoston, N.A. and the
Registrant.................................................................
11*** Calculation of shares used in determining pro forma net income per common
share......................................................................
16** Letter, dated September 16, 1997, from Coopers & Lybrand L.L.P.............
21** Subsidiaries of the Registrant.............................................
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).......................
23.2*** Consent of Arthur Andersen LLP.............................................
24 Powers of Attorney (included on page II-5).................................
27 Financial Data Schedule....................................................
</TABLE>

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

* To be filed by amendment.

** Previously filed.

*** Filed herewith.

+ Confidential treatment has been requested as to certain portions, which
portions have been omitted and filed separately with the Commission.

<PAGE> 1

Exhibit 3.2

CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CASCADE SYSTEMS INCORPORATED

Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------

Cascade Systems Incorporated (the "Corporation"), a corporation duly
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:

By vote of the Board of Directors of the Corporation a resolution was duly
adopted, pursuant to Sections 141 and 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Amended and Restated
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable and directing that it be submitted to and be considered by the
stockholders of the Corporation for approval. The stockholders of the
Corporation duly approved said proposed amendment by written consent in lieu of
a special meeting in accordance with Sections 228 and 242 of the General
Corporation Law of the State of Delaware. The resolutions setting forth the
amendment are as follows:

RESOLVED: That Article III of the Amended and Restated Certificate of
Incorporation be and hereby is deleted and the following
Article III is inserted in lieu thereof:

ARTICLE III
STOCK

The Corporation is authorized to issue two classes of shares to be
designated respectively "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock authorized is 2,100,000, $0.001 par value per
share. The total number of shares of Common Stock authorized is 25,000,000,
$0.001 par value per share.

A. PREFERRED STOCK. The Preferred Stock shall be comprised of 2,100,000
shares, of which 1,700,000 shares are designated as Series A Preferred Stock
(the "Series A Preferred Stock"), and 400,000 shares are designated as Series B
Preferred Stock (the "Series B Preferred Stock"). The relative rights,
preferences, restrictions and other matters relating to the Preferred Stock are
as follows:

1. DIVIDENDS RIGHTS.

<PAGE> 2

(a) The holders of the then outstanding Series A Preferred Stock
and Series B Preferred Stock shall be entitled to receive in any fiscal year,
when, as and if, declared by the Board of Directors, out of any assets at the
time legally available therefor, dividends in cash at the rate per annum of $.08
per share in the case of the Series A Preferred Stock, and $.40 per share in the
case of the Series B Preferred Stock (in each case adjusted for any splits,
combinations, consolidations or stock dividends or distributions with respect to
such shares) payable in preference and priority to any payment of any cash
dividend on Common Stock. After dividends shall have been paid on account of the
Series A Preferred Stock and Series B Preferred Stock in any given fiscal year
as aforesaid, the holders of the then outstanding Common Stock shall be entitled
to receive in that fiscal year, when, as and if, declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
in cash at the rate per annum of $.08 per share (adjusted for any splits,
combinations, consolidations or stock dividends or distributions with respect to
such shares) payable in preference and priority to any payment of any additional
cash dividends on the Preferred Stock. The right to such cash dividends on the
Preferred Stock and the Common Stock shall not be cumulative, and no right shall
accrue to holders of the Preferred Stock or Common Stock by reason of the fact
that dividends on such shares are not declared in any prior year. Except as set
forth above, no dividends shall be paid on any Common Stock unless a
corresponding dividend is paid with respect to all outstanding shares of
Preferred Stock in an amount for each such share of Preferred Stock equal to the
aggregate amount of such dividends for all Common Stock into which each such
share of Preferred Stock could then be converted.

(b) Each holder of Preferred Stock shall be deemed to have
consented to distributions made by the Corporation in connection with the
repurchase of Common Stock issued to or held by employees, directors or
consultants upon termination of their employment or services pursuant to
agreements providing for such repurchase.

2. PREFERENCE ON LIQUIDATION.

(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Preferred
Stock then outstanding shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders before any payment
shall be made in respect of the Common Stock, an amount equal to (i) in the case
of the holders of the Series A Preferred Stock, $1.00 per share for each share
of Series A Preferred Stock then held by them, and in the case of the holders of
the Series B Preferred Stock, $5.00 per share for each share of Series B
Preferred Stock then held by them, in each case as adjusted for any stock split,
combination, consolidation, or stock distributions or stock dividends with
respect to such shares, and (ii) an amount equal to all declared but unpaid
dividends on the Series A Preferred Stock and Series B Preferred

-2-

<PAGE> 3

Stock as provided in Section 1 above. If the assets and funds available to be
distributed among the holders of the Series A Preferred Stock and the Series B
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock and Series B Preferred Stock
in proportion to their aggregate preferential amounts.

