-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QN6/sHMmE2FqqUi/BKzogHPRnBYZXh7QN+l7aauGo0Cp1MQrkuhzttYVb8DvkQtE DnRKssCIuBPoz74r6rohUQ== 0000928385-99-001417.txt : 19990428 0000928385-99-001417.hdr.sgml : 19990428 ACCESSION NUMBER: 0000928385-99-001417 CONFORMED SUBMISSION TYPE: SC 13E4 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990427 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SOFTWARE AG SYSTEMS INC CENTRAL INDEX KEY: 0000352683 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 541167173 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13E4 SEC ACT: SEC FILE NUMBER: 005-52003 FILM NUMBER: 99602308 BUSINESS ADDRESS: STREET 1: 11190 SUNRISE VALLEY DR CITY: RESTON STATE: VA ZIP: 20191 BUSINESS PHONE: 7033916757 MAIL ADDRESS: STREET 1: 11190 SUNRISE VALLEY DR CITY: RESTON STATE: VA ZIP: 20191 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SOFTWARE AG SYSTEMS INC CENTRAL INDEX KEY: 0000352683 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 541167173 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13E4 BUSINESS ADDRESS: STREET 1: 11190 SUNRISE VALLEY DR CITY: RESTON STATE: VA ZIP: 20191 BUSINESS PHONE: 7033916757 MAIL ADDRESS: STREET 1: 11190 SUNRISE VALLEY DR CITY: RESTON STATE: VA ZIP: 20191 SC 13E4 1 SCHEDULE 13E-4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13E-4 ISSUER TENDER OFFER STATEMENT (Pursuant To Section 13(E)(1) Of The Securities Exchange Act Of 1934) SOFTWARE AG SYSTEMS, INC. (Name of Issuer) SOFTWARE AG SYSTEMS, INC. (Name of Person(s) Filing Statement) COMMON STOCK (Title of Class of Securities) 834025-10-8 (CUSIP Number of Class of Securities) DANIEL F. GILLIS PRESIDENT AND CHIEF EXECUTIVE OFFICER SOFTWARE AG SYSTEMS, INC. 11190 SUNRISE VALLEY DRIVE RESTON, VIRGINIA 20191 (703) 860-5050 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) With a Copy to: RICHARD E. BALTZ, ESQ. ARNOLD & PORTER 555 TWELFTH STREET, N.W. WASHINGTON, DC 20004-1202 (202) 942-5008 April 27, 1999 (Date Tender Offer First Published, Sent or Given to Security Holders) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALCULATION OF FILING FEE TRANSACTION VALUATION* AMOUNT OF FILING FEE $48,000,000 $9,600 - -------- * Calculated solely for the purpose of determining the filing fee, based upon the purchase of 6,000,000 shares at the maximum tender offer price per share of $8.00. [_] Check box if any part of the fee is offset as provided by Rule 011(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount Previously Paid: N/A Filing Party: N/A Form or Registration No.: N/A Date Filed: N/A Item 1. Security and Issuer. (a) The issuer of the securities to which this Schedule 13E-4 relates is Software AG Systems, Inc., a Delaware corporation (the "Company"), and the address of its principal executive office is 11190 Sunrise Valley Drive, Reston, Virginia 20191. (b) This Schedule 13E-4 relates to the offer by the Company to purchase 6,000,000 shares (or such lesser number of shares as are properly tendered) of its common stock, par value $0.01 per share (the "Common Stock"), of which 30,602,814 shares were outstanding as of April 26, 1999, at a price not greater than $8.00 nor less than $6.50 per share in cash upon the terms and subject to the conditions set forth in the Offer to Purchase, dated April 27, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal, which together constitute the "Offer," copies of which are attached as Exhibits (a)(1) and (a)(2), respectively, and incorporated herein by reference. Executive officers and directors of the Company may participate in the Offer on the same basis as the Company's other stockholders. The Company has been advised that neither its directors, executive officers nor principal stockholder intends to tender shares of Common Stock pursuant to the Offer. The information set forth in "Introduction," "The Offer--Section 1, Number of Shares; Proration" and "The Offer--Section 11, Interests of Directors and Officers; Transactions and Arrangements Concerning Shares" of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in "The Offer--Section 8, Price Range of Shares; Dividends" of the Offer to Purchase is incorporated herein by reference. (d) Not applicable. Item 2. Source and Amount of Funds or Other Consideration. (a) The information set forth in "The Offer--Section 9, Source and Amount of Funds" and "The Offer--Section 2, Purpose of the Offer; Certain Effects of the Offer" of the Offer to Purchase is incorporated herein by reference. (b) Not applicable. Item 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or Affiliate. (a)-(j) The information set forth in "Introduction" and "The Offer--Section 9, Source and Amount of Funds," "The Offer--Section 2, Purpose of the Offer; Certain Effects of the Offer," "The Offer--Section 11, Interests of Directors and Officers; Transactions and Arrangements Concerning Shares" and "The Offer-- 2 Section 12, Effects of the Offer on the Market for Shares; Registration Under the Exchange Act" of the Offer to Purchase is incorporated herein by reference. Item 4. Interest in Securities of the Issuer. The information set forth in "The Offer--Section 11, Interests of Directors and Officers; Transactions and Arrangements Concerning Shares" of the Offer to Purchase is incorporated herein by reference. Item 5. Contracts, Arrangements, Understandings or Relationships with Respect to the Issuer's Securities. The information set forth in "Introduction" and "The Offer--Section 9, Source and Amount of Funds," "The Offer--Section 2, Purpose of the Offer; Certain Effects of the Offer" and "The Offer--Section 11, Interests of Directors and Officers; Transactions and Arrangements Concerning Shares" of the Offer to Purchase is incorporated herein by reference. Item 6. Persons Retained, Employed, or to be Compensated. The information set forth in "Introduction" and "The Offer--Section 16, Fees and Expenses" of the Offer to Purchase is incorporated herein by reference. Item 7. Financial Information. (a)-(b) The information set forth in "The Offer--Section 10, Certain Information Concerning the Company" of the Offer to Purchase, the information set forth on pages 30 through 52 of the Company's Form 10-K for the fiscal year ended December 31, 1998 and accompanying Schedule II--Valuation and Qualifying Accounts, filed as Exhibit (g) hereto, and the information set forth in the Company's press release reporting first quarter results for the quarter ended March 31, 1999, dated April 20, 1999, filed as Exhibit (h) hereto, is incorporated herein by reference. The Company has concluded that the ratio of earnings to fixed charges for the two most recent fiscal years is not required. Item 8. Additional Information. (a) Not applicable. (b) The information set forth in "The Offer--Section 13, Certain Legal Matters; Regulatory Approvals" of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in "The Offer--Section 12, Effects of the Offer on the Market for Shares; Registration Under the Exchange Act" of the Offer to Purchase is incorporated herein by reference. (d) Not applicable. (e) The information set forth in the Offer to Purchase and Letter of Transmittal is incorporated herein by reference. Item 9. Material to be Filed as Exhibits. (a) (1) Form of Offer to Purchase, dated April 27, 1999. (2) Form of Letter of Transmittal (including Certification of Taxpayer Identification Number on Form W-9). (3) Form of Notice of Guaranteed Delivery. (4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 3 (5) Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (6) W-9 Guidelines. (7) Text of Press Release issued by the Company, dated April 27, 1999. (8) Form of Letter to Stockholders of the Company, dated April 27, 1999. (9) Form of Summary Advertisement. (b) Not applicable. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g) Pages 30 through 52 of the Company's Form 10-K for the fiscal year ended December 31, 1998 and accompanying Schedule II--Valuation and Qualifying Accounts. (h) The Company's press release reporting first quarter results for the quarter ended March 31, 1999, dated April 20, 1999. SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13E-4 is true, complete and correct. Software AG Systems, Inc. By: /s/ Harry K. McCreery ---------------------------------- Name: Harry K. McCreery Title: Vice President, Treasurer and Chief Financial Officer Dated: April 27, 1999 4 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- (a)(1) Offer to Purchase, dated April 27, 1999. (a)(2) Form of Letter of Transmittal (including Certification of Taxpayer Identification Number on Form W-9). (a)(3) Form of Notice of Guaranteed Delivery. (a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) W-9 Guidelines. (a)(7) Text of Press Release issued by the Company, dated April 27, 1999. (a)(8) Form of Letter to Stockholders of the Company, dated April 27, 1999. (a)(9) Form of Summary Advertisement. (b) Not applicable. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g) Pages 30 through 52 of the Company's Form 10-K for the fiscal year ended December 31, 1998 and accompanying Schedule II--Valuation and Qualifying Accounts. (h) The Company's press release reporting first quarter results for the quarter ended March 31, 1999, dated April 20, 1999.
5 EX-99.A.1 2 EXHIBIT (A)(1) Exhibit (a)(1) Software AG Systems, Inc. Offer to Purchase for Cash up to 6,000,000 Shares of its Common Stock At a Purchase Price Not Greater Than $8.00 Nor Less Than $6.50 Per Share THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, MAY 25, 1999 UNLESS THE OFFER IS EXTENDED THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NEITHER THE COMPANY, ITS BOARD OF DIRECTORS NOR THE DEALER MANAGER MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH STOCKHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NEITHER ITS DIRECTORS, EXECUTIVE OFFICERS NOR PRINCIPAL STOCKHOLDER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER. THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES OF COMMON STOCK BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7. ------------- Software AG Systems, Inc., a Delaware corporation (the "Company"), invites its stockholders to tender shares of its common stock, $0.01 par value per share (the "Common Stock"), to the Company at a price not greater than $8.00 nor less than $6.50 per share in cash, as specified by stockholders tendering their shares of Common Stock, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal, which together constitute the "Offer." The Company will determine a single per share price, not greater than $8.00 nor less than $6.50 per share, net to the seller in cash (the "Purchase Price"), that it will pay for shares of Common Stock validly tendered pursuant to the Offer, taking into account the number of shares of Common Stock so tendered and the prices specified by tendering stockholders. The Company will select the lowest Purchase Price that will allow it to buy 6,000,000 shares of Common Stock (or such lesser number of shares as are properly tendered). All shares of Common Stock properly tendered at prices at or below the Purchase Price and not withdrawn will be purchased at the Purchase Price, subject to the terms and the conditions of the Offer, including the proration and conditional tender provisions. All shares of Common Stock purchased in the Offer will be purchased at the Purchase Price. The Company reserves the right, in its sole discretion, to purchase more than 6,000,000 shares of Common Stock pursuant to the Offer. See Sections 1 and 15. The Common Stock is listed and traded on the New York Stock Exchange ("NYSE") under the symbol "AGS." As of April 26, 1999, the last reported sale price of the Common Stock, as reported on the NYSE, was $6.750 per share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK. SEE SECTION 8. ------------- The Dealer Manager for the Offer is: Salomon Smith Barney ------------- April 27, 1999 SUMMARY This general summary is solely for the convenience of the Company's stockholders and is qualified in its entirety by reference to the full text and more specific details in this Offer to Purchase. Number of Shares to be Purchased......... 6,000,000 shares of Common Stock (or such lesser number of shares as are properly tendered). See Section 1. Purchase Price........ The Company will select a single Purchase Price which will be not greater than $8.00 nor less than $6.50 per share. All shares purchased by the Company will be purchased at the Purchase Price even if tendered at or below the Purchase Price. Each stockholder (other than certain Odd Lot Holders) desiring to tender shares must specify in the Letter of Transmittal the minimum price (not greater than $8.00 nor less than $6.50 per share) at which such stockholder is willing to have his or her shares purchased by the Company. A stockholder can specify different minimum prices for different shares held by that stockholder. See Section 1. Expiration and Proration Dates...... Tuesday, May 25, 1999, at 5:00 p.m., New York City time, unless extended by the Company. Payment Date.......... As promptly as practicable after the expiration of the Offer. It is expected that the Payment Date will be approximately seven to ten business days after expiration of the Offer. Withdrawal Rights..... Tendered shares may be withdrawn at any time until 5:00 p.m., New York City time on Tuesday, May 25, 1999, unless the Offer is extended by the Company, and, unless previously purchased, after 12 midnight, New York City time, on, June 22, 1999. See Section 4. How to Tender Section 3 sets forth the procedure for tendering shares Shares............... of Common Stock. A stockholder may also consult with a broker for assistance. Brokerage Commission and Stock Transfer Tendering stockholders will not be obligated to pay Tax.................. brokerage fees or commissions, or, except as set forth in Instruction 7 to the Letter of Transmittal, transfer taxes on the sale of shares pursuant to the Offer. A tendering stockholder who holds securities with such stockholder's broker may be required by such broker to pay a service charge or other fee. Position of the Company; Principal Neither the Company nor its Board of Directors makes Stockholder.......... any recommendation to any stockholder as to whether to tender or refrain from tendering shares. The Company has been advised that neither its directors, executive officers nor principal stockholder intends to tender shares of Common Stock pursuant to the Offer. Odd Lots.............. There will be no proration of shares tendered by any stockholder owning 99 or fewer shares of Common Stock who tenders all such shares at or below the Purchase Price prior to the Proration Date and who checks the "Odd Lots" box in the Letter of Transmittal. See Section 1. Federal Income Tax Consequences......... Generally, the receipt of cash pursuant to the Offer will be subject to federal income tax. See Section 14. TABLE OF CONTENTS
Section Page - ------- ---- INTRODUCTION.............................................................. 1 THE OFFER................................................................. 3 1.Number of Shares; Proration.......................................... 3 2.Purpose of the Offer; Certain Effects of the Offer................... 5 3.Procedures for Tendering Shares...................................... 6 4.Withdrawal Rights.................................................... 9 5.Purchase of Shares and Payment of Purchase Price..................... 10 6.Conditional Tender of Shares......................................... 11 7.Certain Conditions of the Offer...................................... 11 8.Price Range of Shares; Dividends..................................... 13 9.Source and Amount of Funds........................................... 13 10.Certain Information Concerning the Company........................... 13 11.Interests of Directors and Officers; Transactions and Arrangements Concerning Shares...................................................... 17 12.Effects of the Offer on the Market for Shares; Registration Under the Exchange Act........................................................... 18 13.Certain Legal Matters; Regulatory Approvals.......................... 18 14.Certain Federal Income Tax Consequences.............................. 19 15.Extension of Offer; Termination; Amendment........................... 22 16.Fees and Expenses.................................................... 23 17.Miscellaneous........................................................ 23
ii INTRODUCTION Software AG Systems, Inc. (the "Company") invites its stockholders to tender shares of its common stock, $0.01 par value per share (the "Common Stock"), at a price not greater than $8.00 nor less than $6.50 per share, as specified by stockholders tendering their shares, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal, which together constitute the "Offer." The Company will determine the single per share price, not greater than $8.00 nor less than $6.50 per share, in cash (the "Purchase Price"), that it will pay for shares of Common Stock properly tendered pursuant to the Offer, taking into account the number of shares so tendered and the prices specified by tendering stockholders. The Company will select the lowest Purchase Price that will allow it to buy an aggregate of 6,000,000 shares of Common Stock (or such lesser number of shares as are properly tendered). All shares of Common Stock acquired in the Offer will be acquired at the Purchase Price. Shares of Common Stock tendered at prices greater than the Purchase Price and shares not purchased because of proration or conditional tender will be returned. The Company reserves the right, in its sole discretion, to purchase more than 6,000,000 shares of Common Stock pursuant to the Offer. See Sections 1 and 15. THIS OFFER IS NOT CONDITIONED UPON THE TENDER OF ANY MINIMUM NUMBER OF SHARES OF COMMON STOCK. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7. THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MAKING OF THE OFFER. HOWEVER, NEITHER THE COMPANY, ITS BOARD OF DIRECTORS NOR THE DEALER MANAGER MAKES ANY RECOMMENDATION TO STOCKHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES. EACH STOCKHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES AND AT WHAT PRICE OR PRICES SHARES SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NEITHER ITS DIRECTORS, EXECUTIVE OFFICERS NOR PRINCIPAL STOCKHOLDER INTENDS TO TENDER SHARES OF COMMON STOCK PURSUANT TO THE OFFER. Upon the terms and subject to the conditions of the Offer, if, at the expiration of the Offer more than 6,000,000 shares of Common Stock are properly tendered at or below the Purchase Price and not withdrawn, the Company will buy shares first from all Odd Lot Holders (as defined below) who properly tender all such shares at or below the Purchase Price and then, subject to procedures for conditional tenders described in Section 1, on a pro rata basis from all other stockholders who properly tender at prices at or below the Purchase Price (and do not withdraw them prior to the expiration of the Offer). See Section 1. All shares of Common Stock not purchased pursuant to the Offer, including shares tendered at prices greater than the Purchase Price and not withdrawn and shares not purchased because of proration or conditional tenders, will be returned at the Company's expense to the stockholders who tendered such shares or to other persons at their direction. The Purchase Price will be paid to the tendering stockholder in cash for all shares of Common Stock purchased. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 7 to the Letter of Transmittal, transfer taxes on the sale of shares pursuant to the Offer. A tendering stockholder who holds securities with such stockholder's broker may be required by such broker to pay a service charge or other fee. The Company will pay all fees and expenses of Salomon Smith Barney Inc. (the "Dealer Manager"), The Bank of New York (the "Depositary") and Corporate Investor Communications, Inc. (the "Information Agent") incurred in connection with the Offer. See Section 16. A tendering stockholder will be subject to federal income tax on the receipt of cash for shares of Common Stock purchased by the Company pursuant to the Offer. In addition, any tendering stockholder or other payee who fails to complete, sign and return to the Depositary the substitute form W-9 that is included with the Letter of Transmittal may be subject to required backup federal income tax withholding of 31% of the gross proceeds 1 payable to such stockholder or other payee pursuant to the offer, and certain non-U.S. stockholders may be subject to a 30% income tax withholding. See Section 14. As of April 26, 1999, the Company had issued and outstanding 30,602,814 shares of Common Stock. The 6,000,000 shares of Common Stock that the Company is offering to purchase pursuant to the Offer represent approximately 20% of the then outstanding shares. The Common Stock is listed and traded on the NYSE under the symbol "AGS." As of April 26, 1999, the last reported sale price of the Common Stock, as reported on the NYSE, was $6.750 per share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK. See Section 8. Questions and requests for assistance may be directed to the Information Agent: Corporate Investor Communications, Inc. 111 Commerce Road Carlstadt, NJ 07072-2586 All calls (877) 460-2562 2 THE OFFER 1. Number Of Shares; Proration. Upon the terms and subject to the conditions of the Offer, the Company will purchase 6,000,000 shares of Common Stock or such lesser number of shares as are properly tendered (and not withdrawn in accordance with Section 4) prior to the Expiration Date (as defined below) at prices (determined in the manner set forth below) not greater than $8.00 nor less than $6.50 per share in cash. The term "Expiration Date" means 5:00 p.m., New York City time, on Tuesday, May 25, 1999, unless and until the Company, in its sole discretion, shall have extended the period of time during which the Offer will remain open, in which event the term "Expiration Date" shall refer to the latest time and date at which the Offer, as so extended by the Company, shall expire. See Section 15 for a description of the Company's right to extend, delay, terminate or amend the Offer. The Company reserves the right to purchase more than 6,000,000 shares pursuant to the Offer. In accordance with applicable regulations of the Securities and Exchange Commission (the "Commission"), the Company may purchase pursuant to the Offer an additional amount of shares not to exceed 2% of the outstanding shares without amending or extending the Offer. See Section 15. If (i) the Company increases or decreases the Dealer Manager's soliciting fee, the Company increases or decreases the price to be paid for shares, the Company increases the number of shares being sought and such increase in the number of shares being sought exceeds 2% of the outstanding shares, or the Company decreases the number of shares being sought and (ii) the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified in Section 15, the Offer will be extended until the expiration of such period of ten business days. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. In the event of an over-subscription of the Offer as described below, shares tendered at or below the Purchase Price prior to the Expiration Date will be subject to proration and conditional tender provisions, except for Odd Lots as explained below. The proration period also expires on the Expiration Date. The Company will select the lowest Purchase Price that will allow it to buy 6,000,000 shares of Common Stock (or such lesser number of shares of Common Stock as are properly tendered at or below the Purchase Price) taking into account the number of shares to be tendered and the prices specified by tendering stockholders. All shares of Common Stock properly tendered at prices at or below the Purchase Price and not withdrawn will be purchased at the Purchase Price, subject to the terms and the conditions of the Offer, including the proration and conditional tender provisions. All shares purchased in the Offer will be purchased at the Purchase Price. THE OFFER IS NOT CONDITIONED UPON THE TENDER OF ANY MINIMUM NUMBER OF SHARES, BUT IS SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7. In accordance with Instruction 5 of the Letter of Transmittal, stockholders (other than certain Odd Lot Holders) desiring to tender shares must specify the price, not greater than $8.00 nor less than $6.50 per share, at which they are willing to sell their shares to the Company. By following the directions of the Letter of Transmittal, stockholders can specify one minimum price for a specified portion of their shares and a different minimum price for other specified shares. Stockholders also can specify the order in which their shares will be purchased in the event that, as a result of the proration provisions or otherwise, some but not all of their tendered shares are purchased pursuant to the Offer. As promptly as practicable following the Expiration Date, the Company will, in its sole discretion, determine the Purchase Price that it will pay for shares properly tendered pursuant to the Offer and not withdrawn, taking into account the number of shares tendered and the prices specified by tendering stockholders. The Company intends to select the lowest Purchase Price, not greater than $8.00 nor less than $6.50 per share, that will enable it to purchase 6,000,000 shares of Common Stock (or such lesser number of shares as are properly tendered) pursuant to the Offer. Shares properly tendered pursuant to the Offer at or below the Purchase Price and not withdrawn will be purchased at the Purchase Price, subject to the terms and conditions of the Offer, including the proration and conditional tender provisions. All shares of 3 Common Stock tendered and not purchased pursuant to the Offer, including shares of Common Stock tendered at prices greater than the Purchase Price and shares not purchased because of proration or conditional tender, will be returned to the tendering stockholders (or to another person specified by a tendering stockholder) at the Company's expense as promptly as practicable following the Expiration Date. Priority of Purchases. Upon the terms and subject to the conditions of the Offer, if more than 6,000,000 shares of Common Stock (or such greater number of shares as the Company may elect to purchase pursuant to the Offer) have been properly tendered at prices at or below the Purchase Price and not withdrawn prior to the Expiration Date, the Company will purchase properly tendered shares in the following order of priority: (a) first, all shares tendered and not withdrawn prior to the Expiration Date by any Odd Lot Holder who: (1) tenders all shares of Common Stock beneficially owned by such Odd Lot Holder at a price at or below the Purchase Price, including by electing to accept the Purchase Price determined by the Company (tenders of less than all shares owned by such stockholder will not qualify for this preference); and (2) completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery; (b) second, after purchase of all of the foregoing shares in item (a) above, all shares (i) conditionally tendered in accordance with Section 6 for which the condition was satisfied, and (ii) all other shares tendered properly and unconditionally, in each case at prices at or below the Purchase Price and not withdrawn prior to the Expiration Date, on a pro rata basis (with appropriate adjustments to avoid purchases of fractional shares) as described below; and (c) third, if necessary, shares conditionally tendered for which the condition was not satisfied, at or below the Purchase Price and not withdrawn prior to the Expiration Date, selected by lot at random in accordance with Section 6. Odd Lots. For purposes of the Offer, the term "Odd Lots" shall mean all shares of Common Stock properly tendered prior to the Expiration Date at prices at or below the Purchase Price and not withdrawn by any person who owns, beneficially or of record, an aggregate of 99 or fewer shares of Common Stock (an "Odd Lot Holder") (and so certified in the appropriate place on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery). In order to qualify for this preference, an Odd Lot Holder must tender all such shares of Common Stock in accordance with the procedures described in Section 3. As set forth above, Odd Lots will be accepted for payment before proration, if any, of the purchase of other tendered shares. This preference is not available to partial tenders. Any stockholder wishing to tender all of such stockholder's Common Stock pursuant to this Section should complete the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery. See Instruction 8 to the Letter of Transmittal. The Company also reserves the right, but will not be obligated, to purchase all shares of Common Stock duly tendered by any stockholder who tendered all such shares owned, beneficially or of record, at or below the Purchase Price and who, as a result of proration, would then own, beneficially or of record, an aggregate of 99 or fewer shares of Common Stock. If the Company exercises this right, it will increase the number of shares of Common Stock that it is offering to purchase by the number of shares of Common Stock purchased through the exercise of the right. Proration. If proration of tendered shares is required, the Company will determine the proration factor as soon as practicable following the Expiration Date. Proration for each stockholder tendering shares, other than Odd Lot Holders, shall be based on the ratio of the number of shares of Common Stock tendered by such stockholder at or below the Purchase Price (and not withdrawn) to the total number of shares tendered by all stockholders, other than Odd Lot Holders, at or below the Purchase Price (and not withdrawn), subject to the conditional tender provisions described in Section 6. Because of the difficulty in determining the number of 4 shares properly tendered (including shares tendered by guaranteed delivery procedures, as described in Section 3) and not withdrawn, and because of the odd lot procedure, the Company does not expect that it will be able to announce the final proration factor or commence payment for any shares purchased pursuant to the Offer until approximately seven (7) to ten (10) business days after the Expiration Date. The preliminary results of any proration will be announced by press release as soon as practicable after the Expiration Date. Stockholders may obtain such preliminary information from the Dealer Manager or the Information Agent and may be able to obtain such information from their brokers or financial advisors. As described in Section 14, the number of shares of Common Stock that the Company will purchase from a stockholder may affect the federal income tax consequences to the stockholder of such purchase and, therefore, may be relevant to the stockholder's decision whether to tender shares. The Letter of Transmittal affords each tendering stockholder the opportunity to designate the order of priority in which shares of Common Stock tendered are to be purchased in the event of proration and the opportunity to make a tender of all of the stockholder's shares conditioned upon the purchase of all or a specified minimum number of the shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of shares of Common Stock and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of the Common Stock. 