-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ThEZcYKe69mzcSDz/x9GLOf565zi0WIft5JKvVO78K+CzitV/ADhLBBjo9+qNVxK TKfOswRPY5EFCv/1XSQ0Gw== 0000950109-95-000389.txt : 19950217 0000950109-95-000389.hdr.sgml : 19950217 ACCESSION NUMBER: 0000950109-95-000389 CONFORMED SUBMISSION TYPE: SC 14D1/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19950216 SROS: NONE GROUP MEMBERS: PYRAMID TECHNOLOGY CORPORATION GROUP MEMBERS: SIEMENS AKTIENGESELLSCHAFT GROUP MEMBERS: SIEMENS NIXDORF INFORMATIONS SYSTEME AG /FI GROUP MEMBERS: SIEMENS NIXDORF MID-RANGE ACQUISITION CORP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PYRAMID TECHNOLOGY CORP CENTRAL INDEX KEY: 0000714865 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 942781589 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-37353 FILM NUMBER: 95512195 BUSINESS ADDRESS: STREET 1: 3860 N FIRST ST CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084288000 MAIL ADDRESS: STREET 1: 3860 N FIRST STREET CITY: SAN JOSE STATE: CA ZIP: 95134 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PYRAMID TECHNOLOGY CORP CENTRAL INDEX KEY: 0000714865 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 942781589 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 14D1/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-37353 FILM NUMBER: 95512196 BUSINESS ADDRESS: STREET 1: 3860 N FIRST ST CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084288000 MAIL ADDRESS: STREET 1: 3860 N FIRST STREET CITY: SAN JOSE STATE: CA ZIP: 95134 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SIEMENS NIXDORF INFORMATIONS SYSTEME AG /FI CENTRAL INDEX KEY: 0000818858 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1/A BUSINESS ADDRESS: STREET 1: HEINZ NIXDORF RING1 CITY: 33102 PADERBORN STATE: I8 MAIL ADDRESS: STREET 1: 1301 AVENUE OF THE AMERICAS STREET 2: ATTN E ROBERT LUPONE ESQ CITY: NEW YORK STATE: NY ZIP: 10019-6022 FORMER COMPANY: FORMER CONFORMED NAME: SIEMENS NIXDORF INFORMATIONS SYSTEME AG /FI DATE OF NAME CHANGE: 19950106 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SIEMENS NIXDORF INFORMATIONS SYSTEME AG /FI CENTRAL INDEX KEY: 0000818858 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1/A BUSINESS ADDRESS: STREET 1: HEINZ NIXDORF RING1 CITY: 33102 PADERBORN STATE: I8 MAIL ADDRESS: STREET 1: 1301 AVENUE OF THE AMERICAS STREET 2: ATTN E ROBERT LUPONE ESQ CITY: NEW YORK STATE: NY ZIP: 10019-6022 FORMER COMPANY: FORMER CONFORMED NAME: SIEMENS NIXDORF INFORMATIONS SYSTEME AG /FI DATE OF NAME CHANGE: 19950106 SC 14D1/A 1 SCH 14D-1 AMEND NO 3/SCH 13D AMEND NO 8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 14D-1 TENDER OFFER STATEMENT (AMENDMENT NO. 3) PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 AND SCHEDULE 13D (AMENDMENT NO. 8) UNDER THE SECURITIES EXCHANGE ACT OF 1934 ---------------- PYRAMID TECHNOLOGY CORPORATION (NAME OF SUBJECT COMPANY) ---------------- SIEMENS NIXDORF MID-RANGE ACQUISITION CORP. SIEMENS NIXDORF INFORMATIONSSYSTEME AG SIEMENS AKTIENGESELLSCHAFT (BIDDERS) ---------------- COMMON STOCK, $.01 PAR VALUE (TITLE OF CLASS OF SECURITIES) ---------------- 747236107 (CUSIP NUMBER OF CLASS OF SECURITIES) ---------------- E. ROBERT LUPONE, ESQ. SIEMENS CORPORATION 1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019-6022 (212) 258-4000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER) ---------------- COPY TO: PETER D. LYONS, ESQ. SHEARMAN & STERLING 599 LEXINGTON AVENUE NEW YORK, NEW YORK 10022 TELEPHONE: (212) 848-4000 ---------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 1 of 8 CUSIP NO. 747236107 1. Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person Siemens Nixdorf Mid-Range Acquisition Corp. - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of Group (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3. SEC Use only - -------------------------------------------------------------------------------- 4. Sources of Funds AF - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(f) [_] - -------------------------------------------------------------------------------- 6. Citizen or Place of Organization Delaware - -------------------------------------------------------------------------------- 7. Aggregate Amount Beneficially Owned by Each Reporting Person 4,047,743 - -------------------------------------------------------------------------------- 8. Check if the Aggregate Amount in Row (7) Excludes Certain Shares [_] - -------------------------------------------------------------------------------- 9. Percent of Class Represented by Amount in Row (7) 23.9% - -------------------------------------------------------------------------------- 10. Type of Reporting Person CO - -------------------------------------------------------------------------------- Page 2 of 8 CUSIP NO. 747236107 1. Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person Siemens Nixdorf Informationssysteme AG - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of Group (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3. SEC Use only - -------------------------------------------------------------------------------- 4. Sources of Funds AF - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(f) [_] - -------------------------------------------------------------------------------- 6. Citizen or Place of Organization Federal Republic of Germany - -------------------------------------------------------------------------------- 7. Aggregate Amount Beneficially Owned by Each Reporting Person 4,047,743 - -------------------------------------------------------------------------------- 8. Check if the Aggregate Amount in Row (7) Excludes Certain Shares [_] - -------------------------------------------------------------------------------- 9. Percent of Class Represented by Amount in Row (7) 23.9% - -------------------------------------------------------------------------------- 10. Type of Reporting Person CO Page 3 of 8 CUSIP NO. 747236107 1. Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person Siemens Aktiengesellschaft - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of Group (a) [_] (b) [_] - -------------------------------------------------------------------------------- 3. SEC Use only - -------------------------------------------------------------------------------- 4. Sources of Funds WC - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(f) [_] - -------------------------------------------------------------------------------- 6. Citizen or Place of Organization Federal Republic of Germany - -------------------------------------------------------------------------------- 7. Aggregate Amount Beneficially Owned by Each Reporting Person 4,047,743 - -------------------------------------------------------------------------------- 8. Check if the Aggregate Amount in Row (7) Excludes Certain Shares [_] - -------------------------------------------------------------------------------- 9. Percent of Class Represented by Amount in Row (7) 23.9% - -------------------------------------------------------------------------------- 10. Type of Reporting Person CO Page 4 of 8 This Amendment No. 3 to the Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") and Amendment No. 8 to Schedule 13D relates to the offer by Siemens Nixdorf Mid-Range Acquisition Corp., a Delaware corporation ("Purchaser") and an indirect wholly owned subsidiary of Siemens Nixdorf Informationssysteme AG, a corporation organized under the laws of the Federal Republic of Germany ("SNI AG") and a direct wholly owned subsidiary of Siemens Aktiengesellschaft, a corporation organized under the laws of the Federal Republic of Germany ("Siemens AG"), to purchase all outstanding shares of Common Stock, par value $.01 per share (the "Shares"), of Pyramid Technology Corporation, a Delaware corporation (the "Company") at a price of $16.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in Purchaser's Offer to Purchase dated January 27, 1995 (the "Offer to Purchase") and in the related Letter of Transmittal (which together constitute the "Offer"), copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. Capitalized terms not defined in this Amendment No. 3 to the Tender Offer Statement on Schedule 14D-1 and Amendment No. 8 to Schedule 13D have the meanings assigned to them in the Offer to Purchase. On February 13, 1995, Purchaser, SNI AG, Siemens AG and the Company filed with the Securities and Exchange Commission (the "Commission") a Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3"), together with a supplement to the Offer to Purchase (the "Supplement"). Subsequently, on February 15, 1995, Purchaser, SNI AG, Siemens AG and the Company filed with the Commission Amendment No. 1 to the Schedule 13E-3, together with an amended and supplemented supplement (the "Revised Supplement") to the Offer to Purchase. ITEM 1. SECURITY AND SUBJECT COMPANY. Item 1(c) is hereby amended to read in its entirety as follows: (c) The information concerning the principal market in which the Shares are traded and certain high and low sales prices for the Shares in such principal market set forth in Section 6 ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. The information set forth in the Revised Supplement under "CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS" is incorporated herein by reference. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. Item 3 is hereby amended to read in its entirety as follows: (a) The information set forth in Section 8 ("Certain Information Concerning Purchaser, SNI AG and Siemens AG") and Section 10 ("Background of the Offer; Contacts with the Company; the Merger Agreement") of the Offer to Purchase is incorporated herein by reference. The information set forth in the Revised Supplement under "INTRODUCTION" is incorporated herein by reference. (b) The information set forth in the Introduction, Section 7 ("Certain Information Concerning the Company"), Section 8 ("Certain Information Concerning Purchaser, SNI AG and Siemens AG"), Section 10 ("Background of the Offer; Contacts with the Company; the Merger Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the Merger") of the Offer to Purchase is incorporated herein by reference. The information set forth in the Revised Supplement under "SPECIAL FACTORS--1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger" is incorporated herein by reference. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. Item 5 is hereby amended in its entirety to read as follows: (a)-(e) The information set forth in the Introduction, Section 10 ("Background of the Offer; Contacts with the Company; the Merger Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the Merger") of the Offer to Purchase is incorporated herein by reference. The Page 5 of 8 information set forth in the Revised Supplement under "SPECIAL FACTORS--6. Purpose and Structure of the Offer and the Merger; Reasons of SNI AG for the Offer and the Merger", "SPECIAL FACTORS--7. Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger" and "SPECIAL FACTORS--9. Interests of Certain Persons in the Offer and the Merger" is incorporated herein by reference. (f) and (g) The information set forth in Section 13 ("Effect of the Offer on the Market for Shares, Exchange Listing and Exchange Act Registration") of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. Item 8 is hereby amended in its entirety to read as follows: The information set forth in the Introduction and Section 16 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. The information set forth in the Revised Supplement under "FEES AND EXPENSES" is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. Item 10 is hereby amended in its entirety to read as follows: (a) Not applicable. (b) and (c) The information set forth in Section 15 ("Certain Legal Matters and Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. The information set forth in the Revised Supplement under "CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS" is incorporated herein by reference. (d) Not applicable. (e) The information set forth in Section 15 ("Certain Legal Matters and Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (f) Purchaser has extended the expiration date of the Offer until 12:00 midnight, New York City time, on Wednesday, March 1, 1995 to allow dissemination of information supplementing the tender offer materials previously mailed to the Company's stockholders. A press release relating to the foregoing is filed as Exhibit (a)(14) to the Schedule 14D-1 and is incorporated herein by reference. In addition, the information set forth in the Offer to Purchase and the Revised Supplement is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. Item 11 is hereby amended by adding the following Exhibits. (a)(12) Rule 13e-3 Transaction Statement on Schedule 13e-3, including the exhibits thereto, dated February 13, 1995 and filed by Purchaser, SNI AG, Siemens AG and the Company, together with a supplement to the Offer to Purchase. (a)(13) Amendment No. 1 to the Rule 13e-3 Transaction Statement, dated February 15, 1995 and filed by Purchaser, SNI AG, Siemens AG and the Company, together with an amended and supplemented supplement to the Offer to Purchase. (a)(14) Text of Press Release dated February 16, 1995 issued by SNI AG and the Company. Page 6 of 8 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. February 16, 1995 Siemens Nixdorf Mid-Range Acquisition Corp. /s/ Gerhard Schulmeyer By: _________________________________ Name: Gerhard Schulmeyer Title: President Siemens Nixdorf Informationssysteme AG /s/ Gerhard Schulmeyer By: _________________________________ Name: Gerhard Schulmeyer Title: President, CEO Siemens Aktiengesellschaft /s/ Adrienne Whitehead By: _________________________________ Name: Adrienne Whitehead Title: Attorney-in-Fact Page 7 of 8 EXHIBIT INDEX
EXHIBIT NO. PAGE NO. ------- -------- (a)(12) --Rule 13e-3 Transaction Statement on Schedule 13E-3, including the exhibits thereto, dated February 13, 1995 and filed by Purchaser, SNI AG, Siemens AG and the Company, together with a supplement to the Offer to Purchase. (a)(13) --Amendment No. 1 to the Rule 13e-3 Transaction Statement, dated February 15, 1995 and filed by Purchaser, SNI AG, Siemens AG and the Company, together with an amended and supplemented supplement to the Offer to Purchase. (a)(14) --Text of Press Release dated February 16, 1995 issued by SNI AG and the Company.