(b) After payment has been made to the holders of the Preferred
Stock of the full preferential amounts to which they shall be entitled, if any,
as aforesaid, the remaining assets of the Corporation available for distribution
to stockholders, if any, shall be distributed ratably on a per share basis among
the holders of Common Stock and the holders of Preferred Stock, based on the
number of shares of Common Stock then held, with each share of Preferred Stock
treated as the number of shares of Common Stock into which such share of
Preferred Stock is then convertible.

(c) A consolidation or merger of the Corporation with or into
any other corporation or corporations (other than a wholly owned subsidiary), or
the sale, transfer or other disposition of all or substantially all of the
assets of the Corporation or the consummation of any transaction or series of
related transactions which results in the Corporation's stockholders immediately
prior to such transaction not holding at least 50% of the voting power of the
surviving or continuing entity shall be deemed a liquidation, dissolution or
winding up within the meaning of this Section 2.

3. VOTING RIGHTS.

(a) Except as set forth to the contrary in Sections 3(b) and 5
below or as required by law, each holder of shares of Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the number of shares of Common Stock into which such shares of
Preferred Stock could be converted on the record date for the vote or consent of
stockholders. The holder of each share of Preferred Stock shall be entitled to
notice of any stockholders' meeting in accordance with the Bylaws of the
Corporation and, except as provided in this Certificate of Incorporation, shall
vote with holders of the Common Stock upon any matter submitted to a vote of
stockholders, except those matters required by law to be submitted to a class
vote. Fractional votes by the holders of Preferred Stock shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number.

(b) So long as at least 1,050,000 shares of Preferred Stock
remain outstanding (adjusted to reflect subsequent stock dividends or
distributions,

-3-

<PAGE> 4

stock splits or combinations or recapitalizations) the holders of shares of
Series A Preferred Stock and Series B Preferred Stock shall be entitled, voting
together as a separate class, to elect two (2) members of the Board of Directors
of this Corporation. The holders of shares of Common Stock shall be entitled,
voting together as a separate class, to elect two (2) members of the Board of
Directors of this Corporation. In all other cases, the holders of shares of
Common Stock and Preferred Stock, voting together as a single class with each
holder of shares of Preferred Stock entitled to the number of votes equal to the
number of shares of Common Stock into which such shares of Preferred Stock could
be converted on the record date for the vote, shall be entitled to elect the
remaining directors of the Corporation, if any. In the case of any vacancy in
the office of a director elected by the holders of a particular class or series
of stock, the vacancy may be filled only by the vote of the holders of such
class or series of stock. Any director who shall have been elected by the
holders of a particular class or series of stock may be removed with or without
cause by, and only by, the applicable vote of the holders of shares of such
class or series of stock.

4. CONVERSION. The holders of the Series A Preferred Stock and
Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):

(a) RIGHT TO CONVERT; AUTOMATIC CONVERSION.

(i) Subject to subsection 4(c), each share of Series A Preferred Stock and
Series B Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such shares, at the office of
the Corporation or any transfer agent for the Series A Preferred Stock or Series
B Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined (x) in the case of the Series A Preferred Stock,
by dividing $1.00 by the Conversion Price (as defined below) in effect at the
time of conversion for such share of Series A Preferred Stock, and (y) in the
case of the Series B Preferred Stock, by dividing $5.00 by the Conversion Price
in effect at the time of conversion for such share of Series B Preferred Stock
(the "Conversion Rate"). The Conversion Price for the Series A Preferred Stock
and the Series B Preferred Stock shall initially be $1.00 and $5.00,
respectively, provided, however, that the Conversion Price for the Series A
Preferred Stock and the Series B Preferred Stock shall be subject to adjustment
as set forth in subsection 4(c).