2. Purpose Of The Offer; Certain Effects Of The Offer. The Offer provides stockholders who are considering a sale of all or a portion of their shares of Common Stock with the opportunity to determine the price or prices (not greater than $8.00 nor less than $6.50 per share) at which they are willing to sell their shares and, subject to the terms and conditions of the Offer, to sell those shares for cash without the usual transaction costs associated with market sales. The Offer also allows stockholders to sell a portion of their shares while retaining a continuing equity interest in the Company. In addition, the Offer may give stockholders the opportunity to sell shares at prices greater than market prices prevailing prior to announcement of the Offer. Stockholders who determine not to accept the Offer will realize a proportionate increase in their relative equity interest in the Company and thus in the Company's future earnings and assets, subject to the Company's right to issue additional shares of Common Stock and other equity securities in the future. The Offer is being made because the Company's Board of Directors determined that the Offer constitutes a prudent use of the Company's financial resources, given the Company's business profile, assets and current market price. The Company's Board of Directors also believes that the Company's financial condition and outlook and current market conditions, including recent trading prices of the Company's Common Stock, make this an attractive time to repurchase a portion of the outstanding shares. Accordingly, the Offer is consistent with the Company's long term corporate goal of increasing stockholder value. After the Offer is completed, the Company expects to have sufficient cash flow and access to other sources of capital to fund the growth of its core business, including developing new products and making strategic acquisitions. The Company expects to finance the repurchase of properly tendered shares with cash on hand. This tender offer is not subject to the Company's receipt of financing. NEITHER THE COMPANY, ITS BOARD OF DIRECTORS NOR THE DEALER MANAGER MAKES ANY RECOMMENDATIONS TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF SUCH STOCKHOLDER'S SHARES AND NEITHER HAS AUTHORIZED ANY PERSON TO MAKE ANY SUCH RECOMMENDATION. STOCKHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL INFORMATION IN THE OFFER, CONSULT THEIR OWN 5 INVESTMENT AND TAX ADVISORS AND MAKE THEIR OWN DECISIONS WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH TO TENDER. The Company may in the future purchase additional shares of Common Stock on the open market, in private transactions, through tender offers or otherwise. Any additional purchase may be on the same terms or on terms which are more or less favorable to stockholders than the terms of the Offer. However, Rule 13e- 4 under the Exchange Act, prohibits the Company and its affiliates from purchasing any shares of Common Stock, other than pursuant to the Offer, until at least ten business days after the Expiration Date. Any possible future purchases by the Company will depend on many factors, including the results of the Offer, the market price of the shares, the Company's business and financial position and general economic and market conditions. Shares the Company acquires pursuant to the Offer will be retained as treasury stock or canceled and returned to the status of authorized but unissued stock and will be available for the Company to issue without further stockholder action (except as required by applicable law or the rules of the NYSE or any other securities exchange on which the shares are then listed) for purposes including, without limitation, the acquisition of other businesses, the raising of additional capital for use in the Company's business and the satisfaction of obligations under existing or future employee benefit or compensation programs or stock plans or compensation programs for directors. The Company has no current plans for issuance of the shares purchased pursuant to the Offer. The discussion in this Section 2 and Section 10 contains forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, (1) references to the Company's business, financial condition, results of operations, products, competition and markets in which the Company competes, (2) statements preceded by, followed by or that include the words "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "estimate" or "continue" or the negative or other variations thereof, and (3) other statements regarding matters that are not historical facts, and are based on the Company's current knowledge, beliefs, expectations and specific assumptions with respect to future business decisions. Accordingly, the statements are subject to significant risks, contingencies and uncertainties that could cause actual operating results, performance or business prospects to differ materially from those expressed in, or implied by, these statements. These risks, contingencies and uncertainties include, but are not limited to: significant quarterly and other fluctuations in revenues and results of operations; reliance on Software AG (a German company, described in Section 10) for development and timely delivery of products; reliance on acquisitions and the timely development, production, marketing and delivery of new products and services; demand for Year 2000 products and services; risks associated with conducting a professional services business; reliance on the mainframe computing environment and demand for the Company's products; changes in the Company's product and service mix and product and service pricing; interoperability of the Company's products with leading software application products; risks of protecting intellectual property rights and litigation; dependence on third-party technology; risks associated with international sales, distributors and operations; dependence on government contracts; control of the Company by affiliates; the Company's ability to implement its acquisition strategy, successfully integrate any acquired products, services and businesses, adjust to changes in technology, customer preferences, enhanced competition and new competitors in software and professional services markets, maintain and enhance its relationships with vendors, and attract and retain key employees; general economic and business conditions; and other risks detailed from time to time in the Company's Securities and Exchange Commission reports. 3. Procedures For Tendering Shares. Proper Tender of Shares. For shares of Common Stock to be tendered properly pursuant to the Offer, (a) the certificates for such shares (or confirmation of receipt of such shares pursuant to the procedures for book-entry transfer set forth below), together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof), including any required signature guarantees and any other documents required by the Letter of Transmittal, must be received prior to 5:00 p.m., New York City time, on the 6 Expiration Date by the Depositary at the following address: The Bank of New York, Tender & Exchange Department, P.O. Box 11248, Church Street Station, New York, New York 10286-1248, or (b) the tendering stockholder must comply with the guaranteed delivery procedure set forth below. IN ACCORDANCE WITH INSTRUCTION 5 OF THE LETTER OF TRANSMITTAL, STOCKHOLDERS (OTHER THAN CERTAIN ODD LOT HOLDERS) DESIRING TO TENDER SHARES PURSUANT TO THE OFFER MUST PROPERLY INDICATE IN THE SECTION CAPTIONED "PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED" ON THE LETTER OF TRANSMITTAL THE PRICE (IN MULTIPLES OF $0.125) AT WHICH THEIR SHARES ARE BEING TENDERED. Stockholders who desire to tender shares of Common Stock at more than one price must complete a separate Letter of Transmittal for each price at which shares are tendered, provided that the same shares cannot be tendered (unless properly withdrawn previously in accordance with the terms of the Offer) at more than one price. IN ORDER TO PROPERLY TENDER SHARES (OTHER THAN SHARES TENDERED BY CERTAIN ODD LOT HOLDERS), ONE AND ONLY ONE PRICE BOX MUST BE CHECKED IN THE APPROPRIATE SECTION ON EACH LETTER OF TRANSMITTAL. In addition, Odd Lot Holders who tender all such shares must complete the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery, in order to qualify for the preferential treatment available to Odd Lot Holders as set forth in Section 1, except in the case of certain tenders made pursuant to the book-entry procedures set forth below. See Instruction 8 of the Letter of Transmittal. To prevent backup federal income tax withholding of 31% of the gross proceeds, and in the case of certain foreign stockholders, to prevent a 30% withholding tax, certain completed forms should accompany the Letter of Transmittal. See Section 14. If any tendered shares are not purchased or if less than all shares evidenced by a stockholder's certificates are tendered, certificates for unpurchased shares will be returned as promptly as practicable after the expiration or termination of the Offer or, in the case of shares tendered by book-entry transfer, such shares will be credited to the appropriate account maintained by the tendering stockholder at the appropriate book-entry transfer facilities, in each case without expense to such stockholder. Signature Guarantees and Method of Delivery. No signature guarantee is required (a) if the Letter of Transmittal is signed by the registered holder of the shares (which term for purposes of this Section 3 shall include any participant in The Depository Trust Company ("DTC") whose name appears on a security position listing as the owner of the shares of Common Stock tendered therewith) and such holder has not completed the box entitled "Special Delivery Instructions" on the Letter of Transmittal; or (b) if shares are tendered for the account of a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program or a bank, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 of the Exchange Act (each such entity being hereinafter referred to as an "Eligible Institution"). See Instruction 1 of the Letter of Transmittal. If a certificate for shares is registered in the name of a person other than the person executing a Letter of Transmittal or if payment is to be made, or shares not purchased or tendered are to be issued, to a person other than the registered holder, then the certificate must be endorsed or accompanied by an appropriate stock power, in either case, signed exactly as the name of the registered holder appears on the certificate, or stock power guaranteed by an Eligible Institution. In all cases, payment for shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such shares (or a timely confirmation of a book-entry transfer of such shares into the Depositary's account at DTC as described below), a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) and any other documents required by the Letter of Transmittal. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT 7 THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, THEN REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. Book-Entry Delivery. The Depositary will establish an account with respect to the shares for purposes of the Offer at DTC within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in the respective book-entry transfer facilities' system may make book-entry delivery of the shares by causing such facility to transfer shares into the Depositary's account in accordance with the respective book-entry transfer facility's procedures for transfer. Although delivery of shares may be effected through a book-entry transfer into the Depositary's account at DTC, either (a) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the Depositary at the following address: The Bank of New York, Tender & Exchange Department, P.O. Box 11248, Church Street Station, New York, New York 10286-1248 prior to the Expiration Date or (b) the guaranteed delivery procedure described below must be followed. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Guaranteed Delivery. If a stockholder desires to tender shares of Common Stock pursuant to the Offer and such stockholder's share certificates cannot be delivered to the Depositary prior to the Expiration Date (or the procedures for book-entry transfer cannot be completed on a timely basis) or if time will not permit all required documents to reach the Depositary prior to the Expiration Date, such shares may nevertheless be tendered, provided that all of the following conditions are satisfied: (a) such tender is made by or through an Eligible Institution; (b) the Depositary receives by hand, mail, telegram or facsimile transmission, prior to the Expiration Date, a properly completed and duly executed Notice of Guaranteed Delivery in the form the Company has provided with this Offer to Purchase (specifying the price at which the shares of Common Stock are being tendered), including (where required) a signature guarantee by an Eligible Institution; and (c) the certificates for all tendered shares, in proper form for transfer (or confirmation of book-entry transfer of such shares into the Depositary's account at DTC), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof) and any required signature guarantees or other documents required by the Letter of Transmittal, are received by the Depositary within three NYSE trading days after the date of receipt by the Depositary of such Notice of Guaranteed Delivery. Stock Option Plans. The Company is not offering, as part of the Offer, to purchase any of the options (the "Options") outstanding under the Software AG Systems, Inc. 1997 Stock Option Plan (the "Plan") and tenders of such Options will not be accepted. Holders of Options, who wish to participate in the Offer, may exercise their Options and purchase shares of Common Stock and then tender such shares pursuant to the Offer, provided that any such exercise of an Option and tender of shares is in accordance with the terms of the Plan and the Options. An exercise of an Option cannot be revoked even if the shares received upon the exercise thereof and tendered in the Offer are not purchased in the Offer for any reason. All holders of Options who are either executive officers or outside directors of the Company have indicated that they do not intend to exercise Options and tender such shares pursuant to the Offer. Determination of Validity; Rejection of Shares; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the number of shares of Common Stock to be accepted, the price to be paid for shares to be accepted and the validity, form, eligibility (including time of receipt) and acceptance of any tender of shares will be determined by the Company, in its sole discretion, and its determination shall be final and binding on all parties. The Company reserves the absolute right to reject any or all tenders of any shares of Common Stock that it determines are not in appropriate form or the acceptance for payment of or payments for which may be unlawful. The Company also reserves the absolute right to waive any of the conditions of the Offer or any defect or irregularity in any tender with respect to any particular shares or any particular 8 stockholder. No tender of shares will be deemed to have been properly made until all defects or irregularities have been cured by the tendering stockholder or waived by the Company. None of the Company, the Dealer Manager, the Depositary, the Information Agent or any other person shall be obligated to give notice of any defects or irregularities in tenders, nor shall any of them incur any liability for failure to give any such notice. CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL, MUST BE DELIVERED TO THE DEPOSITARY AND NOT TO THE COMPANY. ANY SUCH DOCUMENTS DELIVERED TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT BE DEEMED TO BE VALIDLY TENDERED. Tendering Stockholder's Representation and Warranty; Company's Acceptance Constitutes an Agreement. A tender of shares of Common Stock pursuant to any of the procedures described above will constitute the tendering stockholder's acceptance of the terms and conditions of the Offer, as well as the tendering stockholder's representation and warranty to the Company that (a) such stockholder has a net long position in the shares being tendered within the meaning of Rule 14e-4 promulgated by the Commission under the Exchange Act and (b) the tender of such shares complies with Rule 14e-4. It is a violation of Rule 14e-4 for a person, directly or indirectly, to tender shares for such person's own account unless, at the time of tender and at the end of the proration period or period during which shares are accepted by law (including any extensions thereof), the person so tendering (i) has a net long position equal to or greater than the amount of (a) shares tendered or (b) other securities convertible into or exchangeable or exercisable for the shares tendered and will acquire such shares for tender by conversion, exchange or exercise and (ii) will deliver or cause to be delivered such shares in accordance with the terms of the Offer. Rule 14e-4 provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person. The Company's acceptance for payment of shares of Common Stock tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and the Company upon the terms and conditions of the Offer. 4. Withdrawal Rights. Except as otherwise provided in this Section 4, tenders of shares of Common Stock pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by the Company pursuant to the Offer, may also be withdrawn at any time after 12 midnight, New York City time, on June 22, 1999. For a withdrawal to be effective, a notice of withdrawal must be in written, telegraphic or facsimile transmission form and must be received in a timely manner by the Depositary at the following address: The Bank of New York, Tender & Exchange Department, P.O. Box 11248, Church Street Station, New York, New York 10286-1248, fascimilie (for Eligible Institutions only) (212) 815-6213, telephone (800) 507-9357. Any such notice of withdrawal must specify the name of the tendering stockholder, the name of the registered holder (if different from that of the person who tendered such shares), the number of shares tendered and the number of shares to be withdrawn. If the certificates for shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the release of such certificates, the tendering stockholder must also submit the serial numbers shown on the particular certificates for shares to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution (except in the case of shares tendered by an Eligible Institution). If shares of Common Stock have been tendered pursuant to the procedure for book-entry tender set forth in Section 3, the notice of withdrawal also must specify the name and the number of the account at DTC to be credited with the withdrawn shares and otherwise comply with the procedures of such facility. None of the Company, the Depositary or any other person shall be obligated to give notice of any defects or irregularities in any notice of withdrawal nor shall any of them incur liability for failure to give any such notice. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Company, in its sole discretion, which determination shall be final and binding. 9 Withdrawals may not be rescinded and any shares withdrawn will thereafter be deemed not properly tendered for purposes of the Offer unless such withdrawn shares are properly retendered prior to the Expiration Date by again following one of the procedures described in Section 3. If the Company extends the Offer, is delayed in its purchase of shares or is unable to purchase shares pursuant to the Offer for any reason, then, without prejudice to the Company's rights under the Offer, the Depositary may, on behalf of the Company, retain tendered shares on behalf of the Company and such shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in this Section 4, subject to Rule 13e-4(f) under the Exchange Act, either pay the consideration offered or return the tendered securities promptly after termination or withdrawal of the tender offer. 5. Purchase Of Shares And Payment Of Purchase Price. Upon the terms and subject to the conditions of the Offer, as promptly as practicable following the Expiration Date, the Company (a) will determine the Purchase Price it will pay for the shares of Common Stock properly tendered and not withdrawn prior to the Expiration Date, taking into account the number of shares so tendered and the prices specified by tendering stockholders, and (b) will accept for payment and pay for (and thereby purchase) shares of Common Stock properly tendered at prices at or below the Purchase Price and not withdrawn prior to the Expiration Date. For purposes of the Offer, the Company will be deemed to have accepted for payment (and therefore purchased) shares of Common Stock that are tendered at or below the Purchase Price and not withdrawn (subject to the proration and conditional tender provisions of the Offer) only when, as and if it gives oral or written notice to the Depositary of its acceptance of such shares for payment pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, promptly following the Expiration Date, the Company will accept for payment and pay a single per share Purchase Price for 6,000,000 shares (subject to increase or decrease as provided in Section 15). The Company will pay for shares purchased pursuant to the Offer by depositing the aggregate Purchase Price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from the Company and transmitting payment to the tendering stockholders. In the event of proration, the Company will determine the proration factor and pay for those tendered shares accepted for payment as soon as practicable after the Expiration Date. However, the Company does not expect to be able to announce the final results of any proration and commence payment for shares purchased until approximately seven (7) to ten (10) business trading days after the Expiration Date. Certificates for all shares tendered and not purchased, including all shares tendered at prices greater than the Purchase Price and shares not purchased due to proration or conditional tender, will be returned (or, in the case of shares tendered by book-entry transfer, such shares will be credited to the account maintained with DTC by the participant therein who so delivered such shares) to the tendering stockholder at the Company's expense as promptly as practicable after the Expiration Date without expense to the tendering stockholders. Under no circumstances will interest on the Purchase Price be paid by the Company by reason of any delay in making payment. In addition, if certain events occur, the Company may not be obligated to purchase shares pursuant to the Offer. See Section 7. The Company will pay all stock transfer taxes, if any, payable on the transfer to it of shares purchased pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or (in the circumstances permitted by the Offer) if unpurchased shares are to be registered in the name of, any person other than the registered holder, or if tendered certificates are registered in the name of any person other than the person signing the Letter of Transmittal, the amount of all stock transfer taxes, if any (whether imposed on the registered holder or such other person), payable on account of the transfer to such person will be deducted from the Purchase Price unless satisfactory evidence of the payment of the stock transfer taxes, or exemption therefrom, is submitted. See Instruction 7 of the Letter of Transmittal. 10 ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY, SIGN AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED BACKUP FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION 14. ALSO SEE SECTION 14 REGARDING FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. STOCKHOLDERS. 6. Conditional Tender Of Shares. Under certain circumstances set forth in Section 1 above, the Company may prorate the number of shares of Common Stock purchased pursuant to the Offer. As discussed in Section 14, the number of shares of Common Stock to be purchased from a particular stockholder might affect the tax consequences of such purchase to such stockholder and such stockholder's decision whether to tender. Accordingly, if a stockholder tenders all shares of Common Stock he or she beneficially owns, the stockholder may tender shares subject to the condition that a specified minimum number, if any, must be purchased. Any stockholder wishing to make such a conditional tender should so indicate in the box captioned "Conditional Tender" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery. It is the tendering stockholder's responsibility to calculate such minimum number of shares and each stockholder is urged to consult his or her own tax advisor. If the effect of accepting tenders on a pro rata basis is to reduce the number of shares to be purchased from any stockholder below the minimum number so specified, such tender will automatically be deemed withdrawn, except as provided in the next paragraph, and shares tendered by such stockholder will be returned as soon as practicable after the Expiration Date. However, if so many conditional tenders would be deemed withdrawn that the total number of shares to be purchased falls below 6,000,000, then, to the extent feasible, the Company will select enough of such conditional tenders, which would otherwise have been deemed withdrawn, to purchase such desired number of shares. In selecting among such conditional tenders, the Company will select by lot at random and will limit its purchase in each case to the designated minimum number of shares of Common Stock to be purchased. Conditional Tenders will be selected by lot only from stockholders who conditionally tender all of their shares of Common Stock. IN THE EVENT OF PRORATION, ANY SHARES OF COMMON STOCK TENDERED PURSUANT TO A CONDITIONAL TENDER FOR WHICH THE MINIMUM REQUIREMENTS ARE NOT SATISFIED MAY NOT BE ACCEPTED AND WILL THEREBY BE DEEMED WITHDRAWN. 7. Certain Conditions Of The Offer. Notwithstanding any other provision of the Offer, the Company shall not be required to accept for payment, purchase or pay for any shares of Common Stock tendered and may terminate or amend the Offer or may postpone the acceptance for payment of, or the purchase of and the payment for shares of Common Stock tendered, subject to Rule 13e-4(f) under the Exchange Act, if at any time on or after April 27, 1999 and prior to the time of payment for any such shares (whether any shares of Common Stock have previously been accepted for payment pursuant to the Offer) any of the following events shall have occurred (or shall have been determined by the Company to have occurred) and, in the Company's judgment in any such case and regardless of the circumstances giving rise thereto (including any action or omission to act by the Company), the occurrence of such event or events makes it inadvisable to proceed with the Offer or with such acceptance for payment or payment: (a) there shall have been threatened or instituted or be pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, before any court, authority, agency or tribunal that directly or indirectly (i) challenges the making of the Offer, the acquisition of some or all of the shares pursuant to the Offer or otherwise relates in any manner to the Offer; or (ii) in the Company's sole judgment, could materially and adversely affect 11 the business, condition (financial or other), income, operations or prospects of the Company and its subsidiaries, or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries or materially impair the contemplated benefits of the Offer to the Company; (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer or the Company or any of its subsidiaries, by any court or any authority, agency or tribunal that, in the Company's sole judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, some or all of the shares illegal or otherwise restrict or prohibit consummation of the Offer or otherwise relates in any manner to the Offer; (ii) delay or restrict the ability of the Company, or render the Company unable, to accept for payment or pay for some or all of the shares; (iii) materially impair the contemplated benefits of the Offer to the Company; or (iv) materially and adversely affect the business, condition (financial or other), income, operations or prospects of the Company and its subsidiaries, taken as whole, or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries; (c) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market; (ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory); (iii) the commencement of a war, armed hostilities or other international or national crisis directly or indirectly involving the United States; (iv) any limitation (whether or not mandatory) by any governmental, regulatory or administrative agency or authority on, or any event that, in the Company's sole judgment, might affect the extension of credit by banks or other lending institutions in the United States; (v) any significant decrease in the market price of the shares of Common Stock of the Company or any change in the general political, market, economic or financial conditions in the United States or abroad that could, in the sole judgment of the Company, have a material adverse effect on the Company's business, condition (financial or other), operations or prospects or on the trading in the shares; (vi) any change in the general political, market, economic or financial conditions in the United States or abroad that could have a material adverse effect on the Company's business, condition (financial or other), operations or prospects or that, in the sole judgment of the Company, makes it inadvisable to proceed with the Offer; (vii) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; or (viii) any decline in either the Dow Jones Industrial Average or the Standard and Poor's Index of 500 Companies by an amount greater than 10% measured from the close of business on April 26, 1999; (d) a tender or exchange offer with respect to some or all of the shares (other than the Offer), or a merger or acquisition proposal for the Company, shall have been proposed, announced or made by another person or entity or shall have been publicly disclosed, or the Company shall have learned that (i) any person, entity or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire beneficial ownership of more than 5% of the outstanding shares of Common Stock, or any new group shall have been formed that beneficially owns more than 5% of the outstanding shares of Common Stock (other than any such person, entity or group who has filed a Schedule 13D or Schedule 13G with the Commission before April 27, 1999); (ii) any such person, entity or group who has filed a Schedule 13D or Schedule 13G with the Commission before April 27, 1999, shall have acquired or proposed to acquire beneficial ownership of an additional 2% or more of the outstanding shares of Common Stock; or (iii) any person, entity or group shall have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or made a public announcement reflecting an intent to acquire the Company or any of its subsidiaries or any of their respective assets or securities; or (e) any change or changes shall have occurred in the business, condition (financial or other), assets, income, operations, prospects or stock ownership of the Company or its subsidiaries that, in the Company's sole judgment, is or may be material to the Company or its subsidiaries. 12 The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances (including any action or inaction by the Company) giving rise to any such condition and may be waived by the Company, in whole or in part, at any time and from time to time in its sole discretion. The Company's failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by the Company concerning the events described above will be final and binding on all parties. Acceptance of shares of Common Stock validly tendered in the Offer is subject to the condition that, as of the Expiration Date and after giving pro forma effect to the acceptance of the shares of Common Stock validly tendered, the shares of Common Stock would continue to be eligible for listing on the NYSE. This condition may not be waived. 8. Price Range of Shares; Dividends. The Common Stock of the Company is traded on the NYSE. The following table sets forth, for the quarters indicated, the high and low trading prices per share of the Company's Common Stock. As the Company's initial public offering went effective on November 17, 1997 and trading began on November 18, 1997, the quarterly high and low reported by the NYSE composite transactions are only available beginning with the fourth quarter of 1997.