Page 8 of 8 EX-99.A.12 2 SCHEDULE 13E-3 EXHIBIT 99.(A)(12) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 13E-3 ((S)240.13E-3) THEREUNDER)) ---------------- PYRAMID TECHNOLOGY CORPORATION (NAME OF THE ISSUER) ---------------- PYRAMID TECHNOLOGY CORPORATION SIEMENS NIXDORF MID-RANGE ACQUISITION CORP. SIEMENS NIXDORF INFORMATIONSSYSTEME AG SIEMENS AKTIENGESELLSCHAFT (NAME OF PERSON(S) FILING STATEMENT) ---------------- COMMON STOCK, $.01 PAR VALUE (TITLE OF CLASS OF SECURITIES) ---------------- 747236107 (CUSIP NUMBER OF CLASS OF SECURITIES) ---------------- E. ROBERT LUPONE, ESQ. RICHARD H. LUSSIER SIEMENS CORPORATION CHIEF EXECUTIVE OFFICER 1301 AVENUE OF THE AMERICAS PYRAMID TECHNOLOGY CORPORATION NEW YORK, NEW YORK 10019-6022 3860 N. FIRST STREET (212) 258-4000 SAN JOSE, CALIFORNIA 95134 (408) 428-9000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON(S) AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT) ---------------- COPIES TO: PETER D. LYONS, ESQ. LARRY W. SONSINI, ESQ. SHEARMAN & STERLING DOUGLAS H. COLLOM, ESQ. 599 LEXINGTON AVENUE AARON J. ALTER, ESQ. NEW YORK, NEW YORK 10022 WILSON, SONSINI, GOODRICH & ROSATI (212) 848-4000 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (415) 493-9300 ---------------- This statement is filed in connection with (check the appropriate box): a. [_] The filing of solicitation materials or an information statement subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation 14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [(S)240.13e- 3(c)] under the Securities Exchange Act of 1934. b. [_] The filing of a registration statement under the Securities Act of 1933. c. [X] A tender offer. d. [_] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [_] ---------------- CALCULATION OF FILING FEE - --------------------------------------------------------------------------------
TRANSACTION VALUATION AMOUNT OF FILING FEE - ------------------------------------------------------------------------------ $261,772,336.00* $52,354.46**
- -------------------------------------------------------------------------------- * Note: The Transaction Value is calculated by multiplying $16.00, the per share tender offer price, by 16,360,771, the sum of the number of shares of Common Stock outstanding not already owned by Siemens Informationssysteme AG and the 3,449,923 shares of Common Stock subject to options outstanding. ** 1/50 of 1% of Transaction Value. [X] Check box if any part of the fee is offset as provided by Rule 0-11(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: $52,354.46 Filing Party: Siemens Nixdorf Mid- RangeAcquisition Corp., Form or Registration No: Schedule Siemens Nixdorf 14D-1/Schedule 13D Informationssysteme AG, (Amendment No. 5) Siemens Aktiengesellschaft Date Filed: January 27, 1995 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTRODUCTION This Rule 13e-3 Transaction Statement on Schedule 13E-3 (this "Schedule 13E- 3") is being filed by (i) Siemens Nixdorf Mid-Range Acquisition Corp., a Delaware corporation ("Purchaser") and an indirect wholly owned subsidiary of Siemens Nixdorf Informationssysteme AG ("SNI AG"), a corporation organized under the laws of the Federal Republic of Germany and a direct wholly owned subsidiary of Siemens Aktiengesellschaft ("Siemens AG"), a corporation organized under the laws of the Federal Republic of Germany, (ii) SNI AG, (iii) Siemens AG, and (iv) Pyramid Technology Corporation, a Delaware corporation (the "Company"), pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended, and Rule 13e-3 thereunder, in connection with the tender offer by Purchaser for all the outstanding shares of common stock, par value $.01 per share (the "Shares"), of the Company, upon the terms and subject to the conditions set forth in the Offer to Purchase dated January 27, 1995 (the "Offer to Purchase"), the related Letter of Transmittal, and the Supplement to the Offer to Purchase dated February 13, 1995, a copy of which is filed as Exhibit (d)(2) to this Schedule 13E-3 (the "Supplement") (together, the Offer to Purchase, the Supplement and the Letter of Transmittal constitute the "Offer"). Forms of the Offer to Purchase and the Letter of Transmittal were filed as Exhibits (a)(1) and (a)(2) to the Tender Offer Statement on Schedule 14D-1 and Amendment No. 5 to the Schedule 13D filed by Purchaser, SNI AG and Siemens AG on January 27, 1995 (the "Statement"). The following Cross Reference Sheet, prepared pursuant to General Instruction F to Schedule 13E-3, shows the location in the Statement of certain information required to be included in this Schedule 13E-3. The information set forth in the Statement, including all exhibits thereto, is hereby expressly incorporated herein by reference as set forth in the Cross Reference Sheet and in the responses in this Schedule 13E-3, and such responses are qualified in their entirety by reference to the information contained in the Offer to Purchase and the Supplement. The information contained in this Schedule 13E-3 concerning the Company, including, without limitation, information concerning the background of the transaction and the deliberations of the Company's Board of Directors in connection with the transaction, the opinion of the Company's financial advisor and the Company's historical financial statements, was supplied by the Company. Purchaser, SNI AG and Siemens AG take no responsibility for the accuracy of such information. The information contained in this Schedule 13E-3 concerning Purchaser, SNI AG and Siemens AG was supplied by Purchaser, SNI AG and Siemens AG. The Company takes no responsibility for the accuracy of such information. 2 CROSS REFERENCE SHEET
ITEM IN WHERE LOCATED IN SCHEDULE 13E-3 SCHEDULE 14D-1 - -------------- ---------------- Item 1(a).................................................... Item 1(a) Item 1(b).................................................... Item 1(b) Item 1(c).................................................... Item 1(c) Item 1(d).................................................... * Item 1(e).................................................... @ Item 1(f).................................................... @ Item 2(a).................................................... Item 2(a) Item 2(b).................................................... Item 2(b) Item 2(c).................................................... Item 2(c) Item 2(d).................................................... Item 2(d) Item 2(e).................................................... Item 2(e) Item 2(f).................................................... Item 2(f) Item 2(g).................................................... Item 2(g) Item 3(a).................................................... Item 3(a) and Item 3(b) Item 3(b).................................................... * Item 4(a).................................................... + Item 4(b).................................................... @ Item 5(a).................................................... Item 5(a) Item 5(b).................................................... Item 5(b) Item 5(c).................................................... Item 5(c);* Item 5(d).................................................... @ Item 5(e).................................................... Item 5(e);* Item 5(f).................................................... Item 5(f) Item 5(g).................................................... Item 5(g) Item 6(a).................................................... Item 4(a) Item 6(b).................................................... * Item 6(c).................................................... @ Item 6(d).................................................... @ Item 7(a).................................................... Item 5;* Item 7(b).................................................... * Item 7(c).................................................... * Item 7(d).................................................... * Item 8(a).................................................... * Item 8(b).................................................... * Item 8(c).................................................... * Item 8(d).................................................... * Item 8(e).................................................... * Item 8(f).................................................... @ Item 9....................................................... * Item 10(a)................................................... Item 6(a) Item 10(b)................................................... Item 6(b) Item 11...................................................... Item 7 Item 12(a)................................................... * Item 12(b)................................................... * Item 13(a)................................................... +;* Item 13(b)................................................... @ Item 13(c)................................................... @ Item 14(a)................................................... * Item 14(b)................................................... @ Item 15(a)................................................... @ Item 15(b)................................................... @ Item 16...................................................... @ Item 17...................................................... Item 11
- -------- @ Not applicable. * The information required by this Item of Schedule 13E-3 is set forth in the Supplement. + The information required by this Item of Schedule 13E-3 is not required to be included in the Schedule 14D-1. 3 ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION. (a) The name of the issuer is Pyramid Technology Corporation, a Delaware corporation (the "Company"), which has its principal executive offices at 3860 N. First Street, San Jose, California 95134. (b) The class of equity securities that is the subject of this transaction is the Common Stock, par value $.01 per share, of the Company. The information set forth in the Introduction and Section 1 ("Terms of the Offer; Expiration Date") of the Offer to Purchase is incorporated herein by reference. The information set forth in the Supplement under "INTRODUCTION" is incorporated herein by reference. (c) The information concerning the principal market in which the shares are traded and certain high and low sales prices for the shares in such principal market set forth in Section 6 ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in the Supplement under "CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS" is incorporated herein by reference. (e) Not applicable. (f) The information set forth in Section 8 of the Offer to Purchase is incorporated herein by reference. As it pertains to the Company, Item 1(f) is not applicable. ITEM 2. IDENTITY AND BACKGROUND. (a)-(g) This Schedule 13E-3 is being filed by Purchaser, SNI AG, Siemens AG and the Company. The information concerning the name, state or other place of organization, principal business and address of the principal office of each of Purchaser, SNI AG and Siemens AG, and the information concerning the name, business address, present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment or occupation is conducted, material occupations, positions, offices or employments during the last five years and citizenship of each of the executive officers and directors of Purchaser, SNI AG and Siemens AG are set forth in the Introduction, Section 8 ("Certain Information Concerning Purchaser, SNI AG and Siemens AG") and Schedule I of the Offer to Purchase and are incorporated herein by reference. During the last five years, none of Purchaser, SNI AG or Siemens AG, and, to the best knowledge of Purchaser, SNI AG and Siemens AG, none of the persons listed in Schedule I of the Offer to Purchase has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. In addition, the names, business addresses, present principal occupations or employments, and material occupations, positions, offices or employments and principal businesses and addresses thereof for the last five years and the citizenship of the directors and executive officers of the Company are set forth in Annex A to the Company's Solicitation/Recommendation Statement on Schedule 14D-9, filed on January 27, 1995 (the "Schedule 14D-9"), and are incorporated herein by reference. During the past five years, neither the Company nor, to the best knowledge of the Company, any director or executive officer of the Company (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a) The information set forth in the Introduction, Section 7 ("Certain Information Concerning the Company"), Section 8 ("Certain Information Concerning Purchaser, SNI AG and Siemens AG"), 4 Section 10 ("Background of the Offer; Contacts with the Company; the Merger Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the Merger") of the Offer to Purchase is incorporated herein by reference. The information set forth in the Supplement under "INTRODUCTION" is incorporated herein by reference. (b) The information set forth in the Supplement under "SPECIAL FACTORS--1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger" is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the Offer to Purchase on the cover page thereof and under "INTRODUCTION", "Section 1. Terms of the Offer; Expiration Date", "Section 2. Acceptance for Payment and Payment for Shares", "Section 3. Procedures for Accepting the Offer and Tendering Shares", "Section 4. Withdrawal Rights", "Section 10. Background of the Offer; Contacts with the Company; the Merger Agreement", "Section 15. Certain Legal Matters and Regulatory Approvals", "Section 12. Dividends and Distributions", "Section 14. Certain Conditions of the Offer" and "Section 17. Miscellaneous" is incorporated herein by reference. (b) Not applicable. ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a)-(e) The information set forth in the Introduction, Section 10 ("Background of the Offer; Contacts with the Company; the Merger Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the Merger") of the Offer to Purchase is incorporated herein by reference. The information set forth in Item 3 of the Company's Solicitation/Recommendation Statement on Schedule 14D-9, filed on January 27, 1995 (the "Schedule 14D-9"), under "Additional Agreements, Arrangements and Understandings" and in the Information Statement, filed as Exhibit 20.1 to the Schedule 14D-9, under "BOARD OF DIRECTORS--Buyer Designees" and "CERTAIN RELATIONSHIPS, TRANSACTIONS AND ARRANGEMENTS" is incorporated herein by reference. The information set forth in the Supplement under "SPECIAL FACTORS-- 6. Plans for the Company After the Offer and the Merger; Reasons of SNI AG for the Offer and the Merger" and "SPECIAL FACTORS--8. Interests of Certain Persons in the Offer and the Merger" is incorporated herein by reference. (f)-(g) The information set forth in Section 13 ("Effect of the Offer on the Market for Shares, Exchange Listing and Exchange Act Registration") of the Offer to Purchase is incorporated herein by reference. ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in Section 9 ("Financing of the Offer and the Merger") of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in the Supplement under "FEES AND EXPENSES" is incorporated herein by reference. (c) Not applicable. (d) Not applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a) The information set forth in the Introduction, Section 10 ("Background of the Offer; Contacts with the Company; the Merger Agreement"), Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the Merger") and Section 13 ("Effect of the Offer on the Market for Shares, Exchange Listing and Exchange Act Registration") of the Offer to Purchase is incorporated herein by reference. The information set forth in the Supplement under "SPECIAL FACTORS--5. Purpose and Structure of the Offer and the Merger; Reasons of SNI AG for the Offer and the Merger" is incorporated herein by reference. (b)-(d) The information set forth in the Supplement under "SPECIAL FACTORS-- 1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger", "SPECIAL FACTORS--5. Purpose and Structure of the Offer and the Merger; Reasons of SNI 5 AG for the Offer and the Merger" and "SPECIAL FACTORS--6. Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger" and in Section 5 "Certain Federal Income Tax Consequences" of the Offer to Purchase is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a)-(e) The information set forth in the Supplement under "SPECIAL FACTORS-- 1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger" and "SPECIAL FACTORS--3. Position of SNI AG Regarding the Fairness of the Offer and the Merger" is incorporated herein by reference. (f) Not applicable. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a)-(c) The information set forth in the Supplement under "SPECIAL FACTORS-- 2. Opinion of Smith Barney as Financial Advisor to the Company" and "SPECIAL FACTORS--4. Analysis of Goldman Sachs as Financial Advisors to SNI AG" is incorporated herein by reference. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (a)-(b) The information set forth in Section 8 ("Certain Information Concerning Purchaser, SNI AG and Siemens AG") of the Offer to Purchase is incorporated herein by reference. The information set forth in Annex A to the Schedule 14D-9 is incorporated herein by reference. ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES. The information set forth in the Introduction, Section 8 ("Certain Information Concerning Purchaser, SNI AG and Siemens AG"), Section 10 ("Background of the Offer; Contacts with the Company; the Merger Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the Merger") of the Offer to Purchase is incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE OFFER AND THE MERGER. (a) The information set forth in the Supplement under "SPECIAL FACTORS--1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger" and "SPECIAL FACTORS--8. Interests of Certain Persons in the Offer and the Merger" is incorporated herein by reference. (b) The information set forth in the Supplement under "SPECIAL FACTORS--1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger" is incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE OFFER AND THE MERGER. (a) The information set forth in Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the Merger") of the Offer to Purchase, in the Supplement under "SPECIAL FACTORS--7. Rights of Stockholders in the Merger", and in Annex A to the Supplement is incorporated herein by reference. (b) Not applicable. (c) Not applicable. 6 ITEM 14. FINANCIAL INFORMATION. (a) The information set forth in Annex B to the Supplement is incorporated herein by reference. (b) Not applicable. ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (a) Not applicable. (b) Not applicable. ITEM 16. ADDITIONAL INFORMATION. Additional information concerning the Offer is set forth in the Offer to Purchase, the Supplement and the Letter of Transmittal which are attached hereto as Exhibits (d)(1), (d)(2) and (d)(3), respectively. ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (a) Not applicable. (b)(1) Opinion of Smith Barney Inc., dated January 20, 1995.* (b)(2) Presentation of Smith Barney Inc. (b)(3) Goldman, Sachs & Co. Report. (c)(1) Agreement and Plan of Merger, dated as of January 20, 1995, among SNI AG, Purchaser and the Company.** (c)(2) Common Stock and Warrant Purchase Agreement, dated as of August 21, 1994, between the Company and Siemens Nixdorf Information Systems, Inc. (c)(3) Warrant to Purchase 1,330,000 Shares of Common Stock, dated as of September 12, 1994.* (d)(1) Offer to Purchase dated January 27, 1995.** (d)(2) Supplement to the Offer to Purchase dated February 13, 1995. (d)(3) Letter of Transmittal.** (d)(4) Notice of Guaranteed Delivery.** (d)(5) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.** (d)(6) Letter to Clients from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.** (d)(7) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.** (d)(8) Summary Advertisement dated January 27, 1995.** (d)(9) Text of Press Release dated January 23, 1995 issued by SNI AG and the Company.** (d)(10) Text of Press Release dated January 27, 1995 issued by SNI AG and the Company.** (d)(11) Audited Consolidated Financial Statements (and Related Notes) for the Company for the Fiscal Years ended September 30, 1993 and September 30, 1994 and Unaudited Consolidated Financial Statements (and Related Notes) for the Company for the First Quarter of the Fiscal Year ending September 30, 1995 (attached as Annex B to the Supplement). (e) Summary of Stockholder Appraisal Rights and Text of Section 262 of the Delaware General Corporation Law (attached as Annex A to the Supplement). (f) Not applicable. - -------- * Incorporated by reference from the Statement on Schedule 14D-9 filed by the Company on January 27, 1995. ** Incorporated by reference from the Statement. 7 SIGNATURE AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. February 13, 1995 Siemens Nixdorf Mid-Range Acquisition Corp. /s/ Gerhard Schulmeyer By:_____________________________________ Name: Gerhard Schulmeyer Title: President Siemens Nixdorf Informationssysteme AG /s/ Gerhard Schulmeyer By:_____________________________________ Name: Gerhard Schulmeyer Title: President Siemens Aktiengesellschaft /s/ Adrienne Whitehead By:_____________________________________ Name: Adrienne Whitehead Title: Attorney-in-Fact 8 SIGNATURE AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. February 13, 1995 Pyramid Technology Corporation /s/ John S. Chen By: _____________________________________ Name: John S. Chen Title: President and Chief Operating Officer 9 EXHIBIT INDEX
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ------------ (a) --Not applicable. (b)(1) --Opinion of Smith Barney Inc., dated January 20, 1995.* (b)(2) --Presentation of Smith Barney Inc. (b)(3) --Goldman, Sachs & Co. Report. (c)(1) --Agreement and Plan of Merger, dated as of January 20, 1995, among SNI AG, Purchaser and the Company.** (c)(2) --Common Stock and Warrant Purchase Agreement, dated as of August 21, 1994, between the Company and Siemens Nixdorf Information Systems, Inc. (c)(3) --Warrant to Purchase 1,330,000 Shares of Common Stock, dated as of September 12, 1994.* (d)(1) --Offer to Purchase dated January 27, 1995.** (d)(2) --Supplement to the Offer to Purchase dated February 13, 1995. (d)(3) --Letter of Transmittal.** (d)(4) --Notice of Guaranteed Delivery.** (d)(5) --Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.** (d)(6) --Letter to Clients from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.** (d)(7) --Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.** (d)(8) --Summary Advertisement dated January 27, 1995.** (d)(9) --Text of Press Release dated January 23, 1995 issued by SNI AG and the Company.** (d)(10) --Text of Press Release dated January 27, 1995 issued by SNI AG and the Company.** (d)(11) --Audited Consolidated Financial Statements (and Related Notes) for the Company for the Fiscal Years ended September 30, 1993 and September 30, 1994 and Unaudited Consolidated Financial Statements (and Related Notes) for the Company for the First Quarter of the Fiscal Year ending September 30, 1995 (attached as Annex B to the Supplement). (e) --Summary of Stockholder Appraisal Rights and Text of Section 262 of the Delaware General Corporation Law (attached as Annex A to the Supplement). (f) --Not applicable.