(ii) Each share of Series A Preferred Stock and Series B Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Rate at the time in effect for such Series A Preferred Stock and Series B
Preferred Stock immediately upon the earlier of the following:

(A) immediately prior to the closing of the Corporation's
sale of its Common Stock in an underwritten public offering pursuant

-4-

<PAGE> 5

to a registration statement on Form S-1 under the Securities Act of 1933, as
amended, in which the Corporation receives aggregate cash proceeds of more than
$10,000,000 (net of any underwriting discounts and commissions), and the public
offering price of which is not less than $8.00 per share (adjusted to reflect
subsequent stock dividends or distributions, stock splits or combinations or
recapitalizations); or

(B) the election of the holders of more than 50% of the
outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
voting together as a separate class; or

(C) if less than 420,000 shares in the aggregate of the
Series A Preferred Stock and Series B Preferred Stock (adjusted to reflect
subsequent stock dividends or distributions, stock splits or combinations or
recapitalizations) remain outstanding.

(b) MECHANICS OF CONVERSION. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, the
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for the Preferred
Stock, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office, of the election to convert the
same. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.

(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The
Conversion Price for the Series A Preferred Stock and the Series B Preferred
Stock from time to time in effect shall be subject to adjustment from time to
time as follows:

(i) In case the Corporation shall at any time subdivide the outstanding
shares of Common Stock, or shall issue a stock dividend on its outstanding
Common Stock, without an equivalent subdivision of, or dividend on, the Series A
Preferred Stock and the Series B Preferred Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in case the Corporation shall at any time combine
the outstanding shares of Common Stock, without an equivalent combination of the
Series A Preferred Stock and the Series B Preferred Stock, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased, effective at

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the close of business on the date of such subdivision, dividend or combination,
as the case may be.

(ii) If the Corporation shall issue or sell Equity Securities (as defined
below) at a consideration per share less than the Conversion Price for the
Series A Preferred Stock or the Series B Preferred Stock in effect immediately
prior to the time of such issue or sale, as the case may be, then forthwith upon
such issue or sale, the Conversion Price of each share of Series A Preferred
Stock or Series B Preferred Stock, as the case may be, shall be adjusted to a
price (calculated to the nearest cent) determined by dividing:

(A) an amount equal to the sum of (1) the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock or the Series B
Preferred Stock, as the case may be, outstanding immediately prior to such issue
or sale multiplied by the then existing Conversion Price for the Series A
Preferred Stock or the Series B Preferred Stock, as the case may be, and (2) an
amount equal to the aggregate "consideration actually received" by the
Corporation upon such issue or sale, by

(B) the sum of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock or the Series B Preferred Stock
Preferred Stock, as the case may be, outstanding immediately prior to such issue
or sale and the number of shares (on a common-equivalent basis) of the Equity
Securities so issued or sold.

(iii) For purposes of this subsection 4(c) the following provisions shall
be applicable:

(A) The term "Equity Securities" shall mean any shares of
Common Stock, any shares of stock convertible into Common Stock or any option,
warrant or other right to purchase either Common Stock or stock or other
securities of the Corporation convertible into or exchangeable for Common Stock
except for (1) Common Stock issued or issuable, after the date of the initial
issuance of shares of Series A Preferred Stock, to officers, directors,
employees or consultants of the Corporation pursuant to stock grants, stock
purchase and stock option plans or other stock incentive programs, agreements or
arrangements approved by the Board of Directors, (2) shares issued pursuant to
transactions described in subsection 4(c)(i), (3) securities issued in
connection with an equipment lease, equipment financing or bank line financing,
or (4) shares of Common Stock issued upon conversion of the Series A Preferred
Stock or Series B Preferred Stock.

(B) In the case of an issue or sale for cash of shares of
Common Stock, the "consideration actually received" by the Corporation

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therefor shall be deemed to be the amount of cash received, before deducting
therefrom any commissions or expenses paid by the Corporation.

(C) In case of the issuance (otherwise than upon conversion
or exchange of rights or shares of stock of the Corporation) of additional
shares of Common Stock for a consideration other than cash or a consideration
partly other than cash, the amount of the consideration other than cash received
by the Corporation for such shares shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors.

(D) In case of the issuance by the Corporation in any
manner of any rights, including options or warrants, to subscribe for or to
purchase shares of Common Stock or stock convertible into Common Stock, all
shares of Common Stock to which the holders of such rights shall be entitled to
subscribe for or purchase pursuant to such rights shall be deemed issued as of
the date of the issuance of such rights, and the minimum aggregate consideration
named in such rights for the shares of Common Stock or stock convertible into
Common Stock covered thereby, plus the consideration, if any, received by the
Corporation for such rights, shall be deemed to be the "consideration actually
received" by the Corporation (as of the date of the issuance of such rights) for
the issuance of such shares.