High Low ------ ------ Fiscal 1997 4th Quarter.................................................. 14 1/2 10 Fiscal 1998 1st Quarter.................................................. 27 1/4 11 1/8 2nd Quarter.................................................. 33 22 1/2 3rd Quarter.................................................. 32 15 7/8 4th Quarter.................................................. 20 3/4 11 7/8 Fiscal 1999 1st Quarter.................................................. 18 3/8 8 3/8
Since the initial public offering in November 1997, the Company has not declared or paid cash dividends on its equity securities, and the Company does not anticipate that it will pay cash dividends in the foreseeable future. The Company intends to retain earnings to finance its operations. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK. 9. Source and Amount of Funds. Assuming the Company purchases 6,000,000 shares of Common Stock pursuant to the Offer at a purchase price of $8.00 per Share, the Company expects the maximum aggregate cost to purchase shares and to pay related fees and expenses to be approximately $48.7 million. The Company expects to finance such transactions as described in Section 2. 10. Certain Information Concerning the Company. General. The Company is an enterprise solutions company that provides robust software products and related professional services to large organizations with complex computing requirements. The Company's products are used to build, enhance and integrate mission-critical applications that require reliability, scaleability and security, such as customer billing systems, financial accounting systems and inventory management systems. To complement its products, the Company has a comprehensive professional services offering. The Company has over 25 years of experience in addressing the needs of organizations with complex enterprise level computing environments. 13 The Company provides enterprise system products and related professional services used by organizations to develop new mission-critical applications and enterprise integration ("EI") software products and related professional services used to extend and integrate business applications. The Company's enterprise system products include Adabas, a high-performance database management system designed to operate with a variety of data types and computer platforms, and Natural, a 4GL programming language that enables the development of applications that are portable, scaleable and interoperable across multiple computing platforms. The Company also provides enterprise enablement software products and professional services that allow organizations to integrate their mission-critical applications with other applications and extend them to the Internet and intranets. Products in the EI area include EntireX, a family of enterprise integration products that facilitates the communication between application components across heterogeneous computing environments. The EntireX family includes EntireX DCOM, a product that uses Microsoft's ActiveX technology to integrate applications written in a variety of programming languages. Another EI product is iXpress, a web enablement and deployment platform. In the fourth quarter of 1998, the Company announced Sagavista, its EI product that is currently in development. The Company believes that Sagavista will help solve EI problems by providing a plug-and-play solution to link Enterprise Resource Planning ("ERP"), packaged, custom and legacy applications throughout an enterprise with little or no custom coding. The Company also has a year 2000 program which offers an internally developed software product, Sagacertify Tool Kit (formerly Insight 2000 Tool Kit), as well as project management and consulting services to assist customers in the resolution of their year 2000 problem. The Company's professional services that complement its products include technical consulting, application development, application integration, outsourcing and year 2000 services. In February 1981, the Company was incorporated as a Delaware corporation and established as a holding company for SAGA SOFTWARE, Inc. (formerly Software AG Americas, Inc.). Since 1973, SAGA SOFTWARE, Inc. has primarily licensed and serviced products of Software AG, a German software company ("SAG"), in the United States and other countries through a series of licensing agreements with SAG. In June 1981, the Company sold approximately 30% of its then outstanding common stock in an initial public offering. In 1988, SAG purchased all of the outstanding stock of the Company, thereby acquiring control of the Company. On March 31, 1997, SAG sold approximately 89% of the Company's then outstanding common stock to Thayer Equity Investors III, L.P. ("Thayer") and certain senior management of the Company (the "Recapitalization") and on November 21, 1997, the Company and certain stockholders of the Company consummated an initial public offering. As of March 19, 1999, Thayer beneficially owned approximately 35% of the Company's then outstanding Common Stock. Dr. Paul G. Stern and Carl J. Rickertsen, principal members of the sole general manager of Thayer, serve on the Company's Board of Directors. Frederic V. Malek, also a principal member of the sole general manager of Thayer, has been nominated to serve on the Company's Board of Directors. 14 Certain Financial Information. Summary Historical Financial Information. Set forth below is certain summary historical consolidated financial information of the Company and its subsidiaries. The consolidated statement of operations data for the years ended 1997 and 1998 and the consolidated balance sheet data as of December 31, 1997 and 1998 have been derived from the Company's consolidated financial statements, which statements have been audited by KPMG LLP, independent certified public accountants. The selected consolidated financial data set forth below should be read in conjunction with the audited consolidated financial statements and notes thereto as reported in the Company's Annual Report on Form 10-K for the years ended December 31, 1997 and 1998 and other documents filed by the Company with the Commission (the "Company Filed Documents"), and the following summary information is qualified in its entirety by reference to the Company Filed Documents, including all of the financial information (including any related notes) contained therein. The historical financial data set forth below for the periods ended, or as of the dates prior to, March 31, 1997 reflect the results of operations and balance sheet data of the Company prior to the Recapitalization when the Company was a wholly owned subsidiary of SAG and is captioned as "Predecessor". The historical financial information subsequent to March 31, 1997 reflects the results of operations and balance sheet data subsequent to the Recapitalization and is captioned as "Successor".
Predecessor Successor -------------- ----------------------------- Three months Nine months Year ended ended ended Mar. 31, Dec. 31, Dec. 31, 1997 1997 1998 -------------- ------------- ------------ (in thousands, except per share data) Consolidated Statement of Operations Data: Software license fees............................... $ 7,341 | $ 56,796 $ 94,899 Maintenance fees.................................... 17,352 | 55,337 83,817 Professional service fees........................... 9,948 | 34,450 70,273 ------- | -------- -------- Total revenues.................................. 34,641 | 146,583 248,989 Gross profit........................................ 17,127 | 77,857 142,771 Operating expenses before write-off................. 15,817 | 59,354 100,690 Write-off of acquired in-process research and | development costs (1).............................. -- | 6,051 -- Income from operations.............................. 1,310 | 12,452 42,081 Income before income taxes.......................... 2,288 | 13,469 46,084 Net income.......................................... $ 1,373 | $ 5,338 $ 27,710 Net income per common share--Basic (2).............. $ 0.06 | $ 0.21 $ 0.93 Net income per common share--Diluted (2)............ $ 0.05 | $ 0.20 $ 0.87
Successor ----------------- 1997 1998 -------- -------- (in thousands, except per share data) Consolidated Balance Sheet Data: Working capital.............................................. $ 62,052 $ 85,946 Total assets................................................. 201,737 253,765 Long-term debt, less current maturities...................... -- 635 Total stockholders' equity................................... 89,818 127,908 Book value per share (3)..................................... 3.04 4.19
- -------- (1) The write-off of acquired in-process research and development costs for the nine months ended December 31, 1997 relates to the Company's acquisition of R.D. Nickel and Associates, Inc. in September 1997. Before deducting the nonrecurring write-off for this period, income from operations was $18.5 million, net income was $11.4 million and basic and diluted earnings per share for net income was $0.45 and $0.43, respectively. 15 (2) In accordance with the Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128") issued by the Financial Accounting Standards Board, the Company adopted the SFAS No. 128 during 1997. (3) Book value per share was computed by dividing stockholders' equity by the number of common shares outstanding at the end of each year presented. Summary Pro Forma Financial Information. The following Summary Unaudited Consolidated Pro Forma Financial Information gives effect to the purchase of the shares of Common Stock pursuant to the Offer and the payment of related fees and expenses, based on certain assumptions described in the notes to Summary Unaudited Consolidated Pro Forma Information. The pro forma financial information gives effect to the purchase of the shares of Common Stock pursuant to the Offer as if it had occurred on January 1, 1998 with respect to income statement data and on December 31, 1998 with respect to balance sheet data. The pro forma financial information should be read in conjunction with the historical consolidated financial information incorporated herein by reference and does not purport to be indicative of results that would actually have been obtained, or that may be obtained in the future, had the purchase of the shares of Common Stock pursuant to the Offer been completed at the date indicated.
Pro Forma ------------------------------------ Assumed Assumed $6.50 $8.00 Per Share Per Share Historical Purchase Price Purchase Price --------------- ----------------- ----------------- (in thousands, except per share dollar amounts) Consolidated Statement of Operations Data: Software license fees... $ 94,899 $ 94,899 $ 94,899 Maintenance fees........ 83,817 83,817 83,817 Professional service fees................... 70,273 70,273 70,273 --------------- --------------- --------------- Total revenues...... 248,989 248,989 248,989 Gross profit............ 142,771 142,771 142,771 Operating expenses...... 100,690 100,690 100,690 Income from operations.. 42,081 42,081 42,081 Income before income taxes.................. 46,084 44,099 43,649 Net income.............. $ 27,710 $ 26,499 $ 26,225 Net income per common share--Basic........... $ 0.93 $ 1.11 $ 1.09 Net income per common share--Diluted......... $ 0.87 $ 1.02 $ 1.01 Shares used for net income per common share--Basic........... 29,950 23,950 23,950 Shares used for net income per common share--Diluted......... 31,864 25,864 25,864 Consolidated Balance Sheet Data: Working capital......... $ 85,946 $ 46,246 $ 37,246 Total assets............ 253,765 214,065 205,065 Long-term debt, less current maturities..... 635 635 635 Total stockholders' equity................. 127,908 88,208 79,208 Book value per share.... $ 4.19 $ 3.60 $ 3.23 Common shares outstanding............ 30,517 24,517 24,517
- -------- The following assumptions regarding the Offer were made in determining the pro forma financial information: (1) The information assumes 6,000,000 shares were purchased at a $6.50 per share price and a $8.00 per share price, respectively. The purchase was assumed to be financed through the Company's cash balance on hand. (2) Expenses relating to the Offer were estimated to be $700,000, which were included as a part of the costs of the shares acquired, and charged against stockholders' equity. (3) Interest income would decrease as a result of a decrease in the cash balance. The assumed effective interest rate was 5%, which represents the average effective interest rate for the interest income earned based on average cash and cash equivalent balance during the reporting period. (4) The assumed income tax benefit resulting from decreased interest income was computed at 39%, which equals the historical effective tax rate for 1998. 16 Recent Developments. On April 20, 1999, the Company announced financial results for the first quarter ended March 31, 1999. Revenues in the first quarter of 1999 were $53.6 million versus $55.9 million recorded in the first quarter of 1998. Net income for the first quarters each of 1999 and 1998 was approximately $5.4 million, or $0.17 per diluted share. A copy of the Company's press release announcing first quarter 1999 earnings accompanies this Offer to Purchase. Over the next several months, the Company intends to complete one or more acquisitions of companies and/or technologies for an aggregate purchase price up to $15 million. There can be no assurance that these acquisitions will be completed or, if completed, will be consummated within the timeframes currently anticipated. The Company, certain of its directors and executive officers and the Company's principal stockholder have been named as defendants in purported class action lawsuits alleging violations of the federal securities laws. In general, the lawsuits claim, among other things, that the Company's accounting policies artificially inflated revenues and earnings and that defendants caused or permitted the Company to issue a series of materially false and misleading public statements about the Company's operations and financial results while, at the same time, selling Common Stock at artificially inflated prices. The Company believes that the allegations in the lawsuits are without merit and intends to defend the charges vigorously. Additional Information. The Company is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, is obligated to file reports and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be disclosed in proxy statements distributed to the Company's stockholders and filed with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 2120, Washington, D.C. 20549; at its regional offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade Center, New York, New York 10048. Copies of such material may also be obtained by mail, upon payment of the Commission's customary charges, from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web site on the World Wide Web at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission. Such reports, proxy statements and other information concerning the Company also can be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005, on which the Company's Common Stock is traded. 11. Interests Of Directors And Officers; Transactions And Arrangements Concerning Shares. As of April 26, 1999, the Company had issued and outstanding 30,602,814 shares of Common Stock. The 6,000,000 shares of Common Stock that the Company is offering to purchase pursuant to the Offer represent approximately 20% of the then outstanding shares. As of April 26, 1999, the Company's directors and executive officers as a group (12 persons) beneficially owned an aggregate of 15,868,559 shares of Common Stock (including 1,631,043 shares subject to options which are currently exercisable or exercisable within 60 days of April 27, 1999), representing approximately 49% of the outstanding shares assuming the exercise of the options by such persons. The Company has been advised that none of its directors and executive officers intend to tender shares of Common Stock pursuant to the Offer. If the Company purchases 6,000,000 shares pursuant to the Offer, then immediately after the purchase of shares of Common Stock pursuant to the Offer, the Company's executive officers and directors as a group will beneficially own approximately 60% of the outstanding shares of the Company's Common Stock assuming the exercise of the options by such persons. Based upon the Company's records and upon information provided to the Company by its directors, executive officers, associates and subsidiaries, neither the Company nor, to the best of the Company's knowledge, any of the directors or executive officers of the Company or any of its subsidiaries nor any associates or subsidiaries of the foregoing, has effected any transactions in the shares during the 40 business days prior to the date hereof. 17 Except as set forth in this Offer to Purchase, neither the Company nor any person controlling the Company nor, to the Company's knowledge, any of its directors or executive officers, is a party to any contract, arrangement, understanding or relationship with any other person relating, directly or indirectly, to the Offer with respect to any securities of the Company (including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies, consents or authorizations). 12. Effects Of The Offer On The Market For Shares; Registration Under The Exchange Act. The Company's purchase of shares of Common Stock pursuant to the Offer will reduce the number of shares that might otherwise be traded publicly and may reduce the number of stockholders. Nonetheless, the Company anticipates that there will be a sufficient number of shares of Common Stock outstanding and publicly traded following consummation of the Offer to ensure a continued trading market for the shares. Based upon published guidelines of the NYSE, the Company does not believe that its purchase of shares of Common Stock pursuant to the Offer will cause the Company's remaining Common Stock to be delisted from the NYSE. See Section 7. The shares of Common Stock are currently "margin securities" under the rules of the Federal Reserve Board. This has the effect, among other things, of allowing brokers to extend credit to their customers using such shares as collateral. The Company believes that, following the purchase of shares of Common Stock pursuant to the Offer, the shares of Common Stock will continue to be "margin securities" for purposes of the Federal Reserve Board's margin regulations. Shares of Common Stock the Company acquires pursuant to the Offer will be retained as treasury stock or canceled and returned to the status of authorized but unissued stock by the Company and will be available for the Company to issue without further stockholder action (except as required by applicable law or the rules of the NYSE). The Company has no current plans for issuance of the shares of Common Stock repurchased pursuant to the Offer. The shares of Common Stock are registered under the Exchange Act, which requires, among other things, that the Company furnish certain information to its stockholders and the Commission and comply with the Commission's proxy rules in connection with meetings of the Company's stockholders. The Company believes that its purchase of shares pursuant to the Offer will not result in deregistration of the shares under the Exchange Act. 13. Certain Legal Matters; Regulatory Approvals. The Company is not aware of any license or regulatory permit that appears to be material to the Company's business that might be adversely affected by the Company's acquisition of shares of Common Stock as contemplated herein or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of shares of the Company as contemplated herein. Should any such approval or other action be required, the Company presently contemplates that such approval or other action will be sought. The Company is unable to predict whether it may determine that it is required to delay the acceptance for payment of or payment for shares of Common Stock tendered pursuant to the Offer pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to the Company's business. The Company's obligations under the Offer to accept for payment and pay for shares of Common Stock is subject to certain conditions. See Section 7. 18 14. Certain U.S. Federal Income Tax Consequences. The following is a general summary of the material U.S. federal income tax consequences of the sale of shares pursuant to the Offer. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), its legislative history, Treasury Regulations thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change (possibly on a retroactive basis). This summary does not discuss all the tax consequences that may be relevant to a particular stockholder in light of the stockholder's particular circumstances and it is not intended to be applicable in all respects to all categories of stockholders. Some stockholders, such as insurance companies, tax-exempt persons, financial institutions, regulated investment companies, dealers in securities or currencies, persons that hold shares of Common Stock as a position in a "straddle" or as part of a "hedge," "conversion transaction" or other integrated investment, persons who received shares of Common Stock as compensation or persons whose functional currency is other than United States dollars, may be subject to different rules not discussed below. In addition, this summary does not address any state, local or foreign tax considerations that may be relevant to a stockholder's decision to tender shares of Common Stock pursuant to the Offer. This summary assumes shares of Common Stock are held as capital assets within the meaning of Section 1221 of the Code. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISER WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAL CONSEQUENCES OF PARTICIPATING IN THE OFFER, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. Tax Consequences of Offer--Distribution vs. Sale Treatment. The Company's purchase of shares of Common Stock from a stockholder pursuant to the Offer will be treated by the stockholder either as a sale of the shares or as a distribution by the Company. The purchase will be treated as a sale if the stockholder meets any of the three tests discussed below. It will be treated as a distribution if the stockholder satisfies none of the three tests discussed below. If the purchase of shares from a particular stockholder is treated as a sale, the stockholder will recognize gain or loss on the exchange in an amount equal to the difference between the amount of cash received by the stockholder and the stockholder's tax basis in the shares sold. The gain or loss will be capital gain or loss and will be long-term capital gain or loss if the shares were held more than one year. A stockholder must calculate gain or loss separately for each block of shares of Common Stock that he or she owns. A stockholder may be able to designate which blocks and the order of such blocks of shares of Common Stock to be tendered pursuant to the Offer. If the purchase of shares from a particular stockholder is treated as a distribution, the full amount of cash received by the particular stockholder for the shares (without offset by its tax basis in the purchased shares) will be treated as a dividend and taxed to the stockholder as ordinary income to the extent that the Company's current and accumulated earnings and profits would be allocable to the distribution. In addition, the tax basis of the stockholder's sold shares will be added to the tax basis of the remaining shares. The Company believes that it has sufficient current and accumulated earnings and profits so that all purchases treated as distributions will be treated as dividends and therefore taxed as ordinary income. Determination of Sale or Distribution Treatment. The Company's purchase of shares of Common Stock pursuant to the Offer will be treated as a sale of the shares by a stockholder if: (a) the purchase completely terminates the stockholder's equity interest in the Company; (b) the receipt of cash by the stockholder is "not essentially equivalent to a dividend"; or (c) as a result of the purchase there is a "substantially disproportionate" reduction in the stockholder's equity interest in the Company. If none of these tests are met with respect to a particular stockholder, then the stockholder will treat the Company's purchase of shares of Common Stock pursuant to the Offer as a distribution. 19 In applying the foregoing tests, the constructive ownership rules of Section 318 of the Code apply. Thus, a stockholder is treated as owning not only shares of Common Stock actually owned by the stockholder but also shares of Common Stock actually (and in some cases constructively) owned by others. Pursuant to the constructive ownership rules, a stockholder will be considered to own shares of Common Stock owned, directly or indirectly, by certain members of the stockholder's family and certain entities (such as corporations, partnerships, trusts and estates) in which the stockholder has an equity interest, as well as shares of Common Stock which the stockholder has an option to purchase. It may be possible for a tendering stockholder to satisfy one of the above three tests by contemporaneously selling or otherwise disposing of all or some of the shares of Common Stock that such stockholder actually or constructively owned that are not purchased pursuant to the Offer. Correspondingly, a tendering stockholder may not be able to satisfy one of the above three tests because of contemporaneous acquisitions of shares of Common Stock by such stockholder or a related party whose shares would be attributed to such stockholder. Stockholders should consult their tax advisors regarding the tax consequences of such sales or acquisitions in their particular circumstances. Complete Termination. A sale of shares pursuant to the Offer will be deemed to result in a "complete termination" of the stockholder's interest in the Company if, immediately after the sale, either: (a) the stockholder owns, actually and constructively, no shares of Common Stock; or (b) the stockholder actually owns no shares of Common Stock and constructively owns only shares of Common Stock as to which the stockholder is eligible to waive, and does effectively waive, constructive ownership under the procedures described in Section 302(c)(2) of the Code. If a stockholder desires to file such a waiver, the stockholder should consult his or her own tax advisor. Not Essentially Equivalent To A Dividend. A sale of shares pursuant to the Offer will be treated as "not essentially equivalent to a dividend" if it results in a "meaningful reduction" in the selling stockholder's proportionate interest in the Company. Whether a stockholder meets this test will depend on relevant facts and circumstances. The Internal Revenue Service (the "IRS") has held in a published ruling that, under the particular facts of that ruling, a 3.3% reduction in the percentage stock ownership of a stockholder constituted a "meaningful reduction" when the stockholder owned .0001118% of the publicly held corporation's stock before a redemption, owned .0001081% of the corporation's stock after the redemption, and did not exercise any control over corporate affairs. In that ruling, the IRS applied the meaningful reduction standard to the following three important rights attributable to stock ownership: (a) the right to vote; (b) the right to participate in current earnings and accumulated surplus; and (c) the right to share in net assets on liquidation. In measuring the change, if any, in a stockholder's proportionate interest in the Company, the meaningful reduction test is applied by taking into account all shares of Common Stock that the Company purchases pursuant to the Offer, including shares purchased from other stockholders. If, taking into account the constructive ownership rules of Section 318 of the Code, a stockholder owns shares of Common Stock that constitute only a minimal interest in the Company and does not exercise any control over the affairs of the Company, any reduction in the stockholder's percentage interest in all of the three rights described in the preceding sentence should be a "meaningful reduction." Such selling stockholder should, under these circumstances, be entitled to treat his or her sale of shares of Common Stock pursuant to the Offer as a sale for federal U.S. income tax purposes. Substantially Disproportionate. Under Section 302(b)(2) of the Code, a sale of shares of Common Stock pursuant to the Offer, in general, will be "substantially disproportionate" as to a stockholder if immediately after the sale the percentage of the outstanding Common Stock that the stockholder then actually and constructively 20 owns (treating as not outstanding all Common Stock purchased by the Company pursuant to the Offer from the particular stockholder and all other stockholders) is less than 80% of the percentage of the outstanding Common Stock that the stockholder actually and constructively owned immediately before the sale of shares (treating as outstanding all Common Stock purchased by the Company pursuant to the Offer from the particular stockholder and all other stockholders). Corporate Dividends-received Deduction. In the case of a corporate stockholder, if cash received pursuant to the Offer is treated as a dividend, the resulting dividend income may be eligible for the 70% dividends-received deduction. The dividends-received deduction is subject to certain limitations and may not be available if the corporate stockholder does not satisfy certain holding period requirements with respect to the Common Stock or if the Common Stock is treated as "debt financed portfolio stock". Corporate stockholders are urged to consult with their own tax advisors regarding the availability of the dividends-received deduction and the likelihood that the dividend would be treated as an "extraordinary dividend" under Section 1059(a) of the Code, in which case such corporate stockholder's tax basis in the Common Stock retained by such stockholder would be reduced, but not below zero, by the amount of the nontaxed portion of the dividend, and any amount of the nontaxed portion of the dividend in excess of the stockholder's basis generally would be treated as gain from the sale or exchange of such Common Stock for the taxable year in which the extraordinary dividend is received. The Company Cannot Predict Whether There Will Be Sale or Distribution Treatment. The Company cannot predict whether or the extent to which the Offer will be oversubscribed. If the Offer is oversubscribed, proration of tenders pursuant to the Offer will cause the Company to accept fewer shares of Common Stock than are tendered. Consequently, the Company can give no assurance that a sufficient number of any stockholder's shares of Common Stock will be purchased pursuant to the Offer to ensure that such purchase will be treated as a sale or exchange, rather than as a distribution, for U.S. federal income tax purposes pursuant to the rules discussed above. However, see Section 6 regarding a stockholder's right to tender shares of Common Stock subject to the condition that a specified minimum number of such shares of Common Stock must be purchased (if any are purchased). Consequences to Stockholders Who Do Not Sell Shares Pursuant to the Offer. Stockholders who do not sell shares of Common Stock pursuant to the Offer will not incur any tax liability as a result of the consummation of the Offer. Taxation of non-U.S. Stockholders. The rules governing U.S. federal income taxation of the receipt by non-U.S. stockholders of cash pursuant to the Offer are complex and no attempt is made herein to provide more than a brief summary of such rules. Accordingly, non-U.S. stockholders should consult with their own tax advisers to determine the impact of federal, state, local and foreign income tax laws with regard to the receipt of cash pursuant to the Offer. For purposes of this discussion, a "non-U.S. stockholder" means a stockholder who is not (a) a citizen or resident of the United States, (b) a corporation, or other entity taxable as a corporation, created or organized under the laws of the United States or of any state or political subdivision of the foregoing, (c) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or (d) a trust with regards to which a court within the United States is able to exercise primary supervision over the administration and one or more U.S. persons have the authority to control all substantial decisions. The U.S. generally imposes a withholding