- -------- * Incorporated by reference from the Statement on Schedule 14D-9 filed by the Company on January 27, 1995. ** Incorporated by reference from the Statement. EXHIBIT 99(b)(2) CONFIDENTIAL Project Jupiter Presentation to the Board of Directors January 20, 1995 Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Tab --- Transaction Overview ............................................... 1 Summary Valuation .................................................. 2 Form of Smith Barney Fairness Opinion .............................. 3 APPENDIX - -------------------------------------------------------------------------------- Summary Historical and Projected Financial Statements .............. 1 Comparable Company Analysis ........................................ 2 Comparable Transaction Anaysis ..................................... 3 . Selected Comparable Transactions . All Technology Transactions Discounted Cash Flow Analysis ...................................... 4 Premium Analysis ................................................... 5 Stock Price Performance ............................................ 6 Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- TRANSACTION OVERVIEW PURCHASER: Siemens Nixdorf Informations Systeme AG FORM OF TRANSACTION: Cash tender offer OFFER: $16.00 per share, cash CONDITIONS TO OFFER: Offer is subject to a minimum condition that the number of shares tendered, plus Siemens' existing common shares, shall equal a majority of the fully diluted shares outstanding (including shares issuable upon the exercise of Siemens' warrant). Regulatory clearance on Hart-Scott-Rodino, Exon Florio and other regulatory bodies No material adverse change. TERMINATION FEE: Elements of the transaction call for a termination fee of $7 million (approximately 3.2% of the aggregate purchase price) plus reimbursement of expenses up to $3 million, as well as customary conditions to close. EXPECTED TIMING: Siemens must commence a cash tender offer within five business days from the date of announcement. Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- SUMMARY VALUATION ANALYSIS RANGE ----- VALUATION METHODOLOGY LOW HIGH - --------------------- ------ ------ Public Market Comparables/1/ $ 4.70 to $10.68 Public Market Value with 53.7% $ 7.22 to $16.47 Acquisition Premium/2/ Private Market Value/3/ $14.25 to $26.66 Discounted Cash Flow Analysis $11.59 to $19.79 Deal Price/4/ $16.00 /1/ Figures equal 7.7x Sunshine's 1995 EPS. 7.7x and 17.5x represent the low and high price/earnings multiple for Sunshine's selected comparable companies (Auspex, NetFrame, Sequent, Stratus and Tricord). /2/ Figures equal private market value multiplied by median transaction premiums paid in technology M&A transactions since 1988. (See Appendix, Tab 3) /3/ Figures derived by using revenue multiples paid in selected comparable transactions. Revenue multiple range used is 0.8x to 1.7x assuming 16 million fully diluted shares. /4/ Deal price falls within range of each valuation methodology. Smith Barney ------------ FORM OF SMITH BARNEY FAIRNESS OPINION ------------------------------------- January __, 1995 The Board of Directors Pyramid Technology Corporation 3860 North First Street San Jose, CA 95134-1702 Members of the Board: In connection with the proposed acquisition of Pyramid Technology Corporation ("Pyramid" or the "Company") by Siemens Nixdorf Informations Systeme AG ("Siemens" or "Parent"), you have requested our opinion as to the fairness, from a financial point of view, of the consideration of $16.00 net per share in cash to be received by the holders of the common stock of Pyramid (other than Siemens) pursuant to an Agreement and Plan of Merger, dated January __, 1995 by and among Pyramid, Siemens, and HN Acquisition Corp. ("Purchaser") (HN Acquisition Corp. is a wholly-owned subsidiary of Siemens) (the "Merger Agreement"). As more fully described in the Merger Agreement, and subject to the terms and conditions specified therein, HN Acquisition Corp. shall commence a tender offer to purchase all of the outstanding shares of common stock, par value $.01 per share, of the Company (the "Company Common Stock") (shares of Company Common Stock being hereinafter collectively referred to as "Shares"), other than Shares owned by Siemens, for $16.00 per share (the "Offer") and if the Offer is consummated, a subsequent cash merger between Pyramid and HN Acquisition Corp., pursuant to which each share of the Company Common Stock which has not been purchased pursuant to the Offer, other than any Shares owned by Parent, Purchaser or any of its affiliates or Shares issuable upon the exercise of the Parent Warrant (as defined in the Merger Agreement), shall be canceled and extinguished and be converted into and become a right to receive in cash the highest price per share paid pursuant to the Offer (the "Merger"). In arriving at our opinion, we reviewed the Merger Agreement and held discussions with certain senior officers, directors and other representatives and advisors of Pyramid concerning the business, operations and prospects of Pyramid. We examined certain publicly available business and financial information relating to Pyramid and Siemens as well as certain financial forecasts and other data for Pyramid which were provided to us by senior management of Pyramid. We reviewed the financial terms of the Merger as set forth in the Merger Agreement in relation to, among other things: the Company's historical and projected earnings and the capitalization and financial condition of Pyramid. We also considered, to the extent publicly available, the financial terms of certain other similar transactions which we deemed comparable to the Merger and analyzed certain financial and other publicly available information relating to the businesses of other companies whose operations we considered comparable to Pyramid. In addition, we conducted such other analyses and examinations and considered such other financial, economic and market criteria as we deemed necessary to arrive at our opinion. In rendering our opinion, we have assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information publicly available or furnished to or otherwise discussed with us. With respect to financial forecasts and other information provided to or otherwise discussed with us, we assumed that such forecasts and Smith Barney ------------ other information were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Pyramid as to the expected future financial performance of Pyramid. We have assumed the correctness of, and relied upon the representations of Siemens and Pyramid, pursuant to the Merger Agreement, and have not attempted to independently verify any such information. We have not made or been provided with an independent valuation or appraisal of the assets or liabilities (contingent or otherwise) of Pyramid, nor have we made any physical inspection of the properties or assets of Pyramid. Our opinion is necessarily based upon financial, stock market and other conditions and circumstances existing and disclosed to us as of the date hereof. Smith Barney has been engaged to render financial advisory services to Pyramid in connection with the Offer and Merger and will receive a fee for our services, a significant portion of which is contingent upon consummation of the Merger. We will also receive a fee upon the delivery of this opinion. We have in the past provided financial advisory and investment banking services to Pyramid and have received fees for the rendering of such services. In addition, we and our affiliates (including The Travelers Inc. and its affiliates) may maintain business relationships with Pyramid, Siemens and their affiliates. Our advisory services, and the opinion expressed herein, are provided solely for the use of Pyramid's Board of Directors in its evaluation of the proposed Offer and Merger and are not on behalf of, and are not intended to confer rights or remedies upon, Siemens or its affiliates, any stockholder of Pyramid or Siemens, or any person other than Pyramid's Board of Directors. Our opinion may not be published or otherwise used or referred to, nor shall any public reference to Smith Barney be made, without our prior written consent; provided however, that we consent to the inclusion of this opinion in any Proxy Statement, 14D-9 or otherwise in connection with the proposed transaction. Based upon and subject to the foregoing, our experience as investment bankers, our work as described above and other factors we deemed relevant, we are of the opinion that, as of the date hereof, the consideration to be received by stockholders of Pyramid (other than Siemens), pursuant to the Offer and the Merger, is fair from a financial point of view. Very Truly Yours, SMITH BARNEY INC. Smith Barney ------------ Project Jupiter January 1995 - --------------------------------------------------------------------------------
HISTORICAL AND PROJECTED INCOME STATEMENTS (Dollars in thousands) Historical Years Ended September 30, Projected Years Ending September 30, -------------------------------- ------------------------------------------------------------------ 1992 1993 1994 1995E 1996E 1997E 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Revenues: - -------- Product $138,916 $174,364 $152,590 $210,000 $260,914 $334,648 - - - Service 53,310 59,334 65,925 70,000 75,841 89,648 - - - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total revenues 192,226 233,698 218,515 280,000 336,755 424,296 $509,155 $585,528 $673,358 Cost of sales: - ------------- Product 78,743 86,828 87,708 106,260 133,239 175,324 - - - Service 44,786 45,293 50,875 52,500 56,881 67,236 - - - ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total cost of sales 123,529 132,121 138,583 158,760 190,120 242,560 292,764 339,607 393,914 Gross profit 68,697 101,577 79,932 121,240 146,635 181,736 216,391 245,922 279,443 Operating expenses: - ------------------ Research & development 28,371 27,831 25,488 26,633 31,655 38,187 43,278 49,770 57,235 Sales - - - 60,485 68,096 77,846 94,194 108,323 124,571 Marketing - - - 14,005 16,501 19,518 23,421 26,934 30,974 General & administrative - - - 11,450 12,797 14,426 18,330 21,079 24,241 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total SG&A 64,741 64,411 73,744 85,940 97,394 111,790 135,944 156,336 179,787 Restructuring 41,180 - - 0 0 0 0 0 0 Legal settlement 900 - - 0 0 0 0 0 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total operating expenses 135,192 92,242 99,232 112,573 129,049 149,977 179,223 206,106 237,022 Operating income (66,495) 9,335 (19,300) 8,667 17,586 31,759 37,168 39,816 42,422 Other income/(expense) (141) 258 (178) 1,940 1,600 1,600 2,546 2,928 3,367 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before taxes (66,636) 9,593 (19,478) 10,607 19,186 33,359 39,714 42,744 45,788 Provision for income taxes (6,929) 959 2,935 641 3,837 6,672 9,929 10,686 11,447 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) ($59,707) $8,634 ($22,413) $9,966 $15,349 $26,687 $29,786 $32,058 $34,341 ========== ========== ========== ========== ========== ========== ========== ========== ========== Earnings per share ($4.99) $O.67 ($1.66) $0.61 $0.85 $1.35 $1.44 $1.48 $1.51 Weighted average shares out- standing (1) 11,962 12,890 13,467 16,275 18,100 19,700 20,685 21,719 22,805 CASH FLOW DATA - -------------- Capital expenditures $16,848 $13,722 $11,970 $12,600 $13,470 $15,699 $18,839 $21,665 $24,914 Capitalized software develop- ment costs 6,051 8,695 9,223 8,960 8,419 8,910 9,165 8,783 9,858 Depreciation & amortization 31,118 29,961 28,455 17,248 17,511 19,687 22,403 24,358 27,818 Change in net working capital (17,184) 15,393 (7,458) 1,347 9,622 18,715 20,873 13,835 16,661
(1) Weighted average shares outstanding for 1995 through 1997 are from management projections; thereafter, shares are assumed to grow at 5% annually. Smith Barney ------------ Project Jupiter January 1995 - --------------------------------------------------------------------------------
INCOME STATEMENT ASSUMPTIONS (As a % of sales) Historical Years Ended September 30, Projected Years Ending September 30, ------------------------------ --------------------------------------------------------------- 1992 1993 1994 1995E 1996E 1997E 1998 1999 2000 -------- -------- -------- -------- -------- -------- -------- -------- -------- Year-to-Year Revenue growth: - ---------------------------- Product -6.3% 25.5% -12.5% 37.6% 24.2% 28.3% - - - Service 69.5% 11.3% 11.1% 6.2% 8.3% 18.2% - - - Total revenues 7.0% 21.6% -6.5% 28.1% 20.3% 26.0% 20.0% 15.0% 15.0% Cost of sales: - -------------- Product 56.7% 49.8% 57.5% 50.6% 51.1% 52.4% - - - Service 84.0% 76.3% 77.2% 75.0% 75.0% 75.0% - - - -------- -------- -------- -------- -------- -------- -------- -------- -------- Total cost of sales 64.3% 56.5% 63.4% 56.7% 56.5% 57.2% 57.5% 58.0% 58.5% Gross profit 35.7% 43.5% 36.6% 43.3% 43.5% 42.8% 42.5% 42.0% 41.5% Operating expenses: - ------------------- Research & development 14.8% 11.9% 11.7% 9.5% 9.4% 9.0% 8.5% 8.5% 8.5% Sales 0.0% 0.0% 0.0% 21.6% 20.2% 18.3% 18.5% 18.5% 18.5% Marketing 0.0% 0.0% 0.0% 5.0% 4.9% 4.6% 4.6% 4.6% 4.6% General & administrative 0.0% 0.0% 0.0% 4.1% 3.8% 3.4% 3.6% 3.6% 3.6% -------- -------- -------- -------- -------- -------- -------- -------- -------- Total SG&A 33.7% 27.6% 33.7% 30.7% 28.9% 26.3% 26.7% 26.7% 26.7% Restructuring 21.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Legal settlement 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -------- -------- -------- -------- -------- -------- -------- -------- -------- Total operating expenses 70.3% 39.5% 45.4% 40.2% 38.3% 35.3% 35.2% 35.2% 35.2% Operating income -34.6% 4.0% -8.8% 3.1% 5.2% 7.5% 7.3% 6.8% 6.3% Other income/(expense) -0.1% 0.1% -0.1% 0.7% 0.5% 0.4% 0.5% 0.5% 0.5% -------- -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before taxes -34.7% 4.1% -8.9% 3.8% 5.7% 7.9% 7.8% 7.3% 6.8% Provision for income taxes 10.4% 10.0% -15.1% 6.0% 20.0% 20.0% 25.0% 25.0% 25.0% -------- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) -31.1% 3.7% -10.3% 3.6% 4.6% 6.3% 5.9% 5.5% 5.1% ======== ======== ======== ======== ======== ======== ======== ======== ======== Cash Flow Data - -------------- Capital expenditures 8.8% 5.9% 5.5% 4.5% 4.0% 3.7% 3.7% 3.7% 3.7% Capitalized software development costs 3.1% 3.7% 4.2% 3.2% 2.5% 2.1% 1.8% 1.5% 1.5% Depreciation & amortization (1) 135.9% 133.7% 134.3% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% Change in net working capital -8.9% 6.6% -3.4% 0.5% 2.9% 4.4% 4.1% 2.4% 2.5%