(E) In case of the issuance or issuances by the Corporation
in any manner of any obligations or of any shares of stock of the Corporation
that shall be convertible into or exchangeable for Common Stock, all shares of
Common Stock issuable upon the conversion or exchange of such obligations or
shares shall be deemed issued as of the date such obligations or shares are
issued, and the amount of the "consideration actually received" by the
Corporation for such additional shares of Common Stock shall be deemed to be the
total of (1) the amount of consideration received by the Corporation upon the
issuance of such obligations or shares, as the case may be, plus (2) the minimum
aggregate consideration, if any, other than such obligations or shares,
receivable by the Corporation upon such conversion or exchange, except in
adjustment of dividends.

(F) The amount of the "consideration actually received" by
the Corporation upon the issuance of any rights or options referred to in
subsection (D) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in subsection (E) above, and the amount
of the consideration, if any, other than such obligations or shares so
convertible or exchangeable, receivable by the Corporation upon the exercise,
conversion or exchange thereof shall be determined in the same manner provided
in subsections (B) and (C) above with respect to the consideration received by
the Corporation in case of the issuance of additional shares of Common Stock;
provided, however, that if such obligations or shares of stock so convertible or
exchangeable are issued in

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payment or satisfaction of any dividend upon any stock of the Corporation other
than Common Stock, the amount of the "consideration actually received" by the
Corporation upon the original issuance of such obligations or shares or stock so
convertible or exchangeable shall be deemed to be the value of such obligations
or shares of stock, as of the date of the adoption of the resolution declaring
such dividend, as determined by the Board of Directors at or as of that date. On
the expiration of any rights or options referred to in subsection (D), or the
termination of any right of conversion or exchange referred to in subsection
(E), or any change in the number of shares of Common Stock deliverable upon
exercise of such options or rights or upon conversion of or exchange of such
convertible or exchangeable securities, the Conversion Price for the Series A
Preferred Stock and the Series B Preferred Stock then in effect shall forthwith
be readjusted to such Conversion Price as would have been obtained had the
adjustments made upon the issuance of such option, right or convertible or
exchangeable securities been made upon the basis of the delivery of only the
number of shares of Common Stock actually delivered or to be delivered upon the
exercise of such rights or options or upon the conversion or exchange of such
securities.

(d) OTHER DISTRIBUTIONS. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(iii), then,
in each such case for the purpose of this subsection 4(d), the holders of the
Series A Preferred Stock and the Series B Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series A Preferred Stock or Series B Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock of
the Corporation entitled to receive such distribution.

(e) RECAPITALIZATION. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 3 above) provision shall be made so that the holders
of the Preferred Stock shall thereafter be entitled to receive upon conversion
of the Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Preferred Stock after the recapitalization to the end that the provisions of
this Section 4 (including adjustment of the Conversion Price for the Series A
Preferred Stock and the Series B Preferred Stock then in effect and the number
of shares purchasable upon conversion of the

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<PAGE> 9

Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.

(f) NO IMPAIRMENTS. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the rights, preferences or privileges of the
Preferred Stock set forth herein, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 4 and in the taking of
all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.

(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.

(i) No fractional shares shall be issued upon conversion of the Preferred
Stock, and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.

(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of the Series A Preferred Stock or the Series B Preferred Stock
pursuant to this Section 4, the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price of the Series A Preferred
Stock or the Series B Preferred Stock, as the case may be, at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series A Preferred Stock or Series B Preferred Stock, as the case may
be.

(h) NOTICES OF RECORD DATE. In the event of any setting of a
record date by the Corporation for the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying

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<PAGE> 10

the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.

(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.

(j) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.

5. PROTECTIVE PROVISIONS.

(a) So long as any shares of Series A Preferred Stock or Series
B Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided by
law, of the holders of a majority of the total number of shares of Series A
Preferred Stock and Series B Preferred Stock outstanding, voting together as a
separate class (except as otherwise provided by law): (1) alter or change any of
the powers, preferences, privileges or rights of the Series A Preferred Stock or
Series B Preferred Stock; (2) increase the authorized number of shares of
Preferred Stock; (3) amend the provisions of this paragraph (a) of Section 5; or
(4) create any new class or series of shares having preferences prior to or on
parity with those of the Series A Preferred Stock or the Series B Preferred
Stock.