tax with respect to dividends to non-U.S. stockholders, and the Depositary intends to withhold 30% from the gross payments made to non-U.S. stockholders pursuant to the Offer, unless the Depositary determines that a non-U.S. stockholder is either exempt from the withholding tax or entitled to a reduced withholding rate under an income tax treaty. A non-U.S. stockholder who is eligible for a reduced rate of withholding pursuant to a U.S. income tax treaty must certify such to the Depositary by providing to the Depositary a properly executed IRS Form W-8BEN prior to the time payment is made. A non-U.S. stockholder may be eligible to obtain from the IRS a refund of tax withheld if such non-U.S. stockholder is able to establish that no tax (or a reduced amount of tax) is due. 21 A non-U.S. stockholder will not be subject to the withholding tax if a payment from the Company pursuant to the Offer is effectively connected with the conduct of a trade or business in the United States by such non-U.S. stockholder (or, if certain tax treaties apply, is attributable to a United States permanent establishment maintained by such non-U.S. stockholder) and the non-U.S. stockholder has furnished the Depositary with a properly executed IRS Form W-8ECI prior to the time of payment. If a payment from the Company pursuant to the Offer is effectively connected with a United States trade or business (or attributable to a United States permanent establishment, as the case may be), the non-U.S. stockholder will be subject to tax on a net basis at graduated rates, in the same manner as U.S. stockholders are taxed with respect to the payment. Backup Federal Income Tax Withholding. Payments in connection with the Offer may be subject to "backup withholding" at a 31% rate. Under the backup withholding rules, a stockholder may be subject to backup withholding at the rate of 31% with respect to a payment of cash pursuant to the Offer unless the stockholder (a) is a corporation or comes within certain other exempt categories (including financial institutions, tax-exempt organizations and non-U.S. stockholders) and, when required, demonstrates this fact or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A U.S. stockholder that does not provide the Depositary with a correct taxpayer identification number may also be subject to penalties imposed by the IRS. To prevent backup withholding and possible penalties, each stockholder should complete the substitute IRS Form W-9 included in the Letter of Transmittal. In order to qualify for an exemption from backup withholding, a non-U.S. stockholder must submit a properly executed IRS Form W-8 to the Depositary. Any amount paid as backup withholding will be creditable against the stockholder's U.S. federal income tax liability. ALL STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF EXCHANGING SHARES FOR CASH PURSUANT TO THE OFFER IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES. 15. Extension Of Offer; Termination; Amendment. The Company expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the events set forth in Section 7 shall have occurred or shall be deemed by the Company to have occurred, to extend the period of time during which the Offer is open and thereby delay acceptance for payment of and payment for any shares of Common Stock by giving oral or written notice of such extension to the Depositary and making a public announcement thereof. The Company also expressly reserves the right, in its sole discretion, to terminate the Offer and not accept for payment or pay for any shares of Common Stock not previously accepted for payment or paid for or, subject to applicable law, to postpone payment for shares of Common Stock upon the occurrence of any of the conditions specified in Section 7 by giving oral or written notice of such termination or postponement to the Depositary and making a public announcement thereof. The Company's reservation of the right to delay payment for shares of Common Stock which it has accepted for payment is limited by Rule 13e-4(f)(5) promulgated under the Exchange Act, which requires that the Company must pay the consideration offered or return the shares of Common Stock tendered promptly after termination or withdrawal of a tender offer. Subject to compliance with applicable law, the Company further reserves the right, in its sole discretion, and regardless of whether any of the events set forth in Section 7 shall have occurred or shall be deemed by the Company to have occurred, to amend the Offer in any respect (including, without limitation, by decreasing or increasing the consideration offered in the Offer to holders of shares or by decreasing or increasing the number of shares being sought in the Offer). Amendments to the Offer may be made at any time and from time to time effected by public announcement thereof, such announcement, in the case of an extension, to be issued no later than 9:00 a.m., Eastern time, on the next business day after the last previously scheduled or announced Expiration Date. Any public announcement made pursuant to the Offer will be disseminated promptly to stockholders in a manner reasonably designed to inform 22 stockholders of such change. Without limiting the manner in which the Company may choose to make a public announcement, except as required by applicable law, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a press release to the Dow Jones News Service. If the Company materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, the Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) promulgated under the Exchange Act. These rules require that the minimum period during which an offer must remain open following material changes in the terms of the Offer or information concerning the Offer (other than a change in price or a change in percentage of securities sought) will depend on the facts and circumstances, including the relative materiality of such terms or information. If (a) the Company increases or decreases the price to be paid for shares, the Dealer Manager's soliciting fee or the number of shares of Common Stock being sought in the Offer and, in the event of an increase in the number of shares being sought, such increase exceeds 2% of the outstanding shares, and (b) the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from and including the date that such notice of an increase or decrease is first published, sent or given in the manner specified in this Section 15, the Offer will be extended until the expiration of such period of ten business days. 16. Fees And Expenses. The Company has retained Salomon Smith Barney Inc. to act as Dealer Manager in connection with the Offer. Salomon Smith Barney Inc. will receive a fee of $0.10 per share purchased by the Company pursuant to the Offer for its services as Dealer Manager. The Company also has agreed to reimburse the Dealer Manager for certain expenses incurred in connection with the Offer, including out-of-pocket expenses and reasonable attorney's fees and disbursements. Salomon Smith Barney Inc. has rendered various investment banking and other advisory services to the Company in the past, for which it received customary compensation, and can be expected to render similar services to the Company in the future. The Dealer Manager will also be indemnified against certain liabilities, including liabilities under the federal securities laws, in connection with the Offer. The Company has retained The Bank of New York as Depositary and Corporate Investor Communications, Inc., as Information Agent in connection with the Offer. The Information Agent may contact shareholders by mail, telephone, facsimile, telex, telegraph, or other electronic means and personal interviews, and may request brokers, dealers and other nominee shareholders to forward materials relating to the Offer to beneficial owners. The Depositary and the Information Agent will receive reasonable and customary compensation for their services and will also be reimbursed for certain out-of-pocket expenses. The Company has agreed to indemnify the Depositary and the Information Agent against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Offer. Neither the Information Agent nor the Depositary has been retained to make solicitations or recommendations in connection with the Offer. The Company will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Common Stock pursuant to the Offer (other than the fee of the Dealer Manager). The Company will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and customary handling and mailing expenses incurred by them in forwarding materials relating to the Offer to their customers. The Company will pay or cause to be paid all stock transfer taxes, if any, on its purchase of shares except as otherwise provided in Instruction 7 in the Letter of Transmittal. 17. Miscellaneous. The Company is not aware of any jurisdiction where the making of the Offer is not in compliance with applicable law. If the Company becomes aware of any jurisdiction where the making of the Offer is not in compliance with any valid applicable law, the Company will make a good faith effort to comply with such law. If, after such good faith effort, the Company cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of shares of Common Stock residing in such 23 jurisdiction. In those jurisdictions whose securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Company by the Dealer Manager or one or more registered brokers or dealers licensed under the laws of such jurisdictions. Pursuant to Rule 13e-4 of the General Rules and Regulations under the Exchange Act, the Company has filed with the Commission an Issuer Tender Offer Statement on Schedule 13E-4 which contains additional information with respect to the Offer. Such Schedule 13E-4, including the exhibits and any amendments thereto, may be examined, and copies may be obtained, at the same places and in the same manner as is set forth in Section 10 with respect to information concerning the Company. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF THE COMPANY OR THE DEALER MANAGER IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE RELATED LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DEALER MANAGER. Software AG Systems, Inc. April 27, 1999 24 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates for shares of Common Stock and any other required documents should be sent or delivered by each stockholder or such stockholder's broker, dealer, commercial bank, trust company or other nominee to the Depositary at its address set forth below: The Depositary for the Offer is: The Bank of New York Delivery Addresses By Mail By Facsimile By Hand or (First Class Only): (For Eligible Overnight Delivery: Tender & Exchange Institutions Only): Tender & Exchange Department (212) 815-6213 Department P.O. Box 11248 Receive and Deliver Church Street Station Confirm by telephone: Window New York, New York (800) 507-9357 New York, New York 10286 10286-1248 ---------------- Any questions or requests for assistance or additional copies of this Offer to Purchase, the Letter of Transmittal, or the Notice of Guaranteed Delivery may be directed to the Information Agent at the telephone number and address below. Stockholders may also contact their broker, dealer, commercial bank, or trust company for assistance concerning the Offer. The Information Agent for the Offer is Corporate Investors Communications, Inc. 111 Commerce Road Carlstadt, NY 07072-2586 All Calls Toll Free (877) 460-2562 The Dealer Manager for the Offer is: Salomon Smith Barney 390 Greenwich Street New York, New York 10013 (800) 996-7920 EX-99.A.2 3 EXHIBIT (A)(2) Exhibit (a)(2) LETTER OF TRANSMITTAL To Tender Shares of Common Stock of SOFTWARE AG SYSTEMS, INC. Pursuant to the Offer to Purchase Dated April 27, 1999 THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, MAY 25, 1999 UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: THE BANK OF NEW YORK By Hand or Overnight Delivery: By Facsimile Transmission: Tender & Exchange Department (Eligible Institutions only. 101 Barclay Street See Instruction 1) Receive and Deliver Window (212) 815-6213 New York, New York 10286 By Mail: For Confirmation by Telephone: Tender & Exchange Department (800) 507-9357 P.O. Box 11248 Church Street Station New York, New York 10286-1248 DESCRIPTION OF SHARES TENDERED (See Instructions 3 and 4) - --------------------------------------------------------------------------------
Name(s) and address(es) of registered holder(s) (please fill in, if blank, exactly as name(s) appear(s) on Shares Tendered certificate(s)) (Attach Additional List if Necessary) - ----------------------------------------------------------------------------------- Total Number of Shares Represented Number Certificate(s) by of Shares Number(1) Certificate(s)(2) Tendered(3) -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- Total Shares - -----------------------------------------------------------------------------------
(1) Need not be completed by stockholders tendering Shares by book-entry transfer. (2) This letter of transmittal may not be used for shares attributable to accounts under the Software AG Systems, Inc. 1997 Stock Option Plan. See Section 3, "Procedures for Tendering Shares--Stock Option Plans" in the Offer to Purchase. (3) If you desire to tender fewer than all Shares evidenced by any certificates listed above, please indicate in this column the number of Shares you wish to tender. Otherwise, all Shares evidenced by such certificates will be deemed to have been tendered. See Instruction 4. 1 Indicate in this box the order (by certificate number) in which Shares are to be purchased in the event of proration. If you do not designate an order, in the event less than all Shares tendered are purchased due to proration, Shares will be selected for purchase by the Depositary. See Instruction 10. - --------------------------------------------------------------------------------------------------------------- 1st: 2nd: 3rd: 4th: 5th:
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE ON THIS LETTER OF TRANSMITTAL WILL NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT CONSTITUTE VALID DELIVERY. DELIVERIES TO DTC WILL NOT CONSTITUTE VALID DELIVERY TO THE DEPOSITARY. Any stockholder wishing to tender all or any part of his or her shares of Common Stock should either: (i) complete and sign this Letter of Transmittal (or a facsimile hereof) in accordance with the instructions hereto and either mail or deliver it with any required signature guarantee and any other required documents to The Bank of New York (the "Depositary"), and either mail or deliver the stock certificates for such shares to the Depositary (with all such other documents) or tender such shares pursuant to the procedure for book-entry tender set forth in Section 3, or (ii) request a broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Holders of shares of Common Stock registered in the name of a broker, dealer, commercial bank, trust company or other nominee should contact such person if they desire to tender their shares. Any stockholder who desires to tender shares of Common Stock and whose certificates for such shares cannot be delivered to the Depositary or who cannot comply with the procedure for book-entry transfer or whose other required documents cannot be delivered to the Depositary, in any case, by the expiration of the Offer must tender such shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. Questions and requests for assistance or for additional copies of this Letter of Transmittal, the Offer to Purchase or the Notice of Guaranteed Delivery may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers listed below. LOST, STOLEN OR DESTROYED CERTIFICATES: Check here if any of the certificates representing Shares that you own have been lost, destroyed or stolen. See Instruction 16. Number of Shares represented by lost, destroyed or stolen certificates: [_] Lost___________ [_] Destroyed______________ [_] Stolen____________ (Shares) (Shares) (Shares) 2 METHOD OF TENDER UNCONDITIONAL TENDER OF SHARES (check one box): [_]Check here if tendered Shares are enclosed herewith. [_]Check here if tendered Shares are being delivered by book-entry transfer made to the account maintained by the Depositary at DTC and complete the following (for use by Eligible Institutions only): Name of Tendering Institution: _____________________________________________ DTC Account Number: ________________________________________________________ Transaction Code Number: ___________________________________________________ [_]Check here if tendered Shares are being delivered pursuant to a Notice of Guaranteed Delivery enclosed herewith and complete the following (for use by Eligible Institutions only): Name of Registered Holder(s): ______________________________________________ Window Ticket Number (if any): _____________________________________________ Date of Execution of Notice of Guaranteed Delivery: ________________________ Name of Eligible Institution that Guaranteed Delivery: _____________________ CONDITIONAL TENDER OF SHARES (See Instruction 9) Odd lot shares cannot be conditionally tendered. [_]Check here if tendering all of the stockholder's Shares and if tender of Shares is conditional on the Company's purchasing all or a minimum number of the tendered Shares and complete the following: Minimum Number of Shares to be Sold: _______________________________________ ODD LOTS (See Instruction 8) To be completed ONLY if the Shares are being tendered by or on behalf of a person owning an aggregate of 99 or fewer Shares (excluding shares attributable to individual accounts under the Stock Option Plan) (check one box): [_]The undersigned is tendering such Shares at the Purchase Price, as the same shall be determined by the Company in accordance with the terms of the Offer (persons checking this box need not indicate the price per Share below); or [_]The undersigned is tendering such Shares at the price per Share indicated below under "Price (In Dollars) Per Share at Which Shares Are Being Tendered." 3 Ladies and Gentlemen: The undersigned hereby tenders to Software AG Systems, Inc., a Delaware corporation (the "Company"), the above described shares of the Company's Common Stock, $0.01 par value per share (the "Shares"), at a price per Share indicated in this Letter of Transmittal (unless this Letter of Transmittal is for an Odd Lot Holder who has elected to accept the Purchase Price determined by the Company), in cash, upon the terms and subject to the conditions set forth in the Company's Offer to Purchase, dated April 27, 1999 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitute the "Offer"). Subject to and effective upon acceptance for payment of and payment for the Shares tendered hereby in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to all the Shares that are being tendered hereby and orders the registration of all such Shares if tendered by book-entry transfer that are purchased pursuant to the Offer and hereby irrevocably constitutes and appoints the Depositary as the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that said Depositary also acts as the agent of the Company) with respect to such Shares with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to: (a) deliver certificate(s) for such Shares or transfer ownership of such Shares on the account books maintained by DTC, together, in either such case, with all accompanying evidences of transfer and authenticity, to, or upon the order of, the Company upon receipt by the Depositary, as the undersigned's agent, of the aggregate Purchase Price (as defined below) with respect to such Shares; (b) present certificates for such Shares for cancellation and transfer on the Company's books; and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, subject to the next paragraph, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants to the Company that: (a) the undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer, including the undersigned's representation and warranty to the Company that: (i) the undersigned has a net long position in Shares or equivalent securities at least equal to the Shares tendered within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and (ii) such tender of Shares complies with Rule 14e-4 under the 1934 Act; (b) the undersigned has full power and authority to tender, sell, assign and transfer Shares tendered hereby and that, when and to the extent the Company accepts such Shares for purchase, the Company will acquire good, marketable and unencumbered title to them, free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, and not subject to any adverse claim; (c) on request, the undersigned will execute and deliver any additional documents the Depositary or the Company deems necessary or desirable to complete the assignment, transfer and purchase of the Shares tendered hereby; and (d) the undersigned has read and agrees to all of the terms of the Offer. 4 All authorities conferred or agreed to be conferred in this Letter of Transmittal shall not be affected by, and shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy, and legal representatives of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The Company's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Offer. The name(s) and address(es) of the registered holder(s) should be printed above, if they are not already printed above, exactly as they appear on the certificates representing Shares tendered hereby. The certificate numbers, the number of Shares represented by such certificates and the number of Shares that the undersigned wishes to tender, should be set forth in the appropriate boxes above. Any order (by certificate number) in which the tendered Shares must be purchased should also be indicated above. The price at which such Shares are being tendered should be indicated in the box below (unless this Letter of Transmittal is for an Odd Lot Holder who has elected to accept the Purchase Price determined by the Company). The undersigned understands that the Company will, upon the terms and subject to the conditions of the Offer, determine a single per Share price (not greater than $8.00 nor less than $6.50 per Share) in cash (the "Purchase Price") that it will pay for Shares validly tendered and not withdrawn prior to the Expiration Date pursuant to the Offer, taking into account the number of Shares so tendered and the prices (in multiples of $0.125) specified by tendering stockholders. The undersigned understands that the Company will select the lowest Purchase Price that will allow it to buy 6,000,000 Shares (or such lesser number of Shares as are validly tendered at prices not greater than $8.00 nor less than $6.50 per Share) pursuant to the Offer. The undersigned understands that all Shares properly tendered at prices at or below the Purchase Price and not withdrawn prior to the Expiration Date will be purchased at the Purchase Price, upon the terms and subject to the conditions of the Offer, including its proration and conditional tender provisions, and that the Company will return all other Shares not purchased pursuant to the Offer, including Shares tendered at prices greater than the Purchase Price and not withdrawn prior to the Expiration Date and Shares not purchased because of proration or conditional tender. The undersigned recognizes that, under certain circumstances set forth in the Offer to Purchase, the Company may terminate or amend the Offer or may postpone the acceptance for payment of, or the payment for, Shares tendered or may accept for payment fewer than all of the Shares tendered hereby. In any such event, the undersigned understands that certificate(s) for any Shares delivered herewith but not tendered or not purchased will be returned to the undersigned at the address indicated above, unless otherwise indicated under the "Special Payment Instructions" or "Special Delivery Instructions" boxes below. The undersigned recognizes that the Company has no obligation, pursuant to the "Special Payment Instructions," to transfer any certificate for Shares from the name of its registered holder, or to order the registration or transfer of Shares tendered by book-entry transfer, if the Company purchases none of the Shares represented by such certificate or tendered by such book- entry transfer. 5 The check for the aggregate Purchase Price for such of the Shares tendered hereby as are purchased will be issued to the order of the undersigned and mailed to the address indicated above, unless otherwise indicated under the "Special Payment Instructions" or "Special Delivery Instructions" boxes below. PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED (See Instruction 5) - -------------------------------------------------------------------------------- CHECK ONLY ONE BOX If more than one box is checked or if no box is checked, there is no valid tender of shares (except that Odd Lot Holders may check a box below but are not required to if they accept the Purchase Price, as determined by the Company pursuant to the Offer). Stockholders who desire to tender shares at more than one price must complete a separate letter of transmittal for each price at which shares are tendered. - -------------------------------------------------------------------------------- [_] $6.50 [_] $7.00 [_] $7.375 [_] $7.75 [_] $6.625 [_] $7.125 [_] $7.50 [_] $7.875 [_] $6.75 [_] $7.25 [_] $7.625 [_] $8.00 [_] $6.875 SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 4, 6, 7 and (See Instructions 1, 4, 6 and 11) 11) To be completed ONLY if certif- To be completed ONLY if certif- icates for Shares not tendered icates for Shares not tendered or not purchased and/or any or not purchased and/or any check for the aggregate Purchase check for the aggregate Purchase Price of Shares purchased are to Price of Shares purchased are to be issued in the name of someone be issued in the name of and other than the undersigned. sent to someone other than the undersigned. Issue Certificate(s) and/or Mail Certificate(s) and/or Check Check to: to: Name ____________________________ Name_____________________________ (please print or type) (please print or type) Address _________________________ Address _________________________ _________________________________ _________________________________ _________________________________ _________________________________ (include zip code) (include zip code) _________________________________ IF SPECIAL DELIVERY INSTRUCTIONS (Tax Identification or Social ARE BEING GIVEN, PLEASE REMEMBER Security Number) TO HAVE YOUR SIGNATURE GUARANTEED. IF SPECIAL PAYMENT INSTRUCTIONS ARE BEING GIVEN, PLEASE REMEMBER TO HAVE YOUR SIGNATURE GUARANTEED. 6 HOLDER(S) PLEASE SIGN HERE (See Instructions 2, 5 and 6) (Please Complete Substitute Form W-9 Contained Herein) Must be signed by the registered holder(s) exactly as name(s) appear(s) on certificate(s) or, in the case of book-entry securities, on a security position listing or by person(s) authorized to become registered holder(s) by certificate(s) and documents transmitted with this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in- fact, officer of a corporation or another person acting in a fiduciary or representative capacity, please set forth the signer's full title and see Instruction 6. SIGNATURE OF OWNER(S) ............................................................. (Signature(s) of Holder(s) or Authorized Signatory) ............................................................. (Name(s), Please Print) Dated: ............... , 1999 Capacity: ................... Address...................................................... ............................................................. ............................................................. ............................................................. (Please include ZIP code) Telephone No. (with area code): ............................. Tax ID No.: ................................................. GUARANTEE OF SIGNATURES (See Instructions 1 and 6 below) Certain Signatures Must Be Guaranteed by an Eligible Institution ............................................................. (Authorized Signature) ............................................................. (Print Name) ............................................................. (Capacity (full title)) ............................................................. (Name of Eligible Institution Guaranteeing Signature) ............................................................. ............................................................. ............................................................. (Address of Firm--Please include ZIP code) ............................................................. Telephone No. (with area code) of Firm: Dated: ............................................... , 1999 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm which is a bank, broker, dealer, credit union, savings association, or other "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the 1934 Act (each, an "Eligible Institution"). No signature guarantee is required on this Letter of Transmittal (i) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this document, shall include any participant in DTC whose name appears on a security position listing as the owner of Shares) of Shares tendered herewith, unless such holder(s) has completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" included herein, or (ii) if such Shares are tendered for the account of an Eligible Institution. See Instructions 6 and 11. 2. Delivery of Letter of Transmittal and Share Certificates; Guaranteed Delivery Procedures. This Letter of Transmittal is to be used only if certificates for Shares are delivered with it to the Depositary (or such certificates will be delivered pursuant to a Notice of Guaranteed Delivery previously sent to the Depositary) or if a tender for Shares is being made concurrently pursuant to the procedure for tender by book-entry transfer set forth in Section 3 of the Offer to Purchase. Certificates for all physically tendered Shares or confirmation of a book-entry transfer into the Depositary's account at DTC of Shares tendered electronically, together in each case with a properly completed and duly executed Letter of Transmittal or duly executed and manually signed facsimile of it, and any other documents required by this Letter of Transmittal, should be mailed or delivered to the Depositary at the appropriate address set forth above and must be delivered to the Depositary on or before the Expiration Date (as defined in the Offer to Purchase). If certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Delivery of documents to DTC does not constitute delivery to the Depositary. Stockholders whose certificates are not immediately available or who cannot deliver certificates for their Shares and all other required documents to the Depositary before the Expiration Date, or whose Shares cannot be delivered on a timely basis pursuant to the procedures for book-entry transfer, must, in any case, tender their Shares by or through any Eligible Institution by properly completing and duly executing and delivering a Notice of Guaranteed Delivery (or facsimile of it) and by otherwise complying with the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure, certificates for all physically tendered Shares or book- entry confirmations, as the case may be, as well as a properly completed and duly executed Letter of Transmittal (or facsimile of it) and all other documents required by this Letter of Transmittal, must be received by the Depositary within three (3) NYSE trading days after receipt by the Depositary of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a signature guarantee by an Eligible Institution in the form set forth in such Notice. For Shares to be tendered validly pursuant to the guaranteed delivery procedure, the Depositary must receive the Notice of Guaranteed Delivery on or before the Expiration Date. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. The Company will not accept any alternative, conditional or contingent tenders, nor will it purchase any fractional Shares, except as expressly provided in the Offer to Purchase. All tendering stockholders, by execution of this Letter of Transmittal (or a facsimile of it), waive any right to receive any notice of the acceptance of their tender. 8 3. Inadequate Space. If the space provided in the box captioned "Description of Shares Tendered" is inadequate, the certificate numbers, the class or classes, and/or the number of Shares should be listed on a separate signed schedule and attached to this Letter of Transmittal. 