(1) As a percentage of capital expenditures and capitalized software development costs. Smith Barney ------------ Project Jupiter January 1995 - --------------------------------------------------------------------------------
HISTORICAL AND PROJECTED NET WORKING CAPITAL (Dollars in thousands) Historical Years Ended September 30, Projected Years Ending September 30, ----------------------------- -------------------------------------------------------------- 1992 1993 1994 1995E 1996E 1997E 1998 1999 2000 --------- --------- --------- --------- --------- --------- ---------- ---------- ---------- Net Current Assets: Accounts receivable $36,663 $51,392 $49,310 $62,222 $74,834 $94,288 $113,146 $130,117 $149,635 Days receivable (1) 68.7 79.2 81.2 80.0 80.0 80.0 80.0 80.0 80.0 Inventories 30,569 35,712 25,840 35,280 42,249 53,902 65,059 75,468 87,537 Inventory turns (2) 4.0 3.7 5.4 4.5 4.5 4.5 4.5 4.5 4.5 Other current assets 9,010 11,873 15,270 10,000 12,155 14,775 17,311 19,322 22,355 % of sales 4.7% 5.1% 7.0% 3.6% 3.6% 3.5% 3.4% 3.3% 3.3% --------- --------- --------- --------- --------- --------- ---------- ---------- ---------- Total net current assets 76,242 98,977 90,420 107,502 129,238 162,965 195,516 224,908 259,527 Net Current Liabilities: Accounts payable 18,196 20,312 16,398 22,932 29,046 37,058 44,728 51,884 60,181 Days payable (3) 53.0 55.3 42.6 52.0 55.0 55.0 55.0 55.0 55.0 Accrued liabilities (4) 21,758 26,984 29,799 39,000 45,000 52,000 56,007 64,408 74,069 % of sales 11.3% 11.5% 13.6% 13.9% 13.4% 12.3% 11.0% 11.0% 11.0% --------- --------- --------- --------- --------- --------- ---------- ---------- ---------- Total net current liabilities 39,954 47,296 46,197 61,932 74,046 89,058 100,735 116,292 134,251 --------- --------- --------- --------- --------- --------- ---------- ---------- ---------- Net working capital $36,288 $51,681 $44,223 $45,570 $55,192 $73,907 $94,781 $108,616 $125,276 ========= ========= ========= ========= ========= ========= ========== ========== ==========
(1) Accounts receivable / (Sales/360). (2) Cost of sales / Inventory. (3) Accounts payable / (Cost of sales/360). (4) Excludes restructuring accruals. Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- CALENDAR 1995 P/E MULTIPLES* Sunshine as of 1/6/95 20.9x Sunshine at $16 Offer 26.6 Auspex 15.3 NetFrame 7.7 Sequent 14.8 Stratus 12.2 Tricord 17.5
*Based on stock price as of 1/18/95 Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- DISCOUNT TO LTM HIGH* Sunshine as of 1/6/95 -24.6% Sunshine at $16 Offer -1.5% Auspex -18.8% NetFrame -63.8% Sequent -10.6% Stratus -0.6% Tricord -76.7%
*Based on stock price as of 1/18/95 Smith Barney ------------ Project Jupiter January 1995 - --------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS (Dollars in thousands, except per share amounts) SHARE PRICE AS A MULTIPLE OF: MARKET ---------------- VALUE ESTIMATED MULTIPLE EPS(2) OF FISCAL FINANCIAL LTM DISOUNT ADJUSTED ---------- TANGIBLE COMPANY/ YEAR STATEMENTS PRICE(3) ------------ TO LTM MARKET MARKET LTM CAL CAL BOOK TICKER END DATE (1/18/95) LOW HIGH HIGH VALUE VALUE(1) EPS 94 95 VALUE - ---------------- ------ ---------- --------- ----- ------ ------- ---------- ---------- ---- ---- ---- -------- Amdahl/AHM...... Dec Sep $11.50 $5.25 $12.00 -4.2% $1,371,191 $874,632 50.3x 19.5x 14.0x 1.7x Auspex/ASPX..... Jun Sep 8.13 3.88 10.00 -18.8% 194,456 155,879 24.1 20.1 15.3 2.8 Convex/CNX...... Dec Sep 7.75 4.38 8.88 -12.7% 203,290 237,565 NM NM 24.2 3.4 Data General/DGN.... Sep Sep 10.75 6.63 12.00 -10.4% 384,571 353,661 NM NM 32.6 1.4 Digital Equip- ment Corp./DEC. Jun Sep 36.75 18.25 38.75 -5.2% 5,204,145 5,342,725 NM NM 47.1 1.7 Hewlett- Packard/HWP.... Oct Oct 106.38 71.88 107.25 -0.8% 27,657,500 28,195,500 17.3 16.8 14.4 2.8 NetFrame/NETF... Dec Sep 6.25 5.00 17.25 -63.8% 85,788 54,841 10.7 8.8 7.7 1.3 Parallan/PLLN... Dec Sep 4.38 3.63 14.00 -68.8% 33,058 NM NM NM NM 1.0 Sequent/SQNT.... Dec Sep 19.00 11.13 21.25 -10.6% 611,268 649,423 21.1 18.4 14.8 2.3 Silicon Graphics/SGI... Jun Sep 32.75 18.75 33.13 -1.1% 5,151,215 4,914,960 32.4 30.2 23.1 6.2 Stratus Computer/SRA... Dec Sep 39.63 22.75 39.88 -0.6% 981,432 750,219 18.1 14.0 12.2 2.2 Sun Microsytems/ SUNW........... Jun Sep 34.63 18.25 37.63 -8.0% 3,312,470 2,680,724 15.3 14.7 12.0 2.3 Tandem/TDM...... Sep Sep 19.25 10.50 19.75 -2.5% 2,183,893 2,214,796 14.7 13.9 11.6 2.7 Tricord/TRCD.... Dec Sep 5.94 3.88 25.50 -76.7% 78,868 60,673 13.0 34.9 17.5 1.2 HIGH: -0.6% 27,657,500 28,195,500 50.3x 34.9x 47.1x 6.2x LOW: -76.7% 33,058 54,841 10.7 8.8 7.7 1.0 MEAN: -20.3% 3,389,510 3,575,815 21.7x 19.1x 19.0x 2.3x MEDIUM: -9.2% 796,350 750,219 17.7 17.6 14.8 2.2 SUNSHINE (1/6/95)....... SEP DEC $12.25 $5.38 $16.25 -24.6% $190,904 $139,376 NM NM 20.9x 1.6x SUNSHINE AT CUR- RENT OFFER..... SEP SEP $16.00 $5.38 $16.25 -1.5% $260,193 $208,665 NM NM 26.6x 2.2x ADJUSTABLE MARKET VALUE AS A MULTIPLE OF: ------------------ CASH AS LTM OF % OF COMPANY/ LTM OPERATING LTM TICKER REVENUES INCOME REVENUE - ----------------- -------- --------- ------- Amdahl/AHM...... 0.55x NMx 37.6% Auspex/ASPX..... 1.80 19.4 44.9% Convex/CNX...... 1.63 NM 24.7% Data General/DGN.... 0.32 NM 17.0% Digital Equip- ment Corp./DEC. 0.39 NM 6.5% Hewlett- Packard/HWP.... 1.13 11.1 9.9% NetFrame/NETF... 0.62 13.6 34.7% Parallan/PLLN... NM NM NM Sequent/SQNT.... 1.52 20.4 6.4% Silicon Graphics/SGI... 3.06 22.6 29.7% Stratus Computer/SRA... 1.31 9.8 42.6% Sun Microsytems/ SUNW........... 0.54 8.5 15.7% Tandem/TDM...... 1.05 14.1 5.9% Tricord/TRCD.... 0.70 12.5 21.0% HIGH: 3.06x 22.6x 44.9% LOW: 0.32 8.5 5.9% MEAN: 1.12x 14.7x 22.8% MEDIUM: 1.05 13.6 21.0% SUNSHINE (1/6/95)....... 0.63x NM 24.5% SUNSHINE AT CUR- RENT OFFER..... 0.95x NM 24.5%
- ---- (1) Adjusted market value equals market value plus debt and preferred stock less cash and cash equivalents. (2) Earnings estimates from IBES. (3) Sunshine stock price reflects closing on 1/6/95. Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- COMPARABLE COMPANY ANALYSIS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LATEST 12 MONTHS ------------------------------------------------------------------------------------------------- MARGINS NET RETURN CHANGE IN -------------------- ON AVG. ----------------------------- OPERATING NET OPERATING NET COMMON OPERATING NET COMPANY/TICKER REVENUE INCOME (1) INCOME (2) INCOME (1) INCOME (2) EQUITY REVENUE INCOME (1) INCOME (2) - ---------------- ---------- ---------- ---------- ---------- ---------- ---------- ------- ---------- ---------- Amdahl/AMH...... $1,582,850 ($23,078) $28,301 NM 1.8% 3.5% -38.4% NM NM Auspex/ASPX..... 86,781 8,047 7,962 9.3% 9.2% 11.8% 52.9% -2.7% 13.7% Convex/CNX...... 145,849 (44,667) (48,824) NM NM -56.4% -45.4% NM NM Data General/DGN.... 1,120,505 (44,778) (52,700) NM NM -15.4% 4.0% NM NM Digital Equip- ment Corp./DEC. 13,558,314 (873,816) (1,010,408) NM NM -25.4% -3.7% NM NM Hewlett- Packard/HWP.... 24,991,000 2,549,000 1,599,000 10.2% 6.4% 17.3% 23.0% 35.7% 35.9% NetFrame/NETF... 89,102 4,022 8,009 4.5% 9.0% 12.7% 29.4% 262.0% -3.3% Parralan/PLLN... 8,509 (2,512) (1,545) NM NM -4.3% -66.1% NM NM Sequent/SQNT.... 428,216 31,787 27,926 7.4% 6.5% 10.8% 1.9% 21.0% 54.6% Silicon Graphics/SGI... 1,607,353 217,657 156,770 13.5% 9.8% 19.2% 38.4% 59.0% 56.2% Stratus Computer/SRA... 573,675 76,489 54,043 13.3% 9.4% 11.9% -8.1% -0.9% -17.8% Sun Microsystems/SUNW 5,002,850 315,545 217,105 6.3% 4.3% 13.6% 13.4% 27.7% 21.3% Tandem/TDM...... 2,108,035 156,594 148,380 7.4% 7.0% 17.7% 3.8% NM NM Tricord/TRCD.... 87,127 4,870 5,608 5.6% 6.4% 8.7% 23.3% -19.7% -0.3% HIGH: 13.5% 9.8% 19.2% 52.9% 262.0% 56.2% LOW: 4.5% 1.8% -56.4% -66.1% -19.7% -17.8% MEAN: 8.6% 7.0% 1.8% 2.0% 47.8% 20.0% MEDIAN: 7.4% 6.8% 11.3% 3.9% 24.4% 17.5% SUNSHINE (1/6/95)........ $220,616 ($18,965) ($21,748) NM NM -15.7% -5.6% NM NM LATEST 3 FISCAL YEARS GROWTH ----------------------------- OPERATING NET COMPANY/TICKER REVENUE INCOME (1) INCOME (2) - ------------------- ------- ---------- ---------- Amdahl/AMH...... -0.6% NM NM Auspex/ASPX..... 27.2% 24.9% 30.2% Convex/CNX...... -1.3% NM NM Data General/DGN.... 0.2% NM NM Digital Equip- ment Corp./DEC. -1.7% NM NM Hewlett- Packard/HWP.... 23.4% 34.7% 34.7% NetFrame/NETF... 77.1% NM NM Parralan/PLLN... 164.6% NM NM Sequent/SQNT.... 28.8% NM NM Silicon Graphics/SGI... 30.8% 178.8% 180.3% Stratus Computer/SRA... 7.0% -0.3% -10.1% Sun Microsystems/SUNW 14.3% 3.1% 6.1% Tandem/TDM...... 1.7% 2.0% 51.3% Tricord/TRCD.... 143.4% NM NM HIGH: 164.6% 178.8% 180.3% LOW: -1.7% -0.3% -10.1% MEAN: 36.8% 40.5% 48.8% MEDIAN: 18.9% 14.0% 32.5% SUNSHINE (1/6/95)........ 6.6% NM NM
- ---- (1) Operating income figures exclude non-recurring items. (2) Net income from continuing operations, excluding extraordinary items, accounting charges and other non-recurring items. Smith Barney ------------ Project Jupiter January 1995 - --------------------------------------------------------------------------------
COMPARABLE COMPUTER HARDWARE DEALS (Dollars in thousands) Aggregate LTM EBITDA Date Transaction Multiple of Margin of Effective Target/Acquiror Value LTM Revenues of Target ---------------- --------------------------------- -------------- ------------ ------------ 06/29/92 MIPS Computer Systems / Silicon Graphics $168,598 1.1 6.8% 02/28/92 Teradata Corporation / AT & T 496,987 1.7 21.5% 09/19/91 NCR Corporation / AT & T 7,843,961 1.2 15.2% 01/30/90 Prime Computer / JH Whitney & Company 1,828,337 1.1 16.2% 05/19/89 Apollo Computer Inc. / Hewlett Packard 569,190 0.8 7.3% 08/11/88 Convergent, Inc. / Unisys Corp. 357,475 0.9 7.5% Mean 1.1x 12.4% Sunshine -- 4.2% -----------------------------------------------
Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS OF SELECTED TECHNOLOGY TRANSACTIONS (Dollars in thousands)
Purchase Price as a Multiple of: Premium Over Market(3) -------------------------------- Aggregate ---------------------- LTM Tangible Gross Date Date Target/ Purchase Transaction 1 Month 2 Months Net Book Value Cash Announced Effective Acquiror Price(1) Value(2) Prior Prior Income of Equity(4) Flow(5) - --------- --------- -------------------------- ----------- ----------- --------- ----------- ------ ------------ --------- 11/14/94 Pending Powersoft/ 807,931 771,002 34.0% 74.9% 61.6 13.8 50.4 Sybase 11/14/94 12/30/94 Triconex Corp./ 94,075 86,502 11.8% 19.3% 17.9 3.6 13.2 Siebe PLC 10/13/94 Pending Intuit Inc./ 1,535,816 1,448,271 75.8% 89.1% 228.4 17.0 37.3 Microsoft 09/21/94 11/28/94 Anthem Electronics/ 435,163 395,510 51.6% 72.3% 20.3 2.1 20.0 Arrow Electronics 09/09/94 10/10/94 Xyplex Inc./ 180,122 145,334 77.8% 119.6% 21.0 2.9 15.7 Raytheon Co. 08/01/94 12/1/94 KnowledgeWare/ 69,507 79,217 -31.9% -13.3% NM 7.4 NM Sterling Software 07/28/94 Pending Keptel Corp./ 88,120 83,405 44.0% 60.0% 20.2 4.2 12.8 Antec Corp. 07/05/94 10/20/94 SynOptics Communications/ 1,286,307 1,030,277 14.4% -12.3% 16.0 3.7 12.2 Wellfleet Communications 06/09/94 08/23/94 Sunward Technologies/ 120,000 125,003 43.6% 39.9% 31.8 5.4 20.2 Read-Rite Corporation 05/23/94 09/01/94 SuperMac Technology, Inc./ 79,503 $71,497 60.8% -7.3% NM 1.5 NM Radius Inc. 05/19/94 09/20/94 ASK Group, Inc./ 314,503 329,615 55.9% 71.0% NM 58.0 233.8 Computer Associates International, Inc. Transaction Value as a Multiple of: ------------------------------------------------ Net Tangible Date Date Target/ LTM LTM LTM Book Value Announced Effective Acquiror Revenues EBIT EBITDA of Assets Assets - --------- --------- -------------------------- -------- ---- ------ ------------ ------ 11/14/94 Pending Powersoft/ 7.2 40.8 35.3 9.3 8.7 Sybase 11/14/94 12/30/94 Triconex Corp./ 1.8 15.8 11.8 2.3 1.9 Siebe PLC 10/13/94 Pending Intuit Inc./ 6.6 176.4 35.8 9.8 6.0 Microsoft 09/21/94 11/28/94 Anthem Electronics/ 0.6 10.9 9.0 1.6 1.5 Arrow Electronics 09/09/94 10/10/94 Xyplex Inc./ 1.7 12.4 9.8 1.9 1.9 Raytheon Co. 08/01/94 12/1/94 KnowledgeWare/ 0.6 NM NM 1.0 0.7 Sterling Software 07/28/94 Pending Keptel Corp./ 1.8 11.6 8.7 3.2 2.8 Antec Corp. 07/05/94 10/20/94 SynOptics Communications/ 1.4 6.8 5.8 1.9 1.9 Wellfleet Communications 06/09/94 08/23/94 Sunward Technologies/ 1.1 23.5 16.7 2.6 2.6 Read-Rite Corporation 05/23/94 09/01/94 SuperMac Technology, Inc./ 0.4 NM NM 1.4 0.8 Radius Inc. 05/19/94 09/20/94 ASK Group, Inc./ 0.8 NM 37.1 1.4 1.1 Computer Associates International, Inc.
Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS OF SELECTED TECHNOLOGY TRANSACTIONS (Dollars in thousands)
Purchase Price as a Multiple of: Premium Over Market(3) -------------------------------- Aggregate ---------------------- LTM Tangible Gross Date Date Target/ Purchase Transaction 1 Month 2 Months Net Book Value Cash Announced Effective Acquiror Price(1) Value(2) Prior Prior Income of Equity(4) Flow(5) - --------- --------- -------------------------- ----------- ----------- --------- ----------- ------ ------------ -------- 05/13/94 09/13/94 Serving Software, Inc./ 48,335 44,297 26.5% 30.9% 82.2 7.1 28.5 HBO & Co. 03/31/94 05/12/94 Software Toolworks Inc./ 460,169 458,324 51.3% 61.6% 183.0 10.5 106.4 Pearson PLC 03/15/94 08/31/94 Aldus Corporation/ 484,627 409,687 19.0% 32.5% 30.3 4.2 12.4 Adobe Systems Inc. 01/31/94 03/31/94 VMX, Inc./ 157,811 142,327 43.2% 32.5% 20.2 4.2 13.7 Octel Communications Corporation 10/18/93 02/15/94 Artel Communications Corp./ 39,181 38,656 19.2% 12.6% NM 11.2 NM Chipcom Corp. 10/12/93 11/30/93 MECA Software, Inc./ 32,146 29,787 29.3% 26.2% NM NM NM H&R Block, Inc. 09/27/93 11/16/93 Bytex Corporation/ 49,003 43,068 64.9% 94.3% NM 1.6 NM Network Systems Corporation 09/23/93 12/22/93 Telematics International/ 301,637 280,909 29.4% 110.8% 41.9 6.4 22.8 ECI Telecom Ltd. 09/20/93 12/06/93 Digital Communications 204,085 204,085 33.9% 35.1% NM 1.8 15.1 Associates/DCA Holdings 09/01/93 12/13/93 ChipSoft Inc./ 236,939 186,240 39.4% 31.2% 23.9 4.8 26.7 Intuit Transaction Value as a Multiple of: ------------------------------------------------ Net Tangible Date Date Target/ LTM LTM LTM Book Value Announced Effective Acquiror Revenues EBIT EBITDA of Assets Assets - --------- --------- -------------------------- -------- ---- ------ ------------ ------ 05/13/94 09/13/94 Serving Software, Inc./ 3.2 43.3 22.4 3.8 3.4 HBO & Co. 03/31/94 05/12/94 Software Toolworks Inc./ 3.5 90.1 66.2 5.4 5.0 Pearson PLC 03/15/94 08/31/94 Aldus Corporation/ 1.8 19.3 9.7 2.5 2.1 Adobe Systems Inc. 01/31/94 03/31/94 VMX, Inc./ 1.5 16.4 11.5 2.9 2.6 Octel Communications Corporation 10/18/93 02/15/94 Artel Communications Corp./ 4.6 NM NM 5.9 5.9 Chipcom Corp. 10/12/93 11/30/93 MECA Software, Inc./ 1.2 NM NM 4.7 4.6 H&R Block, Inc. 09/27/93 11/16/93 Bytex Corporation/ 1.1 NM NM 1.2 1.2 Network Systems Corporation 09/23/93 12/22/93 Telematics International/ 3.8 29.3 19.4 4.9 4.3 ECI Telecom Ltd. 09/20/93 12/06/93 Digital Communications 0.8 83.1 12.5 1.3 1.0 Associates/DCA Holdings 09/01/93 12/13/93 ChipSoft Inc./ 2.7 20.4 14.7 2.6 2.5 Intuit
Smith Barney ------------ Project Jupiter January 1995 - ------------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS OF SELECTED TECHNOLOGY TRANSACTIONS (Dollars in thousands)
Purchase Price as a Multiple of: Premium Over Market(3) ------------------------------- Aggregate ---------------------- LTM Tangible Gross Date Date Target/ Purchase Transaction 1 Month 2 Months Net Book Value Cash Announced Effective Acquiror Price(1) Value(2) Prior Prior Income of Equity(4) Flow(5) - --------- --------- -------------------------- ----------- ----------- --------- ----------- ------ ------------ -------- 08/17/93 02/04/94 Spinnaker Software Corp./ 26,308 33,620 36.2% 49.8% NM NM NM Wordstar International (Part of 3 way transaction with Softkey Software) 06/30/93 04/11/94 CMS / Data Corp./ 26,643 25,079 460.0% 561.8% NM 7.3 NM Quartex Corp. 06/15/93 09/30/93 CYBERTEK Corporation/ $58,808 $44,897 40.5% 52.9% 21.3 2.4 16.0 Policy Management Systems Corp. 04/01/93 07/01/93 Systems Center Inc./ 170,049 193,758 61.7% 72.4% NM NM 18.8 Sterling Software Inc. 02/18/93 08/31/93 SubMicron Systems, Inc./ 38,248 40,985 NA NA 33.1 NM 26.2 Trinity Capital Enterprise Corp. 10/22/92 12/29/92 Archive Corporation/ 163,985 101,178 -2.1% 16.7% 13.8 8.2 4.9 Conner Peripherals, Inc. 09/21/92 11/30/92 Avasem Corporation/ 21,125 23,632 NA NA 16.6 39.8 NM Integrated Circuit Systems 09/11/92 12/22/92 LPL Technologies, Inc./ 187,676 298,923 NA NA 9.3 NM 7.7 Amphenol Corp. 04/06/92 08/24/92 Wicat Systems/ 99,755 85,075 54.9% 65.2% NM 4.5 23.6 Jostens 04/02/92 08/03/92 Goal Systems International/ 440,937 413,894 47.1% 70.7% 42.7 9.3 25.5 LEGENT Corporation Transaction Value as a Multiple of: ------------------------------------------------ Net Tangible Date Date Target/ LTM LTM LTM Book Value Announced Effective Acquiror Revenues EBIT EBITDA of Assets Assets - --------- --------- -------------------------- -------- ----- ------ ------------ ------ 08/17/93 02/04/94 Spinnaker Software Corp./ 0.9 NM 23.6 2.0 1.0 Wordstar International (Part of 3 way transaction with Softkey Software) 06/30/93 04/11/94 CMS / Data Corp./ 1.6 NM 164.3 2.6 1.7 Quartex Corp. 06/15/93 09/30/93 CYBERTEK Corporation/ 1.5 13.9 10.6 1.0 1.0 Policy Management Systems Corp. 04/01/93 07/01/93 Systems Center Inc./ 1.5 51.8 14.3 2.3 1.6 Sterling Software Inc. 02/18/93 08/31/93 SubMicron Systems, Inc./ 1.6 18.5 16.2 5.3 5.2 Trinity Capital Enterprise Corp. 10/22/92 12/29/92 Archive Corporation/ 0.3 3.7 2.0 0.5 0.4 Conner Peripherals, Inc. 09/21/92 11/30/92 Avasem Corporation/ 1.8 NM NM 4.2 4.2 Integrated Circuit Systems 09/11/92 12/22/92 LPL Technologies, Inc./ 2.7 10.3 9.0 2.2 1.4 Amphenol Corp. 04/06/92 08/24/92 Wicat Systems/ 1.8 NM 21.1 2.3 2.1 Jostens 04/02/92 08/03/92 Goal Systems International/ 3.2 27.3 17.2 3.2 2.7 LEGENT Corporation
Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS OF SELECTED TECHNOLOGY TRANSACTIONS (Dollars in thousands)
Purchase Price as a Multiple of: Premium Over Market(3) -------------------------------- Aggregate ---------------------- LTM Tangible Gross Date Date Target/ Purchase Transaction 1 Month 2 Months Net Book Value Cash Announced Effective Acquiror Price(1) Value(2) Prior Prior Income of Equity(4) Flow(5) - --------- --------- -------------------------- ----------- ----------- --------- ----------- ------ ------------ --------- 03/12/92 06/29/92 MIPS Computer Systems, Inc./ 225,890 168,598 -25.2% -18.9% NM 2.0 NM Silicon Graphics, Inc. 03/10/92 04/10/92 Acumos Inc./ 63,400 60,960 NA NA 22.0 9.4 19.9 Cirrus Logic Inc. 12/02/91 02/28/92 Teradata Corp./ 464,703 496,987 52.2% 44.0% 48.9 4.1 10.9 AT&T 10/29/91 12/20/91 Dastek, Inc./ 44,187 57,953 NA NA NM 3.6 NM Komag, Incorporated 10/02/91 12/31/91 Valid Logic Systems 252,707 253,023 76.4% 86.2% 42.5 11.0 14.4 Incorporated/Cadence Design Systems, Inc. 09/03/91 10/25/91 Crystal Semiconductor 60,492 59,867 NA NA 29.8 12.3 18.2 Corporation/Cirrus Logic, Inc. 08/16/91 09/27/91 On-Line Software 92,248 116,290 59.5% 63.6% 20.2 3.1 5.6 International/Computer Associates 08/07/91 11/04/91 Avantek Inc./ 104,336 101,182 54.3% 58.1% NM 1.2 26.0 Hewlett-Packard Co. 08/05/91 11/26/91 XL/Datacomp Inc./ 162,110 403,254 66.3% 93.0% 53.9 1.7 20.0 Storage Technology Corporation 07/10/91 10/11/91 Ashton Tate Corp./ 518,863 433,654 54.1% 113.9% NM 3.4 17.6 Borland International 06/27/91 06/27/91 Omnirel Corporation/ 11,000 13,443 NA NA NM NM 33.0 Zeus Components Inc. Transaction Value as a Multiple of: ------------------------------------------------ Net Tangible Date Date Target/ LTM LTM LTM Book Value Announced Effective Acquiror Revenues EBIT EBITDA of Assets Assets - --------- --------- -------------------------- -------- ---- ------ ------------ ------ 03/12/92 06/29/92 MIPS Computer Systems, Inc./ 1.1 NM 16.8 1.1 1.1 Silicon Graphics, Inc. 03/10/92 04/10/92 Acumos Inc./ 1.9 14.3 12.4 4.7 4.7 Cirrus Logic Inc. 12/02/91 02/28/92 Teradata Corp./ 1.7 16.3 7.9 2.0 1.6 AT&T 10/29/91 12/20/91 Dastek, Inc./ 1.1 NM NM 1.5 1.5 Komag, Incorporated 10/02/91 12/31/91 Valid Logic Systems 1.7 NM 25.3 3.0 2.4 Incorporated/Cadence Design Systems, Inc. 09/03/91 10/25/91 Crystal Semiconductor 2.6 23.7 16.5 4.5 4.5 Corporation/Cirrus Logic, Inc. 08/16/91 09/27/91 On-Line Software 1.2 12.0 5.4 1.3 1.3 International/Computer Associates 08/07/91 11/04/91 Avantek Inc./ 0.6 NM 15.9 0.9 0.9 Hewlett-Packard Co. 08/05/91 11/26/91 XL/Datacomp Inc./ 1.0 14.9 13.3 0.9 0.9 Storage Technology Corporation 07/10/91 10/11/91 Ashton Tate Corp./ 1.7 NM 17.8 2.0 1.8 Borland International 06/27/91 06/27/91 Omnirel Corporation/ 2.1 57.3 22.3 3.6 3.6 Zeus Components Inc.
Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS OF SELECTED TECHNOLOGY TRANSACTIONS (Dollars in thousands)
Premium Purchase Price as a Multiple of: Over Market(3) -------------------------------- Aggregate ------------------- LTM Tangible Gross Date Date Target/ Purchase Transaction 1 Month 2 Months Net Book Value Cash Announced Effective Acquiror Price(1) Value(2) Prior Prior Income of Equity(4) Flow(5) - --------- --------- -------------------------- ----------- ----------- --------- --------- ------ ------------ -------- 05/07/91 07/01/91 Vitalink Communications 158,918 58,141 33.3% 18.3% 17.7 1.5 13.0 Corporation/ Network Systems Corporation 02/19/91 12/31/91 Square D Company/ 2,165,300 2,353,056 73.1% 69.2% NM 4.2 28.7 Schneider SA (Parisienne d'Enterprises et de Participations) 12/18/90 03/19/91 Index Technology Corp./ 54,423 45,483 116.7% 72.6% 59.2 2.7 7.7 Sage Software, Inc. 12/02/90 09/19/91 NCR Corporation/ 7,892,961 7,843,961 128.9% 86.9% 22.7 4.1 11.6 American Telephone & Telegraph Company 09/10/90 09/22/90 Ingres Corp./ 111,408 121,803 94.7% 45.1% NM 2.0 10.1 ASK Computer Systems 07/02/90 08/22/90 General Instrument 1,863,000 1,330,110 54.4% 72.3% 19.0 20.2 8.9 Corporation/Forstmann Little & Co. 06/28/90 09/07/90 Altos Computer Systems/ 91,700 68,463 42.6% 23.4% NM 0.9 NM Acer Group 06/25/90 09/30/90 The Foxboro Company/ 656,450 724,557 113.6% 120.6% NM 3.5 29.1 Siebe Inc. (Siebe PLC) 04/25/90 09/18/90 Norton Company/ 1,840,200 1,728,700 14.2% 68.0% NM 2.5 29.4 Cie de Saint-Gobain SA 04/16/90 05/21/90 Dataproducts Corporation/ 158,044 136,999 77.8% 66.7% NM 1.0 21.8 HND Corp. (Nissei Sangyo-Hitachi) Transaction Value as a Multiple of: ------------------------------------------------ Net Tangible Date Date Target/ LTM LTM LTM Book Value Announced Effective Acquiror Revenues EBIT EBITDA of Assets Assets - --------- --------- -------------------------- -------- ---- ------ ------------ ------ 05/07/91 07/01/91 Vitalink Communications 1.0 8.0 5.5 0.5 0.5 Corpororation/ Network Systems Corporation 02/19/91 12/31/91 Square D Company/ 1.4 54.9 21.9 1.8 1.8 Schneider SA (Parisienne d'Enterprises et de Participations) 12/18/90 03/19/91 Index Technology Corp./ 1.0 91.5 7.6 1.3 1.0 Sage Software, Inc. 12/02/90 09/19/91 NCR Corporation/ 1.2 12.9 8.3 1.8 1.8 American Telephone & Telegraph Company 09/10/90 09/22/90 Ingres Corp./ 0.8 NM 14.9 0.9 0.8 ASK Computer Systems 07/02/90 08/22/90 General Instrument Corporation/ 1.0 9.8 5.7 1.7 1.2 Forstmann Little & Co. 06/28/90 09/07/90 Altos Computer Systems/ 0.5 NM NM 0.5 0.5 Acer Group 06/25/90 09/30/90 The Foxboro Company/ 1.3 65.2 21.9 1.6 1.6 Siebe Inc. (Siebe PLC) 04/25/90 09/18/90 Norton Company/ 1.1 31.6 16.1 1.3 1.2 Cie de Saint-Gobain SA 04/16/90 05/21/90 Dataproducts Corporation/ 0.4 NM 13.5 0.5 0.5 HND Corp. (Nissei Sangyo-Hitachi)
Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS OF SELECTED TECHNOLOGY TRANSACTIONS (Dollars in thousands)
Purchase Price as a Multiple of: Premium Over Market(3) -------------------------------- Aggregate ---------------------- LTM Tangible Gross Date Date Target/ Purchase Transaction 1 Month 2 Months Net Book Value Cash Announced Effective Acquiror Price(1) Value(2) Prior Prior Income of Equity(4) Flow(5) - --------- --------- -------------------------- ----------- ----------- --------- ----------- ------ ------------ -------- 04/10/90 07/12/90 Automated Sytems, Inc./ 23,242 22,313 171.4% 280.0% NM 3.2 49.0 Cadence Design Systems, Inc. 12/20/89 04/27/90 Cipher Data Products, Inc./ 115,587 115,925 NA 69.2% NM 1.3 40.2 Archive Corporation 12/05/89 03/18/90 Mindscape Inc./ 21,460 27,143 206.3% 226.7% NM 4.5 NM Software Toolworks Inc. 11/09/89 03/26/90 Wyse Technology Inc./ 142,399 235,540 23.1% 42.9% NM 1.1 NM Channel International Corporation 10/02/89 12/15/89 Microbilt Corp./ 133,721 115,424 -6.2% -2.7% 23.9 3.7 14.0 First Financial Management 09/28/89 01/18/90 AVX Corporation/ 563,059 514,037 61.0% 70.7% 19.7x 3.1 9.8 Kyocera Corporation 08/15/89 10/30/89 Materials Research Corp./ 56,044 98,987 41.1% 34.0% 12.4 1.4 7.2 Sony USA Inc. (Sony Corp.) 08/08/89 01/31/90 GTECH Corporation/ 163,018 274,156 14.7% 18.8% 20.4 2.8 5.8 GTEK Acquisition Co. 07/17/89 08/22/89 Micro Mask Inc./ 24,286 29,979 56.9% 100.0% 12.2 2.9 4.2 Hoya Corp. USA 06/23/89 01/30/90 Prime Computer Inc./ 1,299,062 1,828,337 NA NA 26.5 5.0 6.6 JH Whitney & Co. 06/19/89 08/08/89 Andover Controls Corporation/ 42,850 44,151 14.2% 16.4% 12.9 2.8 11.8 BICC PLC Transaction Value as a Multiple of: ------------------------------------------------ Net Tangible Date Date Target/ LTM LTM LTM Book Value Announced Effective Acquiror Revenues EBIT EBITDA of Assets Assets - --------- --------- -------------------------- -------- ---- ------ ------------ ------ 04/10/90 07/12/90 Automated Sytems, Inc./ 1.3 NM 54.3 2.1 2.1 Cadence Design Systems, Inc. 12/20/89 04/27/90 Cipher Data Products, Inc./ 0.6 NM NM 0.8 0.6 Archive Corporation 12/05/89 03/18/90 Mindscape Inc./ 0.8 NM NM 1.6 1.6 Software Toolworks Inc. 11/09/89 03/26/90 Wyse Technology Inc./ 0.5 NM NM 0.7 0.7 Channel International Corporation 10/02/89 12/15/89 Microbilt Corp./ 3.5 13.4 9.2 2.8 2.7 First Financial Management 09/28/89 01/18/90 AVX Corporation/ 1.3 9.8 6.3 1.2 1.2 Kyocera Corporation 08/15/89 10/30/89 Materials Research Corp./ 0.7 10.8 7.9 1.0 1.0 Sony USA Inc. (Sony Corp.) 08/08/89 01/31/90 GTECH Corporation/ 1.7 12.5 6.0 1.3 1.3 GTEK Acquisition Co. 07/17/89 08/22/89 Micro Mask Inc./ 0.7 9.7 4.3 1.7 1.7 Hoya Corp. USA 06/23/89 01/30/90 Prime Computer Inc./ 1.1 16.9 6.8 1.3 1.1 JH Whitney & Co. 06/19/89 08/08/89 Andover Controls Corporation/ 1.8 9.8 8.3 2.0 2.0 BICC PLC
Smith Barney ------------ Project Jupiter January 1995 - --------------------------------------------------------------------------------
TRANSACTION MULTIPLE ANALYSIS OF SELECTED TECHNOLOGY TRANSACTIONS (Dollars in thousands) Purchase Price as a Multiple of: Premium Over Market(3) ------------------------------- Aggregate ---------------------- LTM Tangible Gross Date Date Target/ Purchase Transaction 1 Month 2 Months Net Book Value Cash Announced Effective Acquiror Price(1) Value(2) Prior Prior Income of Equity(4) Flow(5) - --------- --------- -------------------------- ----------- ----------- --------- ----------- ------ ------------ -------- 06/12/89 10/31/89 Adams-Russell Inc./ 85,159 110,972 103.3% 106.7% 61.4 1.3 7.5 M/A-COM Inc. 04/12/89 05/19/89 Apollo Computer Inc./ 554,145 569,190 61.5% 69.4% NM 2.5 18.9 Hewlett Packard 04/07/89 05/23/89 Silicon Systems, Inc./ 209,690 223,318 72.0% 81.8% 18.3 3.4 8.2 TDK Corporation 03/23/89 06/20/89 Excelan, Inc./ 160,100 151,721 30.1% 47.8% 33.7 4.0 19.8 Novell, Inc. 03/01/89 04/13/89 Irwin Magnetic Systems 71,961 76,466 62.5% 65.1% 49.2 2.7 23.7 Cipher Data Products 01/24/89 04/10/89 Radionics/ 84,840 75,156 63.3% 70.2% 22.7 3.0 16.8 Expamet 12/22/88 05/05/89 ISC Systems Corp./ 174,249 165,972 104.2% 88.5% 37.8 2.0 13.1 Olivetti USA 12/09/88 03/28/89 Morino Associates Inc. 181,434 159,639 5.5% 20.4% 21.3 5.9 20.5 Duquesne Systems 12/05/88 02/10/89 Computer Consoles Inc. 227,644 218,053 55.2% 48.4% 22.1 5.6 9.6 STC PLC 12/01/88 02/24/89 Teknowledge, Inc./ 30,788 2,221 8.3% 0.0% NM 0.9 NM American Cimflex Inc. Transaction Value as a Multiple of: ------------------------------------------------ Net Tangible Date Date Target/ LTM LTM LTM Book Value Announced Effective Acquiror Revenues EBIT EBITDA of Assets Assets - --------- --------- -------------------------- -------- ---- ------ ------------ ------ 06/12/89 10/31/89 Adams-Russell Inc./ 0.8 17.1 6.7 0.9 0.9 M/A-COM Inc. 04/12/89 05/19/89 Apollo Computer Inc./ 0.8 134.1 10.9 1.2 1.2 Hewlett Packard 04/07/89 05/23/89 Silicon Systems, Inc./ 1.7 12.0 7.6 1.5 1.5 TDK Corporation 03/23/89 06/20/89 Excelan, Inc./ 2.1 23.8 15.6 2.7 2.7 Novell, Inc. 03/01/89 04/13/89 Irwin Magnetic Systems 1.3 101.8 33.8 2.1 2.1 Cipher Data Products 01/24/89 04/10/89 Radionics/ 1.9 13.3 10.4 2.2 2.2 Expamet 12/22/88 05/05/89 ISC Systems Corp./ 1.0 20.2 9.6 1.2 1.2 Olivetti USA 12/09/88 03/28/89 Morino Associates Inc. 3.4 14.1 12.7 3.4 3.2 Duquesne Systems 12/05/88 02/10/89 Computer Consoles Inc. 1.3 10.7 6.4 1.4 1.4 STC PLC 12/01/88 02/24/89 Teknowledge, Inc./ 0.2 NM NM NM NM American Cimflex Inc.