(b) So long as at least 1,050,000 shares of Series A Preferred
Stock and Series B Preferred Stock in the aggregate (adjusted to reflect
subsequent stock dividends or distributions, stock splits or combinations or
recapitalizations) are outstanding, the Corporation shall not, without first
obtaining the approval by vote or written consent, in the manner provided by
law, of the holders of a majority of the total number of shares of Series A
Preferred Stock and Series B Preferred Stock outstanding, voting together as a
separate class: (1) undertake or effect any consolidation or merger of the
Corporation with or into another corporation (except

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into or with a wholly-owned subsidiary) or any acquisition by or the conveyance
of all or substantially all of the assets of the Corporation to another person
or effectuate any transaction or series of related transactions which results in
the Corporation's stockholders immediately prior to such transaction not holding
at least 50% of the voting power of the surviving or continuing entity; (2)
effect a material change in the principal business of the Corporation; (3)
repurchase any shares of Common Stock except the repurchase of Common Stock of
employees, consultants or directors pursuant to a stock or option agreement duly
approved by the Corporation's Board of Directors; or (4) amend the Corporation's
Certificate of Incorporation or Bylaws.

B. COMMON STOCK.

1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefore, such dividends as may be declared from time to time by the
Board of Directors.

2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Article III.A.

3. VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law or as
provided by Section 3 of Article III.A above. Except as otherwise expressly
provided herein or required by law, the holders of shares of Common Stock and
the holders of shares of Preferred Stock shall vote together as a single class
on all matters.

RESOLVED: That Article IV of the Amended and Restated Certificate of
Incorporation be and hereby is deleted and the following Article
IV is inserted in lieu thereof:

ARTICLE IV
DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS

1. ACTION, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify each person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was,

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<PAGE> 12

or has agreed to become, a director or officer of the Corporation, or is or was
serving, or has agreed to serve, at the request of the Corporation, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees) judgment,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. Notwithstanding anything to the contrary in this Article, except
as set forth in Section 6 below, the Corporation shall not indemnify an
Indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation.

2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of Delaware shall deem
proper.

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3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.

4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.

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5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; PROVIDED,
HOWEVER, that the payment of such expense incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.

6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of the directors of the Corporation
consisting of persons who are not at that time parties to the action, suit or
proceeding in question ("disinterested directors"), even though less than a
quorum, (b) a majority vote of a quorum of the outstanding shares of stock of
all classes entitled to vote for directors, voting as a single class, which
quorum shall consist of stockholders who are not at that time parties to the
action, suit or proceeding in question, (c) independent legal counsel (who may
be regular legal counsel to the Corporation), or (d) a court of competent
jurisdiction.

7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advanced of expenses under this
Article shall be on the Corporation. Neither the failure of the Corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct,

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nor an actual determination by the Corporation pursuant to Section 6 that the
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. The Indemnitee's expenses (including attorneys'
fees) incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.

8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.

9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.

10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal,
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.

11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other

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enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation law
of Delaware.

12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.

13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.

14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).

15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.

ARTICLE IVA
DIRECTORS' FIDUCIARY LIABILITY

Except to the extent that the General Corporation Law of the State of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.

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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this _____ day of September, 1997.

CASCADE SYSTEMS INCORPORATED

By:
-------------------------------------
Malcolm P. McGrory
President and Chief Executive Officer

-17-

<PAGE> 1
EXHIBIT 11.0

CASCADE SYSTEMS, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE

<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1996 June 30, 1997
----------------- -----------------

<S> <C> <C>
Net Income................................................. $ 93,233 $ 230,514
Weighted average shares of Series A
Convertible Preferred Stock outstanding,
assuming conversion to Common Stock....................... 1,700,000 1,700,000
Weighted average shares of Series B
Convertible Preferred Stock outstanding,
assuming conversion to Common Stock(1).................... 304,658 400,000
Weighted average shares of Common Stock
outstanding............................................... 2,832,069 2,964,130
Net shares issuable upon exercise of stock
options granted prior to September 16, 1996............... 588,825 419,652
Net shares issuable upon exercise of stock
options granted subsequent to September 15, 1996(2)....... 582,613 582,613
---------- ----------
6,008,165 6,066,395
========== ==========

Per share amount....................................... $ 0.02 $ 0.04
========== ==========
</TABLE>

- --------------
(1) All outstanding shares of Series A and Series B Convertible Preferred Stock
are assumed to have been converted into shares of Common Stock at the time
of issuance.

(2) Stock options granted during the twelve month period immediately prior to
the filing of the proposed initial public offering have been included as
outstanding for all periods presented using the treasury-stock method and
an assumed public offering price.

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
Registration Statement.

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Boston, Massachusetts

November 11, 1997