4. Partial Tenders and Unpurchased Shares. (Not applicable to stockholders who tender by book-entry transfer.) If fewer than all of the Shares evidenced by any certificate are to be tendered, fill in the number of Shares that are to be tendered in the column entitled "Number of Shares Tendered," in the box captioned "Description of Shares Tendered." In such case, if any tendered Shares are purchased, a new certificate for the remainder of the Shares (including any Shares not purchased) evidenced by the old certificate(s) will be issued and sent to the registered holder(s), unless otherwise specified in either the "Special Payment Instructions" or "Special Delivery Instructions" box on this Letter of Transmittal, as soon as practicable after the Expiration Date. Unless otherwise indicated, all Shares represented by the certificates(s) listed and delivered to the Depositary will be deemed to have been tendered. 5. Indication of Price at Which Shares are being Tendered. Except if this Letter of Transmittal is for an Odd Lot Holder who has elected to accept the Purchase Price determined by the Company and has checked the appropriate box, for Shares to be validly tendered, the stockholder MUST check the box indicating the price per Share at which he or she is tendering Shares under "Price (In Dollars) Per Share at Which Shares Are Being Tendered" on this Letter of Transmittal. ONLY ONE BOX MAY BE CHECKED. IF MORE THAN ONE BOX IS CHECKED OR IF NO BOX IS CHECKED, THERE IS NO VALID TENDER OF SHARES. A stockholder wishing to tender portions of his or her Share holdings at different prices must complete a separate Letter of Transmittal (and, if applicable, a separate Notice of Guaranteed Delivery) for each price at which he or she wishes to tender each such portion of his or her Shares. The same Shares cannot be tendered (unless previously properly withdrawn as provided in Section 4 of the Offer to Purchase) at more than one price. 6. Signatures on Letter of Transmittal, Stock Powers and Endorsements. (a) If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the certificate(s) without any change whatsoever. (b) If any tendered Shares are registered in the names of two or more joint holders, each such holder must sign this Letter of Transmittal. (c) If any tendered Shares are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of certificates. (d) When this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsement(s) of certificate(s) representing such Shares or separate stock power(s) are required unless payment of the Purchase Price is to be made or the certificate(s) for the Shares not tendered or not purchased are to be issued to a person other than the registered holder(s). If this Letter of Transmittal is signed by a person other than the registered holder(s) of the certificate(s) listed, or if payment is to be made to a person other than the registered holder(s), the certificate(s) must be endorsed or accompanied by appropriate stock power(s), in either case signed exactly as the name(s) of the registered holder(s) appears on the certificate(s). SIGNATURE(S) ON SUCH CERTIFICATE(S) OR STOCK POWER(S) MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. See Instruction 1. (e) If this Letter of Transmittal or any certificate(s) or stock powers(s) are signed by trustees, executors, administrators, guardians, attorneys-in- fact, officers of corporations or others acting in fiduciary or representative capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to the Company of their authority to so act. 9 7. Stock Transfer Taxes. Except as provided in this Instruction 7, no stock transfer tax stamps or funds to cover such stamps need accompany this Letter of Transmittal. The Company will pay or cause to be paid any stock transfer taxes payable on the transfer to it of Shares purchased pursuant to the Offer. If, however: (a) payment of the aggregate Purchase Price for Shares tendered hereby and accepted for purchase is to be made to any other person than the registered holder(s); (b) Shares not tendered or not accepted for purchase are to be registered in the name(s) of any person(s) other than the registered holder(s); or (c) tendered certificates are registered in the name(s) of any person(s) other than the person(s) signing this Letter of Transmittal; then the Depositary will deduct from such aggregate Purchase Price the amount of any stock transfer taxes (whether imposed on the registered holder, such other person or otherwise) payable on account of the transfer to such person, unless satisfactory evidence of the payment of such taxes or any exemption from them is submitted. 8. Odd Lots. As described in Section 1 of the Offer to Purchase, if the Company is to purchase fewer than all Shares tendered at or below the Purchase Price before the Expiration Date and not withdrawn, the Shares purchased first will consist of all Shares tendered by any stockholder who owns beneficially an aggregate of 99 or fewer Shares (excluding shares attributable to individual accounts under the Stock Option Plan), and who tenders all of his or her Shares at or below the Purchase Price (an "Odd Lot Holder"). This preference will not be available unless the box captioned "Odd Lots" is completed. 9. Conditional Tenders. As described in Sections 1 and 6 of the Offer to Purchase, stockholders may condition their tenders on all or a minimum number of their tendered Shares being purchased ("Conditional Tenders"). If the Company is to purchase less than all Shares tendered before the Expiration Date and not withdrawn, the Depositary will perform a preliminary proration, and any Shares tendered at or below the Purchase Price pursuant to a Conditional Tender for which the condition was not satisfied by the preliminary proration shall be deemed withdrawn, subject to reinstatement if such conditional tendered Shares are subsequently selected by random lot for purchase subject to Sections 1 and 6 of the Offer to Purchase. CONDITIONAL TENDERS WILL BE SELECTED BY A LOT ONLY FROM STOCKHOLDERS WHO TENDER ALL OF THEIR SHARES. All tendered Shares shall be deemed unconditionally tendered unless the "Conditional Tender" box is completed. The Conditional Tender alternative is made available so that a stockholder may assure that the purchase of Shares from the stockholder pursuant to the Offer will be treated as a sale of such Shares by the stockholder, rather than the payment of a dividend to the stockholder, for federal income tax purposes. Odd Lot Shares, which will not be subject to proration, cannot be conditionally tendered. It is the tendering stockholder's responsibility to calculate the minimum number of Shares that must be purchased from the stockholder in order for the stockholder to qualify for sale (rather than dividend) treatment, and each stockholder is urged to consult his or her own tax advisor. IN THE EVENT OF PRORATION, ANY SHARES TENDERED PURSUANT TO A CONDITIONAL TENDER FOR WHICH THE MINIMUM REQUIREMENTS ARE NOT SATISFIED MAY NOT BE ACCEPTED AND THEREBY WILL BE DEEMED WITHDRAWN. 10. Order of Purchase in Event of Proration. As described in Section 1 of the Offer to Purchase, stockholders may designate the order in which their Shares are to be purchased in the event of proration. The order of purchase may have an effect on the federal income tax treatment of the Purchase Price for the Shares purchased. If you do not designate an order, in the event that fewer than all Shares tendered are purchased due to proration, Shares will be selected for purchase by the Depositary. See Sections 1 and 14 of the Offer to Purchase. 11. Special Payment and Delivery Instructions. If certificate(s) for Shares not tendered or not purchased and/or check(s) are to be issued in the name of a person other than the signer of the Letter of 10 Transmittal or to the signer at a different address, the boxes captioned "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal should be completed as applicable and signatures must be guaranteed as described in Instruction 1. 12. Irregularities. All questions as to the number of Shares to be accepted, the price to be paid therefor and the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Company in its sole discretion, which determinations shall be final and binding on all parties. The Company reserves the absolute right to reject any or all tenders of Shares it determines not to be in proper form or the acceptance of which or payment for which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular Shares, and the Company's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No tender of Shares will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Company shall determine. None of the Company, the Dealer Manager, the Depositary, the Information Agent or any other person is or will be obligated to give notice of any defects or irregularities in tenders and none of them will incur any liability for failure to give any such notice. 13. Questions and Requests for Assistance and Additional Copies. Questions and requests for assistance may be directed to, or additional copies of the Offer to Purchase, the Notice of Guaranteed Delivery and this Letter of Transmittal may be obtained from the Information Agent or the Dealer Manager at their respective addresses and telephone numbers listed below. Shareholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 14. 31% Backup Withholding. Under federal income tax law, a stockholder who receives a payment pursuant to the Offer is required to provide the Depositary (as payor) with such stockholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the stockholder is an individual, the TIN is his or her social security number. If the Depositary is not provided with the correct TIN, payments that are made to the stockholder or other payee with respect to the Offer may be subject to 31% backup withholding. Certain stockholders (including, among others, corporations and certain foreign individuals) may not be subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the stockholder must submit to the Depositary a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld, provided that the required information is given to the Internal Revenue Service. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the submitting stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% on all payments made prior to the time a properly certified TIN is provided to the Depositary. However, such amounts will be refunded to the stockholder if a TIN is provided to the Depositary within 60 days. The stockholder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. 11 15. Withholding for Non-U.S. Stockholders. Although a non-U.S. stockholder may be exempt from U.S. federal income tax backup withholding, certain payments to non-U.S. stockholders are subject to U.S. withholding tax at a rate of 30%. The Depositary will withhold the 30% from gross payments made to non-U.S. stockholders pursuant to the Offer unless the Depositary determines that a non-U.S. stockholder is either exempt from the withholding or entitled to a reduced withholding rate under an income tax treaty. For purposes of this discussion, a "non-U.S. stockholder" is a stockholder who is not (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organized in the United States or under the law of the United States or of any State or political subdivision of the foregoing, (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or (iv) a trust with respect to which a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. trustees have the authority to control all substantial decisions. A non-U.S. stockholder will not be subject to the withholding tax on a payment from the Company pursuant to the Offer if the payment is effectively connected with the conduct of a trade or business in the United States by the non-U.S. stockholder (and, if certain tax treaties apply, is attributable to a United States permanent establishment maintained by such non-U.S. stockholder) and the non-U.S. stockholder has furnished the Depositary with a properly executed IRS Form W-8ECI prior to the time of payment. A non-U.S. stockholder who is eligible for a reduced rate of withholding pursuant to a U.S. income tax treaty must certify such to the Depositary by providing to the Depositary a properly executed IRS Form W-8BEN prior to the time payment is made. A non-U.S. stockholder may be eligible to obtain from the IRS a refund of tax withheld if such non-U.S. stockholder is able to establish that no tax (or a reduced amount of tax) is due. 16. Lost, Destroyed or Stolen Certificates. If any certificate(s) representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary by checking the box provided in the box titled "Description of Shares Tendered" and indicating the number of Shares represented by the certificate so lost, destroyed or stolen. The stockholder will then be instructed by the Depositary as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen certificates have been followed. Please allow at least ten to fourteen business days to complete such procedures. 12 NAME ___________________________________________________________________ ADDRESS ________________________________________________________________ (CITY, STATE AND ZIP CODE) PAYER'S NAME: THE BANK OF NEW YORK PART 1--PROVIDE YOUR TIN IN SUBSTITUTE THE BOX TO THE RIGHT AND ------------------- Form W-9 CERTIFY BY SIGNING AND DATING Social Security BELOW Number Department of OR the Treasury Internal ------------------- Revenue Service Employer Identification No. ------------------------------------------------------ Payer's Request for Taxpayer Identification Number (TIN) For Payee Exempt From Backup Withholding PART 2: CERTIFICATION. Under penalties of perjury, I certify that (1) the number above on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because I am exempt from backup withholding, I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. Part 4 Exempt: [ ] Check here if you are exempt from backup withholding ------------------------------------------------------ Certificate Instructions. You must PART 3: cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). ------------------------------------------------------ Signature: _______________________ Date: _______ Awaiting TIN [ ] Name (Please Print): ______________________________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 13 YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate IRS Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable dividend payments made to me thereafter on shares of Common Stock issued upon exercise of the Rights will be withheld until I provide a taxpayer identification number. Signature __________________________ Date ____________________________ Name (Please Print) ________________ The Information Agent: CORPORATE INVESTOR COMMUNICATIONS, INC. 111 Commerce Road Carlstadt, NJ 07072-2528 ALL CALLS: (877) 460-2562 The Dealer Manager: SALOMON SMITH BARNEY 390 Greenwich Street New York, New York 10013 Call Toll Free: (800) 996-7920 14 EX-99.A.3 4 EXHIBIT (A)(3) Exhibit (a)(3) SOFTWARE AG SYSTEMS, INC. NOTICE OF GUARANTEED DELIVERY For Tender of Shares of Common Stock (not to be used for signature guarantees) This form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if certificates for the shares of Common Stock of Software AG Systems, Inc. are not immediately available, if the procedure for book-entry transfer cannot be completed on a timely basis, or if time will not permit all other documents required by the Letter of Transmittal to be delivered to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase (defined below)). Such form may be delivered by hand or transmitted by mail or overnight courier, or (for Eligible Institutions (as defined below) only) by facsimile transmission, to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: THE BANK OF NEW YORK By Hand or Overnight Delivery: By Facsimile Transmission: Tender & Exchange Department (Eligible Institutions only. 101 Barclay Street See Instruction 1) Receive and Deliver Window (212) 815-6213 New York, New York 10286 By Mail: For Confirmation by Telephone: (800) 507-9357 Tender & Exchange Department P.O. Box 11248 Church Street Station New York, New York 10286-1248 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT CONSTITUTE VALID DELIVERY. DELIVERIES TO DTC WILL NOT CONSTITUTE VALID DELIVERY TO THE DEPOSITARY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for shares to the Depositary within the time shown herein. Failure to do so could result in a financial loss to such eligible institution. Ladies and Gentlemen: The undersigned hereby tenders to Software AG Systems, Inc., a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated April 27, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of common stock, $0.01 par value (the "Shares"), of the Company listed below, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. If Shares will be tendered by book-entry transfer: Name of Tendering Institution: ______________________________________ Area Code and Telephone Number: _____________________________________ Account No. _________________________ at The Depository Trust Company Number of Shares: __________ Signature(s): _______________________________________________________ Name(s) (Please Print): _____________________________________________ Certificate Nos.: ___________________________________________________ (if available) Address(es): ________________________________________________________ ------------------------------------------------------------ ------------------------------------------------------------ (Including Zip Code) PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED CHECK ONLY ONE BOX - ------------------------------------------------------------------------------- If more than one box is checked or if no box is checked, there is no valid tender of shares (except that Odd Lot Holders may check a box below but are not required to if they accept the Purchase Price, as determined by the Company pursuant to the Offer). Stockholders who desire to tender shares at more than one price must complete a separate letter of transmittal for each price at which shares are tendered. - ------------------------------------------------------------------------------- [_]$6.50 [_]$7.00 [_]$7.375 [_]$7.75 [_]$6.625 [_]$7.125 [_]$7.50 [_]$7.875 [_]$6.75 [_]$7.25 [_]$7.625 [_]$8.00 [_]$6.875
2 ODD LOTS To be completed ONLY if the Shares are being tendered by or on behalf of a person owning an aggregate of 99 or fewer Shares (excluding shares attributable to individual accounts under the Stock Option Plan) (check one box): [_]The undersigned is tendering such Shares at the Purchase Price, as the same shall be determined by the Company in accordance with the terms of the Offer (persons checking this box need not indicate the price per Share above); or [_]The undersigned is tendering such Shares at the price per Share indicated above under "Price (In Dollars) Per Share at Which Shares Are Being Tendered." GUARANTEE (Not To Be Used For Signature Guarantee) The undersigned, a firm which is a bank, broker, dealer, credit union, savings association, or other "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the 1934 Act (each, an "Eligible Institution"), hereby guarantees (i) that the above-named person(s) has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, (ii) that such tender of Shares complies with Rule 14e-4, and (iii) to deliver to the Depositary at one of its addresses set forth above certificate(s) for the Shares tendered hereby, in proper form for transfer, or a confirmation of the book-entry transfer of the Shares tendered hereby into the Depositary's account at The Depository Trust Company, in each case together with a properly completed and duly executed Letter(s) of Transmittal (or manually signed facsimile(s) thereof), with any required signature guarantee(s) and any other required documents, all within three NYSE trading days after the date hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for shares to the Depositary within the time shown herein. Failure to do so could result in a financial loss to such eligible institution. Name of Firm: _____________________ Authorized Signature: _____________ Address: __________________________ Name: _____________________________ ___________________________________ ___________________________________ (Please print) ___________________________________ (City, State, Zip Code) Title: ____________________________ Area Code and Telephone Number: Dated: __________________, 1999 ----------------------------------- NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS FORM. YOUR SHARE CERTIFICATES MUST BE SENT WITH THE LETTER OF TRANSMITTAL. 3 EX-99.A.4 5 EXHIBIT (A)(4) Exhibit (a)(4) SALOMON SMITH BARNEY 390 GREENWICH STREET NEW YORK, NEW YORK 10013 SOFTWARE AG SYSTEMS, INC. OFFER TO PURCHASE FOR CASH UP TO 6,000,000 SHARES OF ITS COMMON STOCK AT A PURCHASE PRICE NOT GREATER THAN $8.00 NOR LESS THAN $6.50 PER SHARE THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED. April 27, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: In our capacity as Dealer Manager, we are enclosing the material listed below relating to the offer of Software AG Systems, Inc., a Delaware corporation (the "Company"), to purchase up to 6,000,000 shares of its common stock, $0.01 par value (the "Shares"), at prices not greater than $8.00 nor less than $6.50 per Share, in cash, specified by tendering stockholders, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated April 27, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). The Company will determine a single price (not greater than $8.00 nor less than $6.50 per Share) that it will pay for Shares validly tendered and not withdrawn pursuant to the Offer (the "Purchase Price"), taking into account the number of Shares so tendered and the prices specified by tendering stockholders. The Company will select the lowest Purchase Price that will allow it to purchase 6,000,000 Shares (or such lesser number of Shares as is validly tendered at prices not greater than $8.00 nor less than $6.50 per Share) and not withdrawn pursuant to the Offer. The Company will purchase all Shares validly tendered at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions relating to proration described in the Offer to Purchase. See Section 1 of the Offer to Purchase. The Purchase Price will be paid in cash with respect to all Shares purchased. Shares tendered at prices greater than the Purchase Price and Shares not purchased because of proration will be returned. THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7 OF THE OFFER TO PURCHASE. We are asking you to contact your clients for whom you hold Shares registered in your name (or in the name of your nominee) or who hold Shares registered in their own names. Please bring the Offer to their attention as promptly as possible. The Company will, upon request, reimburse you for reasonable and customary handling and mailing expenses incurred by you in forwarding any of the enclosed materials to your clients. For your information and for forwarding to your clients, we are enclosing the following documents: l. The Offer to Purchase. 2. The Letter of Transmittal for your use and for the information of your clients. 3. A letter to stockholders of the Company from the President and Chief Executive Officer of the Company. 4. The Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents cannot be delivered to the Depositary by the Expiration Date (each as defined in the Offer to Purchase). 5. A letter that may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space for obtaining such clients' instructions with regard to the Offer. 6. A return envelope addressed to The Bank of New York, the Depositary. 7. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED. The Company will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer other than fees paid to the Dealer Manager as described in the Offer to Purchase. The Company will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and customary handling and mailing expenses incurred by them in forwarding materials relating to the Offer to their customers. The Company will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 7 of the Letter of Transmittal. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of the Company, Salomon Smith Barney Inc. as "Dealer Manager," The Bank of New York as "Depositary" or Corporate Investor Services, Inc. as "Information Agent," for purposes of the Offer. As described in the Offer to Purchase, if more than 6,000,000 Shares have been validly tendered at or below the Purchase Price and not withdrawn prior to the Expiration Date, as defined in Section l of the Offer to Purchase, the Company will accept Shares for purchase in the following order of priority: (i) all Shares validly tendered at or below the Purchase Price and not withdrawn prior to the Expiration Date by any stockholder who owns beneficially an aggregate of 99 or fewer Shares (excluding Shares attributable to individual accounts under the Stock Option Plans (as defined in the Offer to Purchase)) and who validly tenders all of such Shares (partial tenders will not qualify for this preference) and completes the box captioned "Odd Lots" in the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery and (ii) after purchase of all of the foregoing Shares, subject to the conditional tender provisions described in Section 6 of the Offer to Purchase, all other Shares validly tendered at or below the Purchase Price and not withdrawn prior to the Expiration Date on a pro rata basis. The Board of Directors of the Company has approved the making of the Offer. However, stockholders must make their own decisions whether to tender Shares and, if so, how many Shares to tender and the price or prices at which Shares should be tendered. Neither the Company nor its Board of Directors makes any recommendation to any stockholder as to whether to tender or refrain from tendering Shares. The Company has been advised that none of its directors or executive officers intend to tender Shares pursuant to the Offer. Questions and requests for assistance or for additional copies of this Letter of Transmittal, the Offer to Purchase or the Notice of Guaranteed Delivery may be directed to the Depositary, the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover page of the Offer to Purchase. 2 Additional copies of the enclosed material may be obtained from the Information Agent, telephone: (877) 460-2562. Very truly yours, Salomon Smith Barney NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE COMPANY OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.A.5 6 EXHIBIT (A)(5) Exhibit (a)(5) SOFTWARE AG SYSTEMS, INC. OFFER TO PURCHASE FOR CASH UP TO 6,000,000 SHARES OF ITS COMMON STOCK AT A PURCHASE PRICE NOT GREATER THAN $8.00 NOR LESS THAN $6.50 PER SHARE THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated April 27, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") setting forth an offer by Software AG Systems, Inc., a Delaware corporation (the "Company"), to purchase up to 6,000,000 shares of its common stock, $0.01 par value (the "Shares"), at prices not greater than $8.00 nor less than $6.50 per Share, in cash, specified by tendering stockholders, upon the terms and subject to the conditions of the Offer. Also enclosed herewith is certain other material related to the Offer, including a letter to stockholders from Daniel F. Gillis, President and Chief Executive Officer. The Company will determine a single per Share price (not greater than $8.00 nor less than $6.50 per Share) that it will pay for the Shares validly tendered pursuant to the Offer and not withdrawn (the "Purchase Price"), taking into account the number of Shares so tendered and the prices specified by tendering stockholders. The Company will select the lowest Purchase Price that will allow it to purchase 6,000,000 Shares (or such lesser number of Shares as are validly tendered at prices not greater than $8.00 nor less than $6.50 per Share) validly tendered and not withdrawn pursuant to the Offer. The Company will purchase all Shares validly tendered at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions thereof relating to proration. See Section 1 of the Offer to Purchase. WE ARE THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT. AS SUCH, A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase and the Letter of Transmittal. Your attention is invited to the following: 1. You may tender Shares at the price determined by you (in multiples of $0.125), not greater than $8.00 nor less than $6.50 per Share, as indicated in the attached instruction form, net to you in cash. 2. The Offer is for up to 6,000,000 Shares, constituting approximately 20% of the total Shares then outstanding as of April 26, 1999. The Offer is not conditioned on any minimum number of Shares being tendered. The Offer is, however, subject to certain other conditions set forth in the Offer to Purchase. 3. The Offer, proration period and withdrawal rights will expire at 5:00 p.m., New York City time, on Tuesday, May 25, 1999, unless the Offer is extended. Your instructions to us should be forwarded to us in ample time to permit us to submit a tender on your behalf. 4. As described in the Offer to Purchase, if more than 6,000,000 Shares have been validly tendered at or below the Purchase Price and not withdrawn prior to the Expiration Date, as defined in Section 1 of the Offer to Purchase, the Company will purchase Shares in the following order of priority: (i) all Shares validly tendered at or below the Purchase Price and not withdrawn prior to the Expiration Date by any stockholder who owns an aggregate of 99 or fewer Shares (excluding Shares attributable to individual accounts under the Stock Option Plan (as defined in the Offer to Purchase)) who validly tenders all of such Shares (partial tenders will not qualify for this preference) and completes the box captioned "Odd Lots" in the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery; and (ii) after purchase of all the foregoing Shares, subject to the conditional tender provisions described in Section 6 of the Offer to Purchase, all other Shares validly tendered at or below the Purchase Price and not withdrawn prior to the Expiration Date on a pro rata basis. See Section 1 of the Offer to Purchase for a discussion of proration. 5. Tendering stockholders will not be obligated to pay any brokerage commissions or solicitation fees on the Company's purchase of Shares in the Offer. Any stock transfer taxes applicable to the purchase of Shares by the Company pursuant to the Offer will be paid by the Company, except as otherwise provided in Instruction 7 of the Letter of Transmittal. 6. If you wish to tender portions of your Shares at different prices you must complete a separate Instruction Form for each price at which you wish to tender each portion of your Shares. We must submit separate Letters of Transmittal on your behalf for each price you will accept. 7. If you own an aggregate of 99 or fewer Shares (excluding Shares attributable to individual accounts under the Stock Option Plans (as defined in the Offer to Purchase)), and you instruct us to tender at or below the Purchase Price on your behalf all such Shares prior to the Expiration Date and check the box captioned "Odd Lots" in the Instruction Form, all such Shares will be accepted for purchase before proration, if any, of the purchase of other tendered Shares. The Board of Directors of the Company has approved the making of the Offer. However, stockholders must make their own decisions whether to tender Shares and, if so, how many Shares to tender and the price or prices at which Shares should be tendered. Neither the Company nor its Board of Directors makes any recommendation to any stockholder as to whether to tender or refrain from tendering Shares. The Company has been advised that none of its directors or executive officers intend to tender Shares pursuant to the Offer. If you wish to have us tender any or all of your Shares held by us for your account upon the terms and subject to the conditions set forth in the Offer to Purchase, please so instruct us by completing, executing and returning to us the attached Instruction Form. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified on the Instruction Form. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is being made to all holders of Shares. The Company is not aware of any jurisdiction where the making of the Offer is not in compliance with applicable law. If the Company becomes aware of any jurisdiction where the making of the Offer is not in compliance with any valid applicable law, the Company will make a good faith effort to comply with such law. If, after such good faith effort, the Company cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares residing in such jurisdiction. In any jurisdiction the securities or blue sky laws of which require the Offer to be made by a licensed broker or dealer, the Offer is being made on the Company's behalf by the Dealer Manager or one or more registered brokers or dealers licensed under the laws of such jurisdiction. 2 INSTRUCTION FORM WITH RESPECT TO OFFER TO PURCHASE FOR CASH UP TO 6,000,000 SHARES OF COMMON STOCK OF SOFTWARE AG SYSTEMS, INC. AT A PURCHASE PRICE NOT GREATER THAN $8.00 NOR LESS THAN $6.50 PER SHARE The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated April 27, 1999, and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") in connection with the Offer by Software AG Systems, Inc. (the "Company") to purchase up to 6,000,000 shares of its common stock, $.01 par value (the "Shares"), at prices not greater than $8.00 nor less than $6.50 per Share, in cash, specified by the undersigned, upon the terms and subject to the terms and conditions of the Offer. This will instruct you to tender to the Company the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, at the price per Share indicated below, upon the terms and subject to the conditions of the Offer. CONDITIONAL TENDER By completing this box, the undersigned conditions the tender authorized hereby on the following minimum number of Shares being purchased if any are purchased. ------------------------------- Shares Unless this box is completed, the tender authorized hereby will be made unconditionally. PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED - ------------------------------------------------------------------------------- CHECK ONLY ONE BOX If more than one box is checked or if no box is checked, there is no valid tender of shares (except that Odd Lot Holders may check a box below but are not required to if they accept the Purchase Price, as determined by the Company pursuant to the Offer). Stockholders who desire to tender shares at more than one price must complete a separate Instruction Form for each price at which shares are tendered. - ------------------------------------------------------------------------------- [_] $6.50 [_] $7.00 [_] $7.375 [_] $7.75 [_] $6.625 [_] $7.125 [_] $7.50 [_] $7.875 [_] $6.75 [_] $7.25 [_] $7.625 [_] $8.00 [_] $6.875
ODD LOTS - ------------------------------------------------------------------------------- To be completed ONLY if the Shares are being tendered by or on behalf of a person owning an aggregate of 99 or fewer Shares (excluding shares attributable to individual accounts under the Stock Option Plans) (check one box): [_] The undersigned is tendering such Shares at the Purchase Price, as the same shall be determined by the Company in accordance with the terms of the Offer (persons checking this box need not indicate the price per Share above); or [_] The undersigned is tendering such Shares at the price per Share indicated above under "Price (In Dollars) Per Share at Which Shares Are Being Tendered." 3 SHARES TENDERED - ------------------------------------------------------------------------------- If fewer than all Shares are to be tendered, please check the box and indicate below the aggregate number of Shares to be tendered by us. [_] __________________________ Shares Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDERS. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY. Sign Here: ________________________________________________________________________ Signature(s) Name(s): _______________________________________________________________ (Please print name(s)) Address(es): ___________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ (Include Zip Code) Dated: , 1999 ___________________________________ (Tax Identification or Social Security Number(s)) 4 EX-99.A.6 7 EXHIBIT (A)(6) Exhibit (a)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer.-- Social Security numbers have nine digits separated by two hyphens: e.g., 000-00-0000. Employer Identification numbers have nine digits separated by only one hyphen: e.g., 00-0000000. The table below will help determine the number to give the payer. - -----------------------------------
Give the SOCIAL SECURITY For this type of account: number of-- - -------------------------------------------- 1. Individual The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4.a.The usual revocable The grantor- savings trust (grantor trustee(1) is also trustee) b.So-called trust account The actual that is not a legal or owner(1) valid trust under state law 5. Sole proprietorship The owner(3) - --------------------------------------------
Give the EMPLOYER IDENTIFICATION For this type of account: number of-- - ---------------------------------------------- 6. Sole proprietorship The owner(3) 7. A valid trust, estate, The legal entity or pension trust (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(4) 8. Corporate The corporation 9. Association, club, The organization religious, charitable, educational or other tax-exempt organization 10. Partnership The partnership 11. A broker or registered The broker or nominee nominee 12. Account with the The public Department of entity Agriculture in the name of public entity (such as a state or local government, school district, or prison) that receives agriculture program payments --
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Show the name of the owner. (4) List first and circle the name of the legal trust, estate, or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Page 2 Section references are to the Internal Revenue Code. Obtaining a Number If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. Payees Exempt from Backup Withholding The following is a list of payees generally exempt from backup withholding. For interest and dividends, all listed payees are exempt except the payee listed in item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisors Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees listed in items (1) through (7), except that a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding. Only payees described in items (2) through (6) are exempt from backup, withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation. (2) An organization exempt from tax under section 501(a), an individual retirement plan ("IRA"), or a custodial account under section 403(b)(7), if the account satisfies the requirements of section 401(f)(2). (3) The United States or any of its agencies or instrumentalities. (4) A State, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments Exempt from Backup Withholding Payments of dividends and patronage dividends generally not subject to backup withholding also include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. . Payments of patronage dividends not paid in money. . Payments made by certain foreign organizations. . Section 404(k) payments made by an ESOP. Payments of interest generally not subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt interest dividends under section 852). . Payments described in section 6049(b)(5) to nonresident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Mortgage interest paid by you. Payments that are not subject to information reporting are also not subject to backup withholding. For details see sections 6041, 6042, 6044, 6045, 6049, 6050A and 6050N, and the regulations under such sections. Privacy Act Notice Section 6109 requires you to give your correct taxpayer identification number to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your taxpayer identification number whether or not you are qualified to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect to Withholding.--If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. (3) Criminal Penalty for Falsifying Information.-- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.A.7 8 EXHIBIT (A)(7) EXHIBIT (a)(7) SOFTWARE AG SYSTEMS, INC. ANNOUNCES "DUTCH AUCTION" STOCK REPURCHASE RESTON, VA--April 27, 1999--Software AG Systems, Inc. (NYSE:AGS) today announced that it is offering to repurchase up to six (6) million shares of its common stock at a price not greater than $8.00 per share nor less than $6.50 per share (the "Offer"). The Company is conducting the Offer through a procedure commonly referred to as a "Dutch Auction." This procedure allows stockholders to select the price within the specified range at which the stockholder is willing to sell all or a portion of his or her shares to the Company. Based on the number of shares tendered at the prices specified by the tendering stockholders, the Company will determine the single per share price within the price range that will allow it to buy six (6) million shares (or such lesser number of shares that are properly tendered). All of the shares that are properly tendered at prices at or below that purchase price (and not withdrawn) will, subject to possible proration and provisions relating to the tender of "odd lots (less than 100 shares)," be purchased for cash at the purchase price selected by the Company. All other shares that have been tendered and not purchased by the Company will be returned to the tendering stockholder. Commencing on April 27, 1999, the Offer is scheduled to expire at 5:00 P.M. EDT on May 25, 1999, unless extended by the Company. The Offer is explained in detail in the Offer to Purchase, Letter of Transmittal, and the Notice of Guaranteed Delivery, all obtainable either from Corporate Investor Communications, Inc. or Salomon Smith Barney Inc. *** This announcement contains forward-looking statements, which involve numerous risks and uncertainties. The Company's actual financial results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the Company's filings with the Securities and Exchange Commission. EX-99.A.8 9 EXHIBIT (A)(8) Exhibit (a)(8) [SAGA SOFTWARE] April 27, 1999 Dear Stockholder: Software AG Systems, Inc. (the "Company") is offering to purchase up to 6,000,000 shares of its common stock at a price not greater than $8.00 nor less than $6.50 per share. The Company is conducting the offer through a procedure commonly referred to as a "Dutch Auction." This procedure allows you to select the price within the specified range at which you are willing to sell all or a portion of your shares to the Company. Based on the number of shares tendered and the prices specified by the tendering stockholders, the Company will determine the single per share price within the range that will allow it to buy 6,000,000 shares (or such lesser number of shares that are properly tendered). All of the shares that are properly tendered at prices at or below that purchase price (and not withdrawn) will, subject to possible proration and provisions relating to the tender of "odd lots," be purchased for cash at the purchase price selected by the Company. All other shares that have been tendered and not purchased will be returned to the stockholder. If you do not wish to participate in the offer, you do not need to take any action. The offer is explained in detail in the enclosed Offer to Purchase and Letter of Transmittal. If you wish to tender your shares, instructions on how to tender shares are provided in the enclosed materials. I encourage you to read these materials carefully before making any decision with respect to the offer. Neither the Company nor its Board of Directors makes any recommendation to any stockholder whether or not to tender any or all shares. The Company has been advised that none of its directors and executive officers intend to tender shares of common stock pursuant to the offer. Please note that the offer is scheduled to expire at 5:00 p.m., New York City time, on Tuesday, May 25, 1999, unless extended by the Company. Questions and requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal or the Notice of Guaranteed Delivery may be directed to the Information Agent, Corporate Investor Communications, Inc., telephone: (877) 460-2562. Sincerely, /s/ Daniel F. Gillis President and Chief Executive Officer EX-99.A.9 10 EXHIBIT (A)(9) Exhibit (a)(9) [FORM OF SUMMARY ADVERTISEMENT] This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal. The Offer is not being made to, nor will the Company accept tenders from, holders of Shares in any jurisdiction in which the Offer or its acceptance would violate that jurisdiction's laws. The Company is not aware of any jurisdiction in which the making of the Offer or the tender of Shares would not be in compliance with the laws of such jurisdiction. In jurisdictions whose laws require that the Offer be made by a licensed broker or dealer, the Offer shall be deemed to be made on the Company's behalf by Salomon Smith Barney or by one or more registered brokers or dealers licensed under the laws of such jurisdiction. NOTICE OF OFFER TO PURCHASE FOR CASH BY SOFTWARE AG SYSTEMS, INC. UP TO 6,000,000 SHARES OF ITS COMMON STOCK AT A PURCHASE PRICE NOT GREATER THAN $8.00 NOR LESS THAN $6.50 PER SHARE Software AG Systems, Inc., a Delaware corporation (the "Company"), invites its stockholders to tender up to 6,000,000 shares of its common stock, $0.01 par value per share (the "Common Stock") to the Company at prices not greater than $8.00 nor less than $6.50 per share in cash, specified by tendering stockholders, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated April 27, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, MAY 25, 1999, UNLESS THE OFFER IS EXTENDED. The Offer is not conditioned on any minimum number of shares of Common Stock being tendered. The Offer is, however, subject to certain other conditions set forth in the Offer to Purchase. THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MAKING OF THE OFFER. HOWEVER, NEITHER THE COMPANY, ITS BOARD OF DIRECTORS NOR THE DEALER MANAGER MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. STOCKHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE TENDERED. The Company will, upon the terms and subject to the conditions of the Offer, determine a single per share price (not greater than $8.00 nor less than $6.50 per share), net to the seller in cash (the "Purchase Price"), that it will pay for shares of Common Stock validly tendered and not withdrawn pursuant to the Offer, taking into account the number of shares of Common Stock so tendered and the prices specified by tendering stockholders. The Company will select the lowest Purchase Price that will allow it to buy 6,000,000 shares of Common Stock (or such lesser number of shares of Common Stock as are validly tendered at or below the Purchase Price) taking into account the number of shares to be tendered and the prices specified by tendering stockholders. The Company will pay the Purchase Price for all shares of Common Stock validly tendered prior to the Expiration Date (as defined below) at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer including the proration and conditional tender terms described below. The term "Expiration Date" means 5:00 p.m., New York City time, on Tuesday, May 25, 1999, unless and until the Company in its sole discretion shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall refer to the latest time and date at which the Offer, as so extended by the Company, shall expire. The Company reserves the right, in its sole discretion, to purchase more than 6,000,000 shares of Common Stock pursuant to the Offer. For purposes of the Offer, the Company will be deemed to have accepted for payment (and therefore purchased), subject to proration, shares of Common Stock that are validly tendered at or below the Purchase Price and not withdrawn when, as and if it gives oral or written notice to The Bank of New York (the "Depositary") of its acceptance of such shares of Common Stock for payment pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, if more than 6,000,000 shares of Common Stock (or such greater number of shares of Common Stock as the Company may elect to purchase pursuant to the Offer) are validly tendered at or below the Purchase Price and not withdrawn, the Company will purchase such validly tendered shares of Common Stock in the following order of priority: (a) all shares of Common Stock validly tendered at or below the Purchase Price and not withdrawn prior to the Expiration Date by any Odd Lot Holder (as defined in the Offer to Purchase) who tenders all such shares of Common Stock beneficially owned by such Odd Lot Holder at or below the Purchase Price (partial tenders will not qualify for this preference) and who completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery and (b)(i) conditionally tendered in accordance with Section 6 of the Offer to Purchase for which the condition was satisfied and (ii) all other shares tendered properly and unconditionally, in each case at prices at or below the Purchase Price and not withdrawn prior to the Expiration Date, on a pro rata basis. The Company's Board of Directors believes that the Offer constitutes a prudent use of the Company's financial resources, given the Company's business profile, assets and current market price. The Company's Board of Directors also believes that the Company's financial condition and outlook and current market conditions, including recent trading prices of the Company's Common Stock, make this an attractive time to repurchase a portion of the outstanding shares. Accordingly, the Offer is consistent with the Company's long term corporate goal of increasing stockholder value. After the Offer is completed, the Company expects to have sufficient cash flow and access to other sources of capital to fund the growth of its core business, including developing new products and making strategic acquisitions. The Offer provides stockholders who are considering a sale of all or a portion of their shares of Common Stock with the opportunity to determine the price or prices (not greater than $8.00 nor less than $6.50 per share) at which they are willing to sell their shares and, subject to the terms and conditions of the Offer, to sell those shares for cash without the usual transaction costs associated with market sales. The Offer also allows stockholders to sell a portion of their shares while retaining a continuing equity interest in the Company. In addition, the Offer may give stockholders the opportunity to sell shares at prices greater than market prices prevailing prior to announcement of the Offer. Stockholders who determine not to accept the Offer will realize a proportionate increase in their relative equity interest in the Company and thus in the Company's future earnings and assets, subject to the Company's right to issue additional shares of Common Stock and other equity securities in the future. Shares of Common Stock tendered pursuant to the Offer may be withdrawn at any time before the Expiration Date and, unless accepted for payment by the Company as provided in the Offer to Purchase, may also be withdrawn after 12 midnight, New York City time, on June 22, 1999. For a withdrawal to be effective, the Depositary must receive a notice of withdrawal in written, telegraphic or facsimile transmission form in a timely manner. Such notice of withdrawal must specify the name of the person who tendered the shares of Common Stock to be withdrawn, the number of shares of Common Stock tendered, the number of shares of Common Stock to be withdrawn and the name of the registered holder, if different from that of the person who tendered such shares of Common Stock. If the certificates have been delivered or otherwise identified to the Depositary, then, prior to the release of such certificates, the tendering stockholder must also submit the serial numbers shown on the particular certificates evidencing the shares of Common Stock and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in the Offer to Purchase) (except in the case of shares of Common Stock tendered by an Eligible Institution). If shares of Common Stock have been tendered pursuant to the procedure for book-entry transfer, the notice of withdrawal must specify the name and the number of the account at The Depository Trust Company and otherwise comply with the procedures of such facility. The Offer to Purchase and the Letter of Transmittal contain important information which should be read carefully before stockholders decide whether to accept or reject the Offer and, if accepted, at what price or prices to tender their shares of Common Stock. These materials are being mailed to record holders of shares of Common Stock and are being furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list (or, if applicable, who are listed as participants in a clearing agency's security position listing) for transmittal to beneficial holders of shares of Common Stock. The information required to be disclosed by Rule 13e-4(d)(1) under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated by reference herein. Additional copies of the Offer to Purchase and the Letter of Transmittal may be obtained from the Information Agent and will be furnished at the Company's expense. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager as set forth below. The Information Agent for the Offer is Corporate Investors Communications, Inc. 111 Commerce Road Carlstadt, NY 07072-2586 All Calls Toll Free (877) 460-2562 The Dealer Manager for the Offer is: Salomon Smith Barney 390 Greenwich Street New York, New York 10013 (800) 996-7920 April 27, 1999 EX-99.G 11 EXHIBIT (G) EXHIBIT (g) ITEM 8. Consolidated Financial Statements and Supplementary Data INDEPENDENT AUDITORS' REPORT Board of Directors Software AG Systems, Inc.: We have audited the accompanying consolidated balance sheets of Software AG Systems, Inc. and subsidiaries (Successor) as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1998 and the period from April 1, 1997 to December 31, 1997 (Successor periods), and the consolidated statements of operations, stockholders' equity and cash flows of Software AG Systems, Inc. and subsidiaries (a wholly owned subsidiary of Software AG, a German software company) (Predecessor), for the periods from January 1, 1997 to March 31, 1997 and for the year ended December 31, 1996 (Predecessor periods). In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement Schedule II--Valuation and Qualifying Accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned Successor consolidated financial statements present fairly, in all material respects, the financial position of Software AG Systems, Inc. and subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for the Successor periods, in conformity with generally accepted accounting principles. Further, in our opinion, the aforementioned Predecessor consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Software AG Systems, Inc. and subsidiaries (a wholly owned subsidiary of Software AG, a German software company) for the Predecessor periods, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 2 to the consolidated financial statements, effective April 1, 1997, Software AG Systems, Inc. consummated a Recapitalization under which a majority of the Company's common stock changed control. The change in control of the Company's common stock was accounted for as a purchase business combination. As a result of the Recapitalization, the consolidated financial information for the periods after the Recapitalization is presented on a different cost basis than that for the periods before the Recapitalization and, therefore, is not comparable. KPMG LLP Washington, D.C. March 5, 1999 30 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31, 1997 1998 -------- -------- (in thousands) Assets Current: Cash and cash equivalents............................... $ 50,429 $ 60,298 Short-term investments.................................. -- 10,600 Accounts receivable: Invoiced and currently due............................. 40,212 50,110 Advanced billings on maintenance....................... 10,287 11,899 Unbilled services...................................... 10,384 8,771 Installment............................................ 24,434 32,016 Other.................................................. 2,858 1,231 Less: allowance for doubtful accounts.................. (3,690) (5,042) -------- -------- Total accounts receivable............................. 84,485 98,985 Current portion of deferred income taxes................ 6,217 5,392 Prepaid expenses........................................ 1,371 2,265 Other current assets.................................... 2,663 1,855 -------- -------- Total current assets.................................. 145,165 179,395 Cooperation agreement, net of accumulated amortization.... 21,737 19,387 Installment accounts receivable, net of current portion... 8,932 30,248 Property, equipment and leasehold improvements, net of ac- cumulated depreciation and amortization.................. 10,077 10,176 Goodwill, net of accumulated amortization................. 11,286 9,720 Deferred income taxes..................................... 2,848 4,136 Other assets.............................................. 1,692 703 -------- -------- Total assets.......................................... $201,737 $253,765 ======== ========
See accompanying notes to consolidated financial statements. 31 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
Dec. 31, Dec. 31, 1997 1998 ---------- ---------- (in thousands, except share data) Liabilities and Stockholders' Equity Current: Current portion of long-term obligations............. $ -- $ 478 Accounts payable..................................... 8,545 9,675 Accrued payroll and employee benefits................ 10,170 12,181 Payable to SAG....................................... 10,050 10,884 Income taxes payable................................. 1,752 3,991 Other current liabilities............................ 9,885 7,912 Current portion of deferred revenues, net of deferred royalties of $11,245 in 1997 and $12,683 in 1998.. 42,711 48,328 ---------- ---------- Total current liabilities.......................... 83,113 93,449 Long-term obligations, net of current portion.......... -- 635 Deferred revenues, net of deferred royalties of $8,880 in 1997 and $9,966 in 1998............................ 28,806 31,773 ---------- ---------- Total liabilities.................................. 111,919 125,857 Commitments and contingencies Stockholders' equity: Common stock ($.01 par value; 75,000,000 shares au- thorized; 32,677,500 shares issued in 1997: 30,516,946 shares issued and outstanding in 1998)............................................. 327 305 Additional paid-in capital........................... 84,185 95,474 Retained earnings.................................... 5,338 33,048 Accumulated other comprehensive income............... -- (919) Treasury stock, at cost, 3,162,500 shares in 1997 and no shares in 1998................................. (32) -- ---------- ---------- Total stockholders' equity......................... 89,818 127,908 ---------- ---------- Total liabilities and stockholders' equity......... $ 201,737 $ 253,765 ========== ==========
See accompanying notes to consolidated financial statements. 32 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Predecessor Successor ---------------------------- --------------------------- Year Three months Nine months Year ended ended ended ended Dec. 31, Mar. 31, Dec. 31, Dec. 31, 1996 1997 1997 1998 ------------ -------------- ------------- ------------ (in thousands, except per share dollar amounts) Revenues: Software license fees................. $ 52,163 $ 7,341 | $ 56,796 $ 94,899 Maintenance fees...... 69,702 17,352 | 55,337 83,817 Professional services | fees................. 34,975 9,948 | 34,450 70,273 ------------ ----------- | ------------ ------------ Total revenues...... 156,840 34,641 | 146,583 248,989 ------------ ----------- | ------------ ------------ Cost of revenues: | Software license...... 14,120 2,098 | 17,811 23,329 Maintenance........... 25,885 6,205 | 22,559 30,042 Professional servic- | es................... 32,966 9,211 | 28,356 52,847 ------------ ----------- | ------------ ------------ Total cost of reve- | nues............... 72,971 17,514 | 68,726 106,218 ------------ ----------- | ------------ ------------ Gross profit............ 83,869 17,127 | 77,857 142,771 ------------ ----------- | ------------ ------------ Operating expenses: | Software product de- | velopment............ 1,372 -- | 1,093 5,492 Sales and marketing... 48,677 7,317 | 31,003 47,635 Administrative and | general.............. 28,539 8,500 | 27,258 47,563 Write-off of acquired | in-process R&D | costs................ -- -- | 6,051 -- ------------ ----------- | ------------ ------------ Total operating ex- | penses............. 78,588 15,817 | 65,405 100,690 ------------ ----------- | ------------ ------------ Income from operations.. 5,281 1,310 | 12,452 42,081 Other income and ex- | pense, net........... 5,230 978 | 1,017 4,003 ------------ ----------- | ------------ ------------ Income before income | taxes.................. 10,511 2,288 | 13,469 46,084 Income tax provision.. 4,302 915 | 8,131 18,374 ------------ ----------- | ------------ ------------ Net income.............. 6,209 1,373 | 5,338 27,710 Other comprehensive | income: | Foreign currency | translation adjust- | ments................ -- -- | -- (919) ------------ ----------- | ------------ ------------ Comprehensive income.... $ 6,209 $ 1,373 | $ 5,338 $ 26,791 ============ =========== | ============ ============ Dividends............... $ 9,000 $ -- | $ -- $ -- ============ =========== | ============ ============ Net income per common | share.................. $ 0.23 $ 0.06 | $ 0.21 $ 0.93 ============ =========== | ============ ============ Net income per common | share-assuming dilu- | tion................... $ 0.21 $ 0.05 | $ 0.20 $ 0.87 ============ =========== | ============ ============ Shares used in computing | net income per common | share: | Net income per common | share................ 27,500 24,338 | 25,119 29,950 Net income per common | share-assuming dilu- | tion................. 29,056 25,894 | 26,685 31,864
See accompanying notes to consolidated financial statements. 33 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Common Stock Other $0.01 par value Additional Com- Total ----------------- Paid-in- Retained prehensive Treasury Stockholders' Shares Amount Capital Earnings Income Stock Equity -------- ------- ---------- -------- ----------- -------- ------------- (in thousands) Predecessor: Balances at December 31, 1995................... 27,500 $ 275 $11,877 $20,447 $ -- $ -- $ 32,599 Net income.............. -- -- -- 6,209 -- -- 6,209 Cash dividends ($0.33 per share)............. -- -- -- (9,000) -- -- (9,000) -------- ------ ------- ------- ----- ----- -------- Balances at December 31, 1996................... 27,500 275 11,877 17,656 -- -- 29,808 Net income.............. -- -- -- 1,373 -- -- 1,373 -------- ------ ------- ------- ----- ----- -------- Balances at March 31, 1997................... 27,500 $ 275 $11,877 $19,029 $ -- $ -- $ 31,181 ======== ====== ======= ======= ===== ===== ======== - ---------------------------------------------------------------------------------------------------- Successor: Initial capitalization.. 27,500 $ 275 $37,108 $ -- $ -- $ (32) $ 37,351 Amortization of deferred compensation expense... -- -- 323 -- -- -- 323 Net proceeds from Ini- tial Public Offering... 5,178 52 46,754 -- -- -- 46,806 Net income.............. -- -- -- 5,338 -- -- 5,338 -------- ------ ------- ------- ----- ----- -------- Balances at December 31, 1997................... 32,678 327 84,185 5,338 -- (32) 89,818 Retirement of treasury stock.................. (3,163) (32) -- -- -- 32 -- Amortization of deferred compensation expense... -- -- 776 -- -- -- 776 Stock options exer- cised.................. 933 9 2,260 -- -- -- 2,269 Costs incurred relating to public offerings.... -- -- (371) -- -- -- (371) Stock issued through Em- ployee Stock Purchase Plan................... 69 1 1,112 -- -- -- 1,113 Tax benefit on stock op- tions exercised........ -- -- 7,512 -- -- -- 7,512 Net income.............. -- -- -- 27,710 -- -- 27,710 Other comprehensive in- come................... -- -- -- -- (919) -- (919) -------- ------ ------- ------- ----- ----- -------- Balances at December 31, 1998................... 30,517 $ 305 $95,474 $33,048 $(919) $ -- $127,908 ======== ====== ======= ======= ===== ===== ========
See accompanying notes to consolidated financial statements. 34 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Predecessor Successor --------------------------- --------------------------- Year Three months Nine months Year ended ended ended ended Dec. 31, 1996 Mar. 31, 1997 Dec. 31, 1997 Dec. 31, 1998 ------------- ------------- ------------- ------------- (in thousands) Cash flows from | operating activities: | Net income............ $ 6,209 $ 1,373 | $ 5,338 $ 27,710 Adjustments to | reconcile net income | to net cash provided | by operating | activities: | Depreciation and | amortization....... 3,660 941 | 6,205 7,992 Loss (gain) on | disposal of | property and | equipment.......... 156 -- | (5) 236 Deferred income | taxes.............. (1,242) (1,143) | (3,041) (463) Deferred gain....... (140) (36) | -- -- Net proceeds from | sales of accounts | receivable......... 28,448 -- | 24,314 18,119 Write-off of | acquired in-process | R&D costs.......... -- -- | 6,051 -- Write-off of long- | term investment.... -- -- | 1,529 848 Amortization of | deferred | compensation | expense............ -- -- | 323 776 Change in: | Accounts | receivable, | excluding net | proceeds from | sales............ (28,674) 10,996 | (43,074) (54,434) Prepaid expenses.. (1,698) (3,894) | 4,313 (899) Other current and | long-term | assets........... (1,870) 3,083 | (2,988) 947 Accounts payable.. 3,472 673 | 779 1,285 Accrued payroll | and employee | benefits......... (2,194) (3,632) | 2,059 2,037 Payable to SAG.... 16,185 6,265 | (1,336) 834 Other current | liabilities...... 1,571 (927) | (558) (1,766) Income taxes | payable.......... 1,285 (568) | (1,542) 9,768 Deferred revenues, | net.............. 12,285 (2,705) | 4,476 8,825 -------- ------- | -------- -------- Net cash | provided by | operating | activities..... 37,453 10,426 | 2,843 21,815 -------- ------- | -------- -------- Cash flows from | investing activities: | Additions to property, | equipment and | leasehold | improvements......... (3,740) (208) | (4,084) (3,817) Purchase of short-term | investments.......... -- -- | -- (10,600) Proceeds from sales of | property and | equipment............ 9,044 -- | 2 35 Notes receivable, | SAG.................. (10,000) -- | -- -- Purchase of | Cooperation | Agreement............ -- -- | (22,612) -- Change in other | assets, net.......... 443 -- | -- -- Acquisition, net of | cash received........ -- -- | (6,325) -- -------- ------- | -------- -------- Net cash used in | investing | activities..... (4,253) (208) | (33,019) (14,382) -------- ------- | -------- -------- Cash flows from | financing activities: | Proceeds from stock | options exercised.... -- -- | -- 2,269 Proceeds from Employee | Stock Purchase Plan.. -- -- | -- 1,113 Expenses relating to | public offerings..... -- -- | -- (371) Payment made on | capital leases....... -- -- | -- (286) Dividends paid........ (9,000) -- | -- -- Net proceeds from | Initial Public | Offering............. -- -- | 46,806 -- Repurchase of common | stock................ -- -- | (33,919) -- Issuance of common | stock................ -- -- | 31,727 -- -------- ------- | -------- -------- Net cash | provided by | (used in) | financing | activities..... (9,000) -- | 44,614 2,725 -------- ------- | -------- -------- Effect of exchange rate | changes on cash and | cash equivalents....... -- -- | -- (289) Net increase in cash and | cash equivalents....... 24,200 10,218 | 14,438 9,869 Cash and cash | equivalents, | beginning.............. 1,573 25,773 | 35,991 50,429 -------- ------- | -------- -------- Cash and cash | equivalents, ending.... $ 25,773 $35,991 | $ 50,429 $ 60,298 ======== ======= | ======== ======== Non-cash investing and | financing activity: | Deferred gain on sale | leaseback of customer | support facility..... $ 2,830 $ -- | $ -- $ -- Tax benefit on stock | options exercised.... $ -- $ -- | $ -- $ 7,512 Supplemental | disclosures: | Interest paid......... $ 103 $ -- | $ 14 $ 128 Income taxes paid, net | of refunds........... $ 4,272 $ 3,630 | $ 11,056 $ 9,547
See accompanying notes to consolidated financial statements. 35 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Description of Operations and Summary of Significant Accounting Policies Reporting Entity and Principles of Consolidation Prior to March 31, 1997, Software AG Systems, Inc. and subsidiaries (the "Company") was a wholly owned subsidiary of Software AG, a German software company ("SAG"). As is more fully described in Note 2, on March 31, 1997, the Company consummated a recapitalization agreement under which the Company repurchased from SAG 24,750,000 shares of common stock, and certain senior management of the Company and Thayer Equity Investors III, L.P. ("Thayer") acquired approximately 89% of the then outstanding common stock of the Company (the "Recapitalization"). At December 31, 1998, SAG and Thayer owned 9% and 35% of the Company, respectively. The consolidated financial statements include the accounts of Software AG Systems, Inc. and its wholly owned subsidiaries. All inter-company balances and transactions between the Company and its wholly owned subsidiaries have been eliminated. Description of Operations The Company is an enterprise solutions company that provides robust software products and related professional services to large organizations with complex computing requirements. The Company's products are used to build, enhance and integrate mission-critical applications that require reliability, scalability and security, such as customer billing systems, financial accounting systems and inventory management systems. The Company also has comprehensive professional services offerings, including consulting, software integration, systems implementation and large project management services. The Company markets and sells its software products and services, as well as third party products, through direct and indirect channels in North America, South America, Japan and Israel. The Company operates in one reportable segment, enterprise solutions, that provides software and related professional services. Revenue Recognition On January 1, 1998, the Company adopted Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by SOP 98-4 and SOP 98-9. SOP 97-2 focuses on when and in what amounts revenue should be recognized for licensing, selling, leasing, or otherwise marketing computer software. SOP 98-4 and SOP 98-9 defers certain portions of SOP 97-2 until the Company's fiscal year 2000. Management of the Company is currently evaluating what impact, if any, SOP 97-2 will have on the Company's revenue recognition policies once the portions of SOP 97-2 which have been deferred become effective. Software license revenues for an arrangement to deliver software that does not require significant production, modification or customization of software is recognized when there is an executed license agreement, the software and authorization code, where applicable, have been delivered, the fee is fixed and collectibility is probable. Maintenance revenues, which include unspecified when-and-if deliverable software upgrades, user documentation, and technical support for software products, are deferred and recognized on a straight-line basis over the term of the maintenance agreement, generally one year. Customer training revenues and revenues from time and material type professional consulting and custom application contracts are recognized as the services are provided and the work is performed. Revenues from long-term fixed price professional consulting and custom application contracts are accounted for under the percentage of completion method. When estimates of costs, on long-term fixed price contracts, indicate a loss, such a loss is provided for currently. 36 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Sales of enterprise license agreements generally bundle a combination of products, technical services and professional consulting services. In accordance with SOP 97-2, these elements are unbundled for revenue recognition purposes, and are accounted for based on the fair value of their component parts using the criteria described above. Cash Equivalents The Company considers all highly liquid instruments with a maturity of three months or less at time of purchase to be cash equivalents. Cash equivalents generally consist of commercial paper and institutional money market funds. Short-Term Investments The Company's short-term marketable debt securities at December 31, 1998 have been categorized as available-for-sale and are carried at fair value. Unrealized holding gains and losses are included as a separate component of stockholders' equity until realized. All of the Company's investment holdings have been classified in the consolidated balance sheet as current assets, as they are available to be used for current operations. Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements are recorded at cost. Depreciation, which includes the amortization of assets recorded under capital leases, of property and equipment is computed on a straight-line basis over the estimated useful asset lives, generally 31.5 years for property and three to five years for equipment. Leasehold improvements and assets recorded under capital leases are amortized on a straight-line basis over the lesser of the respective lease term or estimated useful asset lives. Intangible Assets Goodwill, which represents the excess of purchase price over fair market value of net assets acquired, and other intangible assets, are amortized on a straight-line basis over the expected periods to be benefited, generally 10 years. The Company assesses the recoverability of intangible assets by determining whether the amortization of the assets over the remaining lives can be recovered through undiscounted future operating cash flows. The amount of impairment, if any, is measured based on projected discounted future operating cash flows. The assessment of the recoverability of intangible assets will be impacted if estimated future operating cash flows are not achieved. Research and Development Expenditures Research and development expenditures are charged to operations as incurred. SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS No. 86"), requires certain costs to be capitalized once the product has reached technological feasibility and prior to general availability. Based on the Company's development cycle, technological feasibility is established upon the completion of a working model. At December 31, 1998, technological feasibility, as defined by SFAS No. 86, has not been met on any products that are internally being developed. Income Taxes The Company uses the asset and liability method to account for income taxes. Under the asset and liability method, deferred income taxes are recognized for the future tax consequences attributable to future years for differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in 37 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Foreign Currency Translation The local currencies of the Company's foreign subsidiaries are the functional currencies. The assets and liabilities of foreign subsidiaries are translated into U.S. dollars at current exchange rates, and the resulting translation gains and losses are included as an adjustment to stockholders' equity. Revenue and expense accounts of these operations are translated at average exchange rates prevailing during the year. Net Income per Common Share The Company reports earnings per share under SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"). In accordance with SFAS No. 128 requirements, the Company presents basic and diluted earnings per share and has amended earnings per share calculations for all periods presented prior to 1997. Basic earnings per share is based on income available to common shareholders divided by the weighted average number of common shares outstanding. Diluted earnings per share is based on income available to common shareholders divided by the sum of the weighted average number of common shares outstanding and all potential common shares which are dilutive. The following information is a reconciliation of the amounts used in these calculations:
Predecessor Successor ------------------------------ ----------------------------- Year Three months Nine months Year ended ended ended ended Dec. 31, Mar. 31, Dec. 31, Dec. 31, 1996 1997 1997 1998 ------------- --------------- -------------- ------------- (in thousands, except for per share dollar amounts) Numerator: Net income............ $ 6,209 $ 1,373 | $ 5,338 $ 27,710 ============= ============= | ============= ============= Denominator: | Basic weighted average | shares outstanding... 27,500 24,338 | 25,119 29,950 Effect of dilutive | securities: | Stock options......... 1,556 1,556 | 1,566 1,914 ------------- ------------- | ------------- ------------- Diluted weighted average | shares outstanding..... 29,056 25,894 | 26,685 31,864 ============= ============= | ============= ============= EPS: | Net income per common | share................ $ 0.23 $ 0.06 | $ 0.21 $ 0.93 Net income per common | share--assuming | dilution............. $ 0.21 $ 0.05 | $ 0.20 $ 0.87
Comprehensive Income In June 1997, Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") which is effective for the fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for the reporting of comprehensive income and its components in the financial statements. This statement requires only additional disclosures in the consolidated financial statements, and does not affect the Company's financial position or results of operations. The Company adopted SFAS No. 130 effective as of January 1, 1998. Comprehensive income includes foreign currency translation adjustments. The Company has not recorded the foreign currency translation net of an income tax benefit, since management does not believe that it is probable that the Company will ultimately realize the benefit. 38 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock Option Plan The Company accounts for issuance of stock options in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of Accounting Principles Board Opinion No. 25 ("APB Opinion No. 25") and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1997 and 1998 and future years as if the fair-value based method defined in SFAS No. 123 had been applied. Under APB Opinion No. 25, compensation expense would be recorded only if the current market price of the underlying stock on the date of the grant exceeded the exercise price. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Transfers and Servicing of Financial Assets In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996 and is to be applied prospectively. This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial- components approach that focuses on control. It distinguishes transfers of financial assets that are sales from those transfers that are secured borrowings. Financial Statement Presentation The historical financial information set forth in these consolidated financial statements for the periods ended, or as of the dates prior to March 31, 1997 reflect the results of operations of the Company prior to the Recapitalization when the Company was a wholly owned subsidiary of SAG and is captioned as "Predecessor". The historical financial information subsequent to March 31, 1997 reflects the consolidated financial position and results of operations subsequent to the Recapitalization and is captioned as "Successor". As a result of the Recapitalization, the consolidated financial information for the periods after the Recapitalization is presented on a different cost basis than that for the periods before the Recapitalization and, therefore, is not comparable. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain amounts in 1996 and 1997 have been reclassified to conform to the 1998 presentation. (2) Recapitalization of the Company On March 31, 1997, the Company consummated the Recapitalization under which the Company repurchased from its former parent, SAG, 24,750,000 shares of common stock and sold 21,450,000 shares of common stock to Thayer and certain of the Company's senior managers. As a result of this change in control, 39 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the acquisition by Thayer and such managers was accounted for as a purchase business combination, and as such the fair value of the Company's assets and liabilities was recorded as of April 1, 1997. Prior to the consummation of the Recapitalization, the Company entered into a perpetual (unless otherwise terminated by the written agreement of the parties) cooperation agreement, dated March 31, 1997, as amended ("Cooperation Agreement") with SAG that terminated and superseded the license agreement dated January 1, 1995. As consideration for the Cooperation Agreement, the Company paid SAG approximately $22,600,000. Under the Cooperation Agreement, each of the Company and SAG are required to pay the other royalties of 24% of net revenues from sales of licenses of, and technical services on, each other's products for the initial 20 years of the perpetual term of the agreement. For calendar years 1997 through 2000, the Company is required to pay SAG minimum annual royalties of $21,000,000, provided that SAG's worldwide product and technical services revenues for each of those years are at least equal to SAG's 1996 worldwide revenues. In the event of a decrease in SAG's worldwide revenues, the minimum annual royalty requirement will be reduced proportionately. Pursuant to the Recapitalization, Thayer and certain of the Company's senior managers acquired approximately an 89% interest in the Company for approximately $31,500,000. The determination of fair value allocated to the identifiable assets and liabilities of the Company has been made by management based on the nature of the assets and liabilities acquired, and general economic factors. Based on this allocation, the fair value of the Cooperation Agreement to the Company has been recorded at $23,500,000, based on an independent appraisal. The amortization period for the Cooperation Agreement is ten years. The Company recorded remaining assets and liabilities at book value which approximates the fair value at the date of the acquisition. Based on allocation of the purchase price to the net assets and liabilities, an excess of purchase price over net assets acquired (goodwill) of $6,402,000 was recorded. Such goodwill is being amortized on a straight-line basis over ten years. Accumulated amortization on the Cooperation Agreement and the goodwill was $1,763,000 and $480,000, respectively; and $4,113,000 and $1,120,000, respectively, at December 31, 1997 and 1998. (3) Public Offerings In September 1997, the Company's Board of Directors authorized the Company to file a Registration Statement on Form S-1 with the Securities and Exchange Commission permitting the Company to sell shares of its common stock to the public. The Company's Board of Directors also approved a 275-for-1 stock split which became effective on November 17, 1997. Common share and per share data in these consolidated financial statements have been retroactively adjusted to reflect such stock split. Additionally, the Company's Certificate of Incorporation was amended and restated to authorize an additional 20,000,000 shares of $0.01 par value common stock and an additional 11,250,000 shares of $0.01 par value preferred stock, for a total of 75,000,000 authorized shares of common stock and 25,000,000 authorized shares of $0.01 par value preferred stock. The Company had previously authorized 13,750,000 shares of $0.01 par value preferred stock on March 14, 1997. On November 21, 1997, 7,700,000 shares of the Company's common stock were sold to the public at $10 per share, of which 3,100,000 shares were sold by certain shareholders of the Company, and 4,600,000 shares were sold by the Company ("IPO"). On December 17, 1997, the Company and certain shareholders, combined, sold 1,155,000 shares of common stock at $10 per share to cover the over-allotment option exercised by the underwriters. The aggregate proceeds, net of underwriting discounts and commissions, to the Company and certain shareholders from these transactions were $48,151,000 and $34,201,000, respectively. On May 22, 1998, Thayer and certain senior management of the Company and SAG sold in a secondary offering ("Secondary Offering") 5,460,212 shares and an additional 819,031 shares to cover the over-allotment option exercised by the underwriters. The Company received no proceeds from the Secondary Offering. After 40 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the Secondary Offering, Thayer and SAG owned approximately 36% and 9%, respectively, of the Company's then outstanding common stock. (4) Acquisition On September 30, 1997, the Company acquired 100% of the issued and outstanding shares of the common stock of R.D. Nickel and Associates, Inc. ("R.D. Nickel"). R.D. Nickel now operates as SAGA SOFTWARE (CANADA) Inc. R.D. Nickel, located in Ontario, Canada, was a software company that had a family of application development products and had been the exclusive distributor of SAG's products in Canada since 1973. The transaction was accounted for using the purchase method of accounting for a business combination. The aggregate purchase price of Cdn$14,000,000 (US$10,130,000) was funded through a cash payment of Cdn$7,000,000 (US$5,065,000) and a note payable of Cdn$7,000,000 (US$5,065,000). The note payable was paid in November 1997 with the proceeds from the IPO. In connection with the transaction, the Company recorded a $6,051,000 non- recurring charge against earnings for in-process research and development costs. The remaining excess purchase price of Cdn$6,944,000 (US$4,960,000) represented goodwill on R.D. Nickel's books. The related amortization period for the goodwill is ten years. At December 31, 1997 and 1998, accumulated amortization on the goodwill was approximately Cdn$179,000 (US$125,000) and Cdn$873,000 (US$570,000), respectively. The Company accounted for the acquisition effective September 30, 1997, and as such, the operating results of R.D. Nickel have been consolidated with the Company's operating results as of October 1, 1997. The R.D. Nickel acquisition was not determined to be significant to the operations or financial position of the Company; accordingly, the pro forma financial information has not been presented. (5) Concentrations of Credit Risk and Fair Values of Financial Instruments Concentrations of Credit Risk Financial instruments that potentially subject the Company to credit risk include accounts receivable, cash, cash equivalents and short-term investments. For the installment accounts receivables that are sold, the Company continues to service the receivables sold, including invoicing and collection. In addition, the Company remains contingently liable under the recourse provisions associated with the installment accounts receivable sold prior to 1998. Management believes that credit risk related to the Company's accounts receivable is limited due to a large number of customers in differing industries and geographic areas. The Company does not require collateral for accounts receivable. Historically, the Company has not experienced significant losses on accounts receivable, including the installment accounts receivables sold, except in isolated situations. The Company maintains depository relationships with several banks. At times, the Company's cash deposits may exceed federally insured limits. The Company invests excess cash in highly liquid short-term investments, such as high grade corporate and United States government debt securities. The Company has not experienced any losses in its depository accounts or short-term investments and management believes that the Company is not exposed to any significant credit risks. Fair Value of Financial Instruments The carrying amounts of cash, cash equivalents, short-term investments, accounts receivable, accounts payable, payable to SAG, and amounts included in other current assets and current liabilities that meet the definition of a financial instrument, approximate fair value because of the short-term nature of these amounts. 41 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The carrying amount of installment accounts receivable, net of related deferred revenues, approximates the fair value. (6) Short-Term Investments The following is a summary of the estimated fair value of available-for-sale securities held by the Company:
Dec. 31, Dec. 31, 1997 1998 -------- -------- (in thousands) Commercial paper........................................... $-- $ 5,100 Debt securities............................................ -- 5,500 ---- ------- $-- $10,600 ==== =======
The fair value of these securities approximates cost. As such, there were no unrealized holding gains or losses for the years ended December 31, 1997 and 1998. There were no realized gains and losses for the years ended December 31, 1997 and 1998. Short-term investments are comprised of fixed rate securities with the contractual maturities that are less than 24 months. (7) Accounts Receivable Total current and non-current accounts receivable (including installment accounts receivable) consist of the following:
Dec. 31, Dec. 31, 1997 1998 -------- -------- (in thousands) Domestic.................................................. $83,659 $120,262 International............................................. 13,448 14,013 Less: allowance for doubtful accounts..................... 3,690 5,042 ------- -------- $93,417 $129,233 ======= ========
Installment Accounts Receivable Installment accounts receivable represent unbilled receivables from enterprise license agreements and other long-term and short-term contracts with deferred invoicing terms. Installment accounts receivable include:
Dec. 31, Dec. 31, 1997 1998 -------- -------- (in thousands) Gross installment accounts receivable...................... $35,172 $65,480 Less: unearned interest.................................... 1,806 3,216 ------- ------- 33,366 62,264 Less: current portion...................................... 24,434 32,016 ------- ------- $ 8,932 $30,248 ======= =======
The effective interest rate on the installment accounts receivable, net of related deferred revenues, at December 31, 1997 and 1998 was approximately 9%. 42 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 1998, installment accounts receivable are scheduled to be invoiced as follows:
Years ending December 31, Amount ------------------------- -------------- (in thousands) 1999.......................................................... $33,564 2000.......................................................... 21,179 2001.......................................................... 7,531 2002.......................................................... 3,206 ------- $65,480 =======
In 1997 and 1998, the Company sold installment accounts receivable relating to certain enterprise license agreements and other long-term contracts to unrelated financing companies, receiving net proceeds of $24,314,000 and $18,119,000, respectively. The installment accounts receivable sold include those relating to software license fees, maintenance services, and professional consulting services. Under SFAS No. 125, the sales of the receivables during 1997 and 1998 have been reflected as a reduction of the accounts receivable. Under the terms of the agreements with the financing companies, the Company continues to service the receivables sold, including invoicing and collection, and makes payments to the financing companies under pre-determined amortization schedules based on the scheduled invoicing dates of the receivables sold. The Company has determined that there is no servicing asset or liability to record under SFAS 125 as a result of the sales. The amortization schedules provide rates of return to the financing companies ranging from 8.5% to 8.9%. The agreements allow for substitution of contracts for early terminations and require the Company to repurchase contracts that cease to meet eligibility requirements, such as those contracts that become 90 days past due. At December 31, 1997 and 1998, the Company remained contingently liable under the recourse provisions for the installment accounts receivable sold prior to 1998 in the amount of $47,927,000 and $24,723,000, respectively. Management has determined that the fair value of the recourse liabilities on the sales are not material to the financial statements, and as a result, believes that the allowance for doubtful accounts is maintained at a level that is sufficient to cover potential losses under the recourse provisions on the receivables sold prior to 1998. Under the terms of the agreements, the Company is required to maintain specified amounts of net worth and cash availability, and a debt to equity ratio that does not exceed a specified amount. If the Company fails to maintain these specified amounts, the financing companies may assume the servicing rights on receivables sold. Unbilled Services Unbilled services relate primarily to long-term professional consulting services and custom application contracts accounted for using the percentage of completion method. Billings on these contracts generally are tied to achieving specific milestones. Unbilled services include:
Dec. 31, Dec. 31, 1997 1998 -------- -------- (in thousands) Unbilled work in process................................... $ 9,524 $10,777 Retainage.................................................. 1,761 1,409 ------- ------- 11,285 12,186 Less: advance billings and prepayments..................... 901 3,415 ------- ------- $10,384 $ 8,771 ======= =======
43 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (8) Property, Equipment and Leasehold Improvements
Dec. 31, Dec. 31, 1997 1998 -------- -------- (in thousands) Computer equipment......................................... $22,524 $16,834 Leasehold improvements..................................... 9,188 10,486 Furniture and other equipment.............................. 8,162 8,891 ------- ------- 39,874 36,211 Less: accumulated depreciation and amortization............ 29,797 26,035 ------- ------- $10,077 $10,176 ======= =======
Depreciation and amortization for the year ended December 31, 1996, three months ended March 31, 1997, nine months ended December 31, 1997 and year ended December 31, 1998 was $3,473,000, $896,000, $2,952,000 and $4,540,000, respectively. (9) Other Current Liabilities Other current liabilities are comprised of the following amounts:
Dec. 31, Dec. 31, 1997 1998 -------- -------- (in thousands) Reserve for losses on long term contracts.................. $5,611 $2,427 Other accrued expenses..................................... 4,274 5,485 ------ ------ $9,885 $7,912 ====== ======
(10) Sale of Customer Support Facility In 1996, the Company recorded a sale-leaseback transaction for its customer support facility. In connection with the sale, the Company realized a gain of $2,830,000, which was being recognized on a straight-line basis over the term of the related operating lease. In connection with the Recapitalization of the Company (Note 2) in March 1997, no value was recorded in the financial statements for this deferred gain. (11) Transactions with Related Party Royalties During 1996 and the three months ended March 31, 1997, the Company and SAG operated under a license agreement whereby the Company was required to pay royalties of 24% of the net sales amounts for licenses of and technical services on SAG's products. For the year ended December 31, 1996 and three months ended March 31, 1997, royalty expense related to SAG's products was $26,058,000 and $5,683,000, respectively. Under the license agreement, SAG paid royalties to the Company on sales of the Company's products under the same terms. For the year ended December 31, 1996 and three months ended March 31, 1997, royalty revenues related to the Company's products were $294,000 and $339,000, respectively. In connection with the Recapitalization (Note 2), the Company entered into the Cooperation Agreement under which the Company paid $23,595,000 and $39,601,000 of royalties to SAG for the nine months ended December 31, 1997 and year ended December 31, 1998, respectively. SAG paid royalties of $300,000 and 44 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) $997,000 to the Company for the nine months ended December 31, 1997 and year ended December 31, 1998, respectively. Cost Reimbursements As an accommodation to SAG, the Company houses certain of SAG's product development and quality assurance personnel. SAG reimburses the Company for the costs incurred related to such product development and quality assurance activities. All intellectual property resulting from this work is the sole property of SAG. The reimbursements from SAG are netted against costs incurred. Reimbursements for the year ended December 31, 1996, three months ended March 31, 1997, nine months ended December 31, 1997 and year ended December 31, 1998 were $15,931,000, $3,416,000, $7,406,000 and $8,454,000, respectively. Notes Receivable/Payable In 1995, the Company loaned $20,000,000 to SAG, which originally was scheduled to be repaid in 2000. In 1996, the Company loaned an additional $10,000,000 to SAG, which originally was scheduled to be repaid in 2001. Interest at 6.5% and 7%, respectively, was payable quarterly on the 1995 and 1996 loans. In March 1997, the Company and SAG agreed to offset the entire balance of the notes receivable from SAG as of December 31, 1996 against the payable to SAG. Interest earned for the year ended December 31, 1996 and three months ended March 31, 1997 was $1,590,000 and $333,000, respectively. The payable to SAG of $10,050,000 and $10,884,000 at December 31, 1997 and 1998, respectively, includes royalties due under the Cooperation Agreement on sales of both product licenses and maintenance services, as well as net amounts due on other transactions between the Company and SAG. In accordance with the Cooperation Agreement, royalty payments are made 90 days after invoicing. Any payments resulting from other transactions between the Company and SAG are made monthly as expenses are incurred. These amounts are non- interest bearing. Dividends In 1996 the Company paid dividends of $9,000,000 to SAG, which at the time owned 100% of the outstanding common stock of the Company. No dividends were paid during 1997 and 1998 to SAG and there are no plans for future dividend payments. (12) Income Taxes Income tax expense consisted of:
Predecessor Successor --------------------- -------------------- Year Three months Nine months Year ended ended ended ended Dec. 31, Mar. 31, Dec. 31, Dec. 31, 1996 1997 1997 1998 -------- ------------ ----------- -------- (in thousands) Current expense: Federal........................... $4,167 $1,196 | $6,226 $14,047 State............................. 586 258 | 1,551 1,894 Foreign........................... 791 604 | 3,395 2,896 ------ ------ | ------ ------- 5,544 2,058 | 11,172 18,837 ------ ------ | ------ ------- Deferred expense (benefit): | Federal........................... (1,136) (959) | (2,560) (421) State............................. (106) (184) | (481) (42) ------ ------ | ------ ------- (1,242) (1,143) | (3,041) (463) ------ ------ | ------ ------- $4,302 $ 915 | $8,131 $18,374 ====== ====== | ====== =======
45 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Income tax expense for the year ended December 31, 1996, three months ended March 31, 1997, nine months ended December 31, 1997 and year ended December 31, 1998 differed from the amounts computed by applying the U.S. federal income tax rate of 34%, 35%, 35%, and 35% respectively, to pretax income as a result of the following:
Predecessor Successor --------------------- -------------------- Year Three months Nine months Year ended ended ended ended Dec. 31, Mar. 31, Dec. 31, Dec. 31, 1996 1997 1997 1998 -------- ------------ ----------- -------- (in thousands) Computed "expected" tax expense..... $3,573 $ 801 | $4,714 $16,129 Increase (reduction) in income taxes | resulting from: | State income taxes, net of federal | benefit.......................... 314 48 | 696 1,204 Expenses, principally meals and | entertainment, not deductible.... 224 6 | 209 262 Amortization and write-off of | intangibles...................... -- 49 | 2,439 369 Other, net........................ 191 11 | 73 410 ------ ----- | ------ ------- $4,302 $ 915 | $8,131 $18,374 ====== ===== | ====== =======
The tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities consist of:
Dec. 31, Dec. 31, 1997 1998 -------- -------- (in thousands) Deferred tax assets arising from deductible temporary differences: Accrued compensation costs and other expenses............. $2,679 $2,884 Allowance for doubtful accounts........................... 3,617 2,849 Depreciation and amortization............................. 1,473 2,004 Deferred gain--installment method......................... 1,000 1,031 Investments............................................... 642 956 ------ ------ 9,411 9,724 Deferred tax liabilities arising from taxable temporary differences: Leases of product licenses................................ 346 196 ------ ------ Net deferred income taxes................................... 9,065 9,528 Less: current portion, deferred tax assets.................. 6,217 5,392 ------ ------ Non-current portion, deferred tax assets.................... $2,848 $4,136 ====== ======
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes that it is more likely than not that the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. (13) Retirement Plans The Company has a retirement plan covering substantially all of its employees. This plan meets the requirements of Section 401(k) of the Internal Revenue Code. The Company matches employee contributions 46 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) and may make additional contributions based on the Company's profitability. For the year ended December 31, 1996, three months ended March 31, 1997, nine months ended December 31, 1997 and year ended December 31, 1998, the Company's matching (and total) contributions were $1,854,000, $696,000, $1,190,000 and $2,391,000, respectively. The Company also has entered into deferred compensation agreements with certain key executives. Under these agreements, the executives are credited with annual pre-determined amounts and amounts based on bonuses received, and earn interest on the deferred amounts. Total deferrals are included in accrued payroll and employee benefits, net of any outstanding loans. Total deferrals were $1,068,000 (net of $1,164,000 loan balance) and $1,755,000 (net of $363,000 loan balance) at December 31, 1997 and 1998, respectively. The expense for these agreements was $1,218,000, $150,000, $160,000 and $450,000 for the year ended December 31, 1996, three months ended March 31, 1997, nine months ended December 31, 1997 and year ended December 31, 1998, respectively. To assist in the funding of these agreements, the Company has purchased corporate-owned life insurance on certain of these executives. The cash surrender value of these policies, which is included in other assets, was $764,000 and $703,000 at December 31, 1997 and 1998, respectively. (14) Stock Option Plan and Employee Stock Purchase Plan The Company adopted the Software AG Systems, Inc. 1997 Stock Option Plan (the "Stock Option Plan") on April 29, 1997. The Stock Option Plan permits a maximum of 6,875,000 shares of common stock to be issued pursuant to grants of stock options. Unless sooner terminated by the Company's Board of Directors, the Stock Option Plan will terminate on April 11, 2007. Pursuant to the Stock Option Plan, the exercise price per share shall not be less than the fair market value of each share at the date of grant. All options issued generally have vesting periods of zero to four years from the grant date and expire after the seventh anniversary from the date of grant. At December 31, 1997 and 1998, 1,831,775 and 1,761,776 shares, respectively, were available for grant under the Stock Option Plan. Following is a summary of activity under the Stock Option Plan for the years ended December 31, 1997 and 1998:
1997 1998 ------------------------ ------------------------ Weighted Weighted average average Shares exercise price Shares exercise price --------- -------------- --------- -------------- Outstanding, January 1,...... -- $ -- 5,043,225 $ 5.02 Granted...................... 5,069,900 4.66 450,500 19.50 Exercised.................... -- -- 933,260 2.43 Forfeited/Expired............ 26,675 2.90 380,501 7.27 --------- ----- --------- ------ Outstanding, December 31,.... 5,043,225 $5.02 4,179,964 $ 6.97 ========= ===== ========= ======
47 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes information about the Stock Option Plan at December 31, 1998:
Options Outstanding Options Exercisable - ----------------------------------------------------------------- ---------------------------- Weighted average Actual range of remaining Weighted Weighted exercise prices 150% Shares contractual average Shares average exercise increments outstanding life years exercise price exercisable price - -------------------- ----------- ---------------- -------------- ----------- ---------------- $ 1.47-- 1.47 2,110,640 5.3 $ 1.47 171,210 $ 1.47 9.60--13.88 1,675,724 6.3 11.01 862,020 10.50 15.56--23.31 310,600 6.5 17.50 -- -- 24.44--30.19 83,000 6.3 25.95 -- -- - -------------- --------- --- ------ --------- ------ $ 1.47--30.19 4,179,964 5.8 $ 6.97 1,033,230 $ 9.00 ============== ========= === ====== ========= ======
In 1998, the Company's Board of Directors and the shareholders approved a qualified employee stock purchase plan ("ESPP") and authorized the issuance of 1,500,000 shares of common stock, for purchase pursuant to the ESPP. The ESPP commenced on June 1, 1998. Under the terms of the ESPP, employees may contribute, through payroll deduction, up to 15% of eligible compensation to purchase stock with the limitation of $25,000 annually in fair market value of the shares. Employees may elect to withdraw from the ESPP at any time during the two separate offering periods which run from December to May and June to November and have their contributions for the period returned to them. Also, employees may elect to change the rate of contribution only once during the offering periods. The price at which employees may purchase shares is 85% of the lower of the fair market value of the stock at the beginning or end of the six months offering period. The ESPP is qualified under Section 423 of the Internal Revenue Code of 1986, as amended. In 1998, employees purchased 68,686 shares at an average price of $16.20. At December 31, 1998, 1,431,000 shares are remaining for future issuance. The Company applies APB Opinion No. 25 in accounting for its stock options granted and stock issued through the ESPP, under which compensation cost is recognized to the extent that the fair value of the underlying stock exceeds the exercise price of the stock options granted or stock issued through the ESPP. Under SFAS No. 123, the Company is required to provide pro forma disclosure of the net income and earnings per share that would have resulted had the Company adopted the fair value method for recognition purposes. The following information is presented as if the Company had adopted SFAS No. 123 and restated its results for the nine months ended December 31, 1997 and for the year ended December 31, 1998:
Dec. 31, Dec. 31, 1997 1998 ---------- ----------- (in thousands, except per share data) Net income--as reported............................... $ 5,338 $ 27,710 Net income--pro forma................................. 4,741 25,501 Earnings per share--as reported....................... 0.21 0.93 Earnings per share (assuming dilution)--as reported... 0.20 0.87 Earnings per share--pro forma......................... 0.19 0.85 Earnings per share (assuming dilution)--pro forma..... 0.18 0.80
For the above information, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 1997 and 1998: dividend yield of zero percent each; risk-free interest rate of 6.0% and 5.2%; expected volatility of 40.0% and 73.9%; and expected lives of 2 to 6 years and 4.5 years, respectively. The weighted average fair value of options granted during the nine months ended December 31, 1997 and the year ended December 31, 1998 was $1.97 and $11.90 per option, respectively. 48 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In addition, the fair value of each stock purchased through the ESPP was estimated on the purchase date using the Black-Scholes pricing model with the following assumptions in 1998: Dividend yield of zero percent; risk free interest rate of 5.3%; expected volatility of 73.9%; and expected lives of 0.5 years. The weighted average fair value of stocks purchased through ESPP during the year ended December 31, 1998 was $8.31. The full impact of calculating cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options vesting period of four years. (15) Lease Commitments The Company leases certain computer equipment under agreements which are classified as capital leases. Lease terms are generally less than 36 months. Assets under capital leases are included in the consolidated balance sheets as follows:
Dec. 31, Dec. 31, 1997 1998 -------- -------- (in thousands) Computer equipment............................................ $ -- $1,512 Less: accumulated amortization................................ -- 428 ----- ------ $ -- $1,084 ===== ======
In addition, the Company leases office space and equipment under operating lease agreements that expire at various dates through 2015. Facility rent expense for the year ended December 31, 1996, three months ended March 31, 1997, nine months ended December 31, 1997 and year ended December 31, 1998, was $7,002,000, $1,722,000, $5,179,000 and $6,658,000, respectively. Rent expense includes the current year effect of determinable scheduled rent increases and initial rent abatement periods contained in certain of the Company's facility lease agreements. Equipment lease expense for the year ended December 31, 1996, three months ended March 31, 1997, nine months ended December 31, 1997 and year ended December 31, 1998 was $1,678,000, $339,000, $1,018,000 and $2,002,000, respectively. Future minimum rent payments under the aforementioned leases, net of aggregate rents of $4,189,000 expected to be received from subleasing of a portion of the customer support facility and another facility, at December 31, 1998 are:
Years ending December 31, Capital Leases Operating Leases - ------------------------- -------------- ---------------------------- Facilities Equipment Total ---------- --------- ------- (in thousands) 1999............................... $ 552 $ 5,643 $2,915 $ 8,558 2000............................... 453 5,633 1,495 7,128 2001............................... 226 5,351 120 5,471 2002............................... -- 4,776 90 4,866 2003............................... -- 4,140 34 4,174 Thereafter......................... -- 18,971 -- 18,971 ----- ------- ------ ------- Total minimum lease payments....... 1,231 $44,514 $4,654 $49,168 ======= ====== ======= Less: amount representing interest.......................... 118 ----- Present value of net minimum lease payments.......................... 1,113 Less: current portion.............. 478 ----- $ 635 =====
49 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's operating lease agreement for its customer support facility requires the Company to maintain minimum amounts of net worth and retained earnings. If the minimum amounts are not maintained, the Company will be required to post a $500,000 irrevocable letter of credit for each $2,000,000 shortfall, to be applied by the lessor in the event of default under the lease. (16) Geographic, Product and Services Revenue Information Net revenue, operating income, and identifiable assets by geographic area were as follows:
Predecessor Successor --------------------- -------------------- Year Three months Nine months Year ended ended ended Ended Dec. 31, Mar. 31, Dec. 31, Dec. 31, 1996 1997 1997 1998 -------- ------------ ----------- -------- (in thousands) Revenue: U.S. operations................. $129,879 $ 30,424 | $116,378 $209,838 Canadian operations............. -- -- | 3,861 15,062 Mexican operations.............. -- -- | 4,507 6,209 Other operations................ 26,961 4,217 | 23,329 25,845 Intercompany elimination........ -- -- | (1,492) (7,965) -------- -------- | -------- -------- Total revenue................. $156,840 $ 34,641 | $146,583 $248,989 ======== ======== | ======== ======== Income (loss) from operations: | U.S. operations................. $ 5,281 $ 1,310 | $ 18,732 $ 38,875 Canadian operations............. -- -- | (5,129) 3,046 Mexican operations.............. -- -- | (1,151) (22) Other operations................ -- -- | -- -- Intercompany elimination........ -- -- | -- 182 -------- -------- | -------- -------- Total operating income........ $ 5,281 $ 1,310 | $ 12,452 $ 42,081 ======== ======== | ======== ======== Identifiable assets (including | long-lived assets): | U.S. operations................. $158,088 $127,749 | $193,503 $253,142 Canadian operations............. -- -- | 9,143 11,158 Mexican operations.............. -- -- | 1,538 302 Other operations................ -- -- | -- -- Intercompany elimination........ -- -- | (2,447) (10,837) -------- -------- | -------- -------- Total identifiable assets..... $158,088 $127,749 | $201,737 $253,765 ======== ======== | ======== ========
Canadian operations include one subsidiary, SAGA SOFTWARE (CANADA) Inc. (formerly R.D. Nickel and Associates, Inc.), which was acquired in September 1997. Mexican operations include one subsidiary located in Mexico. The Company's Mexican operations commenced in 1996 and operated as a branch office until it became a wholly owned subsidiary in May 1997. Other operations include royalty revenue from international distributors. 50 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Royalty revenues from international distributors are as follows:
Predecessor Successor ----------------- ----------------- Three Nine Year months months Year ended ended ended ended Dec. 31, Mar. 31, Dec. 31, Dec. 31, 1996 1997 1997 1998 -------- -------- -------- -------- (in thousands) Japan..................................... $ 9,207 $ 971 |$10,481 $12,469 Brazil.................................... 7,000 1,500 | 7,500 7,777 Canada.................................... 4,640 805 | 2,026 -- Other..................................... 6,114 941 | 3,322 5,599 ------- ------ |------- ------- Total royalty revenues from international | distributors............................. $26,961 $4,217 |$23,329 $25,845 ======= ====== |======= =======
Royalty revenues from international distributors included in software license fees and maintenance fees on the consolidated statements of operations were $16,982,000 and $9,979,000, respectively, in 1996; $2,331,000 and $1,886,000, respectively, for the three months ended March 31, 1997; $16,105,000 and $7,224,000, respectively, for the nine months ended December 31, 1997 and $18,696,000 and $7,149,000, respectively, for the year ended December 31, 1998. Royalties from Canada includes royalties received from R.D. Nickel prior to the acquisition in September 1997. Sales and transfers between geographic areas are accounted for at prices which the Company believes are arm's length, and in accordance with the rules and regulations of the respective governing tax authorities. The Company's software license fees are derived primarily from the licensing of the Company's enterprise systems and enterprise integration products. In 1996, 1997 and 1998, revenues from sale of enterprise systems products represented 85%, 81% and 85%, respectively, and revenues from sale of enterprise integration products represented 15%, 19% and 15%, respectively, of the total software license fees. The Company's professional services fees are derived primarily from services provided with the implementation and deployment of the Company's enterprise systems and enterprise integration products and through educational services. The Company's professional services offerings include software integration, system implementation, large project management, year 2000 analysis and remediation and consulting. In 1997 and 1998, software integration, system implementation and large project management services contributed 64% and 44%, respectively; year 2000 analysis and remediation services contributed 15% and 42%, respectively; educational services contributed 7% and 4%, respectively; consulting services contributed 2% each, and other services contributed approximately 12% and 8%, respectively, of the total services revenue. The related 1996 information is not available as the company maintained its financial information in a different manner compared to 1997 and thereafter. (17) Other Income and Expense, Net Other income and expense, net, on the consolidated statements of operations primarily includes interest income of $2,914,000 and gain on sale of other assets of $1,000,000 for the year ended December 31, 1996; interest income of $779,000 for the three months ended March 31, 1997; interest income of $728,000 for the nine months ended December 31, 1997 and interest income of $3,550,000 for the year ended December 31, 1998. (18) Contingencies The Company is involved in various claims and legal proceedings of a nature considered normal to its business, primarily relating to product and contract performance issues, and employee termination matters. While 51 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) it is not feasible to predict or determine the final outcome of these proceedings, management does not believe that they will have a material adverse affect on the Company's financial position or results of operations. (19) Quarterly Financial Data (Unaudited) Summarized financial data by quarters is as follows:
Predecessor Successor ----------- --------------------------- Three months Three months ended, ended --------------------------- Mar. 31, June 30, Sept. 30, Dec. 31, 1997 1997 1997 1997 ----------- -------- --------- -------- (in thousands, except per share data) Revenue............................... $34,641 | $42,947 $46,729 $56,907 Gross profit.......................... 17,127 | 22,845 23,748 31,264 Net income (loss)..................... 1,373 | 2,151 (3,227) 6,414 Net income (loss) per share........... 0.06 | 0.09 (0.13) 0.24 Net income (loss) per share-assuming | dilution............................. $ 0.05 | $ 0.08 $ (0.13) $ 0.23
Successor ------------------------------------------ Three months ended, ------------------------------------------ Mar. 31, June 30, Sept. 30, Dec. 31, 1998 1998 1998 1998 --------- --------- ---------- --------- (in thousands, except per share data) Revenue............................ $ 55,863 $ 60,352 $ 62,923 $ 69,851 Gross profit....................... 31,635 36,211 35,041 39,884 Net income......................... 5,390 6,145 6,823 9,352 Net income per share............... 0.18 0.21 0.23 0.31 Net income per share-assuming dilution.......................... $ 0.17 $ 0.19 $ 0.21 $ 0.29
52 SCHEDULE II Valuation and Qualifying Accounts
Additions Balance at Charged to Balance Beginning Costs and Deductions at End Description of Period Expenses Write-offs of Period ----------- ---------- ---------- ---------- ---------- Predecessor: 1/1/96-12/31/96 Allowance for Doubtful Ac- counts......................... $4,035,518 $ 757,060 $1,083,575 $3,709,003 1/1/97-3/31/97 Allowance for Doubtful Ac- counts......................... 3,709,003 204,406 (138,274) 4,051,683 - ------------------------------------------------------------------------------- Successor: 4/1/97-12/31/97 Allowance for Doubtful Ac- counts......................... 4,051,683 1,202,325 1,564,412 3,689,596 1/1/98-12/31/98 Allowance for Doubtful Ac- counts......................... $3,689,596 $3,424,222 $2,071,216 $5,042,602
EX-99.H 12 EXHIBIT (H) Exhibit (h) FOR IMMEDIATE RELEASE Dawn M. Orr Steve Ellis Investor Relations Corporate Communications 703-391-6589 703-391-8295 SOFTWARE AG SYSTEMS, INC. REPORTS FIRST QUARTER RESULTS Reston, VA, April 20, 1999--Software AG Systems, Inc. (NYSE: AGS), the parent company of SAGA SOFTWARE, Inc. (SAGA), today reported financial results for the first quarter ended March 31, 1999. Revenues in the first quarter of 1999 were $53.6 million versus $55.9 million recorded in the first quarter of 1998. Net income for the first quarters each of 1999 and 1998 was approximately $5.4 million, or $0.17 per diluted share. Commenting on the first quarter performance, Software AG Systems, Inc. President and CEO Daniel F. Gillis said, "The shortfall in revenue is attributable to some customers postponing orders. Nonetheless, we believe the long-term fundamentals of our core business remain solid and profitable." Gross margins for the first quarter of 1999 improved in each of the Company's revenue categories--software license, maintenance and professional services. Overall gross profit margins declined from 57 percent in 1998 to 53 percent in 1999, due primarily to lower license revenue volume for the quarter. Income from operations decreased to $7.5 million in the first quarter of 1999 from $8.2 million for the same period in 1998. Despite a substantial increase in R&D spending in the first quarter, total operating expenses declined 11 percent from the same period in 1998. The SAGA CEO said that his company's in-development enterprise integration product, Sagavista(TM), is on schedule for delivery in the third quarter of 1999 with BETA testing to begin in July. Software AG Systems, Inc. is the parent company of Reston, Virginia based SAGA SOFTWARE, Inc. (SAGA). SAGA provides enterprise application integration and systems software that support billions of mainframe transactions daily for some of the world's largest organizations. SAGA's suite of mission critical products and associated professional services take customers from the heart of the enterprise to the desktop, freeing their information and leveraging their IT investment. SAGA's subsidiaries and distributors are located worldwide in Asia-Pacific, Eastern and Western Europe, Japan, Latin America, the Middle East and South America. For further information, please visit the company's Web site at http://www.sagasoftware.com. # # # Safe Harbor Provision for Forward-Looking Statements: The statements contained in this release include forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the company's current knowledge, beliefs, expectations and specific assumptions with respect to future business decisions. Accordingly, the statements are subject to significant risks, contingencies and uncertainties that could cause actual operating results, performance or business prospects to differ materially from those expressed in, or implied by, these statements. These risks, contingencies and uncertainties include, but are not limited to, significant quarterly and other fluctuations in revenues and results of operations; reliance on acquisitions and the timely development, production, marketing and delivery of new products and services; increased demand for year 2000 products and services; risks associated with conducting a professional services business; reliance on the mainframe computing environment and demand for the company's products; changes in the company's product and service mix and product and service pricing; interoperability of the company's products with leading software application products; risks of protecting intellectual property rights and litigation; dependence on third-party technology; risks associated with international sales, distributors and operations; dependence on government contracts; control of the company by affiliates; the company's ability to implement its acquisition strategy, successfully integrate any acquired products, services and businesses, adjust to changes in technology, customer preferences, enhanced competition and new competitors in software and professional services markets, maintain and enhance its relationships with vendors, and attract and retain key employees; general economic and business conditions; and other risks detailed from time to time in the company's Securities and Exchange Commission reports, including, but not limited to, the company's Registration Statement filed on Form S-1. Software AG Systems, Inc. is not obligated to update the information contained in this release. 2 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
Mar. 31, Dec. 31, 1999 1998 ----------- -------- (Unaudited) Assets Current: Cash and cash equivalents.............................. $ 60,011 $ 60,298 Short-term investments................................. 11,000 10,600 Accounts receivable: Invoiced and currently due........................... 40,611 50,110 Advanced billings on maintenance..................... 7,140 11,899 Unbilled services.................................... 8,931 8,771 Installment.......................................... 32,459 32,016 Other................................................ 1,927 1,231 Less: allowance for doubtful accounts................ (3,920) (5,042) -------- -------- Total accounts receivable........................... 87,148 98,985 Current portion of deferred income taxes............... 5,392 5,392 Prepaid expenses....................................... 3,669 2,265 Other current assets................................... 1,910 1,855 -------- -------- Total current assets................................ 169,130 179,395 Cooperation agreement, net of accumulated amortization.. 18,799 19,387 Installment accounts receivable, net of current portion................................................ 30,667 30,248 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization.............. 9,504 10,176 Goodwill, net of accumulated amortization............... 9,486 9,720 Deferred income taxes................................... 4,136 4,136 Other assets............................................ 812 703 -------- -------- Total assets........................................ $242,534 $253,765 ======== ======== Liabilities and Stockholders' Equity Current: Current portion of long-term obligations............... $ 459 $ 478 Accounts payable....................................... 6,229 9,675 Accrued payroll and employee benefits.................. 8,025 12,181 Payable to SAG......................................... 5,081 10,884 Income taxes payable................................... 2,786 3,991 Other current liabilities.............................. 7,787 7,912 Current portion of deferred revenues, net of deferred royalties............................................. 46,622 48,328 -------- -------- Total current liabilities........................... 76,989 93,449 Long-term obligations, net of current portion........... 534 635 Deferred revenues, net of deferred royalties............ 30,651 31,773 -------- -------- Total liabilities................................... 108,174 125,857 Stockholders' equity Common stock........................................... 306 305 Additional paid-in capital............................. 96,337 95,474 Retained earnings...................................... 38,462 33,048 Accumulated translation adjustments.................... (745) (919) -------- -------- Total stockholders' equity.......................... 134,360 127,908 -------- -------- Total liabilities and stockholders' equity.......... $242,534 $253,765 ======== ========
3 SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended March 31, 1999 and 1998 (in thousands, except per share dollar amounts)
1999 1998 ----------- ------- (Unaudited) Revenues: Software license fees.................................... $13,180 $21,649 Maintenance fees......................................... 20,634 19,800 Professional services fees............................... 19,792 14,414 ------- ------- Total revenues......................................... 53,606 55,863 ------- ------- Cost of revenues: Software license......................................... 3,118 5,670 Maintenance.............................................. 7,041 7,057 Professional services.................................... 14,990 11,501 ------- ------- Total cost of revenues................................. 25,149 24,228 ------- ------- Gross profit............................................... 28,457 31,635 ------- ------- Operating expenses: Software product development............................. 2,409 755 Sales and marketing...................................... 9,811 11,873 Administrative and general............................... 8,705 10,805 ------- ------- Total operating expenses............................... 20,925 23,433 ------- ------- Income from operations..................................... 7,532 8,202 Other income and expense, net.......................... 1,344 906 ------- ------- Income before income taxes................................. 8,876 9,108 Income tax provision................................... 3,462 3,718 ------- ------- Net income................................................. 5,414 5,390 Other comprehensive income: Foreign currency translation adjustments............... 173 (72) ------- ------- Comprehensive income....................................... $ 5,587 $ 5,318 ======= ======= Net income per common share: Basic.................................................... $ 0.18 $ 0.18 Diluted.................................................. $ 0.17 $ 0.17 Shares used in computing net income per common share: Basic.................................................... 30,577 29,517 Diluted.................................................. 31,839 31,491
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