Smith Barney ------------ Project Jupiter January 1995 - --------------------------------------------------------------------------------
TRANSACTION MULTIPLE ANALYSIS OF SELECTED TECHNOLOGY TRANSACTIONS (Dollars in thousands) Purchase Price as a Multiple of: Premium Over Market(3) ------------------------------- Aggregate ---------------------- LTM Tangible Gross Date Date Target/ Purchase Transaction 1 Month 2 Months Net Book Value Cash Announced Effective Acquiror Price(1) Value(2) Prior Prior Income of Equity(4) Flow(5) - --------- --------- -------------------------- ----------- ----------- --------- ----------- ------ ------------ -------- 10/03/88 02/10/89 Computer Entry Systems/ 43,259 52,525 83.8% 74.4% 11.9 1.7 5.3 BancTec, Inc. 09/30/88 05/31/89 Cadnetix Corp./ 216,370 213,341 65.2% 58.3% 44.9 3.2 25.7 Daisy Systems Corp. 09/20/88 02/06/89 System Integrators/ 115,380 84,409 25.0% 31.1% 20.8 2.0 12.2 SI Acquisitions Corp. 08/30/88 11/01/88 Gould Inc,/ 1,060,298 1,354,498 53.7% 40.9% 44.7 2.1 10.0 Nippon Mining Co. Ltd. 08/11/88 12/22/88 Convergent, Inc./ 362,871 357,475 124.0% 111.3% NM 2.0 10.5 Unisys Corp. 08/09/88 09/28/88 Micom Systems, Inc./ 315,146 296,629 6.7% 0.8% 26.1 1.8 14.8 MS1 Acquisition Corp. 08/08/88 11/21/89 C3, Inc./ 141,718 103,846 25.8% 31.8% 21.9 1.5 12.1 Knoll Capital Management 08/01/88 09/27/88 Concurrent Computer Corp./ 236,308 195,743 12.7% 14.3% 16.4 1.3 8.4 Massachusetts Computer Corp. 06/27/88 03/01/89 Veeco Instruments Inc./ 330,455 298,007 85.9% 78.1% NM 3.5 31.8 Unitech PLC 06/07/88 11/08/88 HHB Systems Inc./ 51,450 46,374 19.4% 10.4% NM 2.7 24.6 Cadnetix Corporation 03/24/88 06/17/88 Scantron Corp./ 78,048 83,285 72.2% 68.1% 19.6 3.1 13.7 John H. Harland Co. Transaction Value as a Multiple of: ------------------------------------------------ Net Tangible Date Date Target/ LTM LTM LTM Book Value Announced Effective Acquiror Revenues EBIT EBITDA of Assets Assets - --------- --------- -------------------------- -------- ---- ------ ------------ ------ 10/03/88 02/10/89 Computer Entry Systems/ 0.6 7.1 4.3 1.1 1.1 BancTec, Inc. 09/30/88 05/31/89 Cadnetix Corp./ 2.5 34.9 22.0 1.8 1.8 Daisy Systems Corp. 09/20/88 02/06/89 System Integrators/ 1.3 15.1 9.4 1.1 1.1 SI Acquisitions Corp. 08/30/88 11/01/88 Gould Inc,/ 1.4 37.7 13.5 1.2 1.1 Nippon Mining Co. Ltd. 08/11/88 12/22/88 Convergent, Inc./ 0.9 NM 13.8 1.3 1.2 Unisys Corp. 08/09/88 09/28/88 Micom Systems, Inc./ 1.3 21.3 12.8 1.3 1.3 MS1 Acquisition Corp. 08/08/88 11/21/89 C3, Inc./ 1.3 14.7 9.3 0.9 0.9 Knoll Capital Management 08/01/88 09/27/88 Concurrent Computer Corp./ 0.7 11.8 6.5 0.7 0.7 Massachusetts Computer Corp. 06/27/88 03/01/89 Veeco Instruments Inc./ 1.1 10.1 8.2 1.5 1.4 Unitech PLC 06/07/88 11/08/88 HHB Systems Inc./ 2.4 42.7 19.3 1.7 1.6 Cadnetix Corporation 03/24/88 06/17/88 Scantron Corp./ 2.6 16.2 11.5 1.9 1.9 John H. Harland Co.
Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- TRANSACTION MULTIPLE ANALYSIS OF SELECTED TECHNOLOGY TRANSACTIONS (Dollars in thousands)
Purchase Price as a Multiple of: Premium Over Market(3) ------------------------------- Aggregate ---------------------- LTM Tangible Gross Date Date Target/ Purchase Transaction 1 Month 2 Months Net Book Value Cash Announced Effective Acquiror Price(1) Value(2) Prior Prior Income of Equity(4) Flow(5) - --------- --------- -------------------------- ----------- ----------- --------- ----------- ------ ------------ -------- 02/15/88 06/16/88 Ungermann Bass, Inc./ 282,367 263,821 72.4% 75.4% 42.7 4.0 15.5 Tandem Computers Transaction Value as a Multiple of: ------------------------------------------------ Net Tangible Date Date Target/ LTM LTM LTM Book Value Announced Effective Acquiror Revenues EBIT EBITDA of Assets Assets - --------- --------- -------------------------- -------- ---- ------ ------------ ------ 02/15/88 06/16/88 Ungermann Bass, Inc./ 1.8 21.4 11.0 1.7 1.6 Tandem Computers
High 460.0% 561.8% Low -31.9% -18.9% Mean 57.6% 65.0% Median 53.7% 61.6% Notes: NM - Not meaningful. (1) Aggregate purchase price equals total shares outstanding multiplied by purchase price per share less the exercise price of the options plus the value of the remaining preferred stock. If the consideration includes stock, the stock is valued using the closing price on the day before the announcement date. (2) Transaction value equals aggregate purchase price plus short-term and long- term debt less excess cash. (3) Premium to the market price of stock one month and two months prior to the announcement of the deal. (4) Common and preferred shareholders' equity less intangibles. (5) Defined as net income plus depreciation and amortization plus deferred taxes. Smith Barney ------------ Project Jupiter January 1995 - --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS: (Dollars in thousands, except per share data) FREE CASH FLOW CALCULATION Fiscal Years Ending September 30, - -------------------------- --------------------------------------------------- 1995E 1996E 1997E 1998 1999 ------- ------- ------- ------- ------- Net income $ 9,966 $15,349 $26,687 $29,786 $32,058 Plus: Depreciation & amortization 17,248 17,511 19,687 22,403 24,358 Less: Capital expenditures & capitalized software development costs 21,560 21,889 24,609 28,004 30,447 Less: Increase (decrease) in net working capital 1,347 9,622 18,715 20,873 13,835 ------- ------- ------- ------- ------- Free cash flow $ 4,307 $ 1,349 $ 3,050 $ 3,312 $12,133 ======= ======= ======= ======= ======= PRESENT VALUE OF FREE CASH FLOW PRESENT VALUE OF TERMINAL VALUE - ------------------------------- ------------------------------- Present Value of 1999 Net income $ 32,058 $ 32,058 $ 32,058 $ 32,058 $ 32,058 Discount Rate Free Cash Flow Terminal value multiple 15.0 x 16.0 x 17.0 x 18.0 x 19.0 x - ------------- ---------------- -------- -------- -------- -------- -------- 1999 Terminal value $480,865 $512,923 $544,981 $577,038 $609,096 15.0% $13,760 17.5% 12,761 20.0% 11,867 Terminal Value Multiple 22.5% 11,064 Discount ------------------------------------------------------------ Rate 15.0 x 16.0 x 17.0 x 18.0 x 19.0 x -------- -------- -------- -------- -------- -------- 15.0% $239,075 $255,013 $270,952 $286,890 $302,828 17.5% 214,701 229,014 243,328 257,641 271,955 20.0% 193,249 206,132 219,015 231,899 244,782 22.5% 174,318 185,940 197,561 209,182 220,803 IMPLIED VALUE OF EQUITY (2) ---------------------------- Terminal Value Multiple Discount ------------------------------------------------------------ Rate 15.0 x 16.0 x 17.0 x 18.0 x 19.0 x -------- -------- -------- -------- -------- -------- 15.0% $252,835 $268,774 $284,712 $300,650 $316,589 17.5% 227,462 241,775 256,089 270,402 284,716 20.0% 205,116 217,999 230,882 243,766 256,649 22.5% 185,382 197,004 208,625 220,246 231,867 IMPLIED EQUITY VALUE PER SHARE (3) ----------------------------------- Terminal Value Multiple Discount ------------------------------------------------------------ Rate 15.0 x 16.0 x 17.0 x 18.0 x 19.0 x -------- -------- -------- -------- -------- -------- 15.0% $ 15.80 $ 16.80 $ 17.79 $ 18.79 $ 19.79 17.5% 14.22 15.11 16.01 16.90 17.79 20.0% 12.82 13.62 14.43 15.24 16.04 22.5% 11.59 12.31 13.04 13.77 14.49
(1) Assumes value on December 31, 1994. (2) Present value of free cash flow plus present value of terminal value. (3) Based on 16,000,000 fully diluted shares outstanding. Smith Barney ------------ Project Jupiter January 1995 - --------------------------------------------------------------------------------
PREMIUM ANALYSIS (Dollars in thousands, except per share amounts) PRICE PER SUNSHINE SHARE.............. $14.50 $15.00 $15.50 $16.00 $16.50 $17.00 $17.50 $18.00 $18.50 Fully-Diluted Sun- shine Shares (1)... 15,584 16,086 16,139 16,202 16,262 16,319 16,381 16,444 16,503 16,564 Equity Transaction Value.............. $233,248 $242,083 $251,132 $260,193 $269,266 $278,476 $287,765 $297,055 $306,438 Plus: Total Debt.... $ 2,553 $2,553 $2,553 $2,553 $2,553 $2,553 $2,553 $2,553 $2,553 Less: Cash & Short- Term Investments... ($54,081) ($54,081) ($54,081) ($54,081) ($54,081) ($54,081) ($54,081) ($54,081) ($54,081) AGGREGATE TRANSAC- TION VALUE......... $181,720 $190,555 $199,604 $208,665 $217,738 $226,948 $236,237 $245,527 $254,910 PRICE PER SHARE PREMIUM TO: January 6, 1995 Close............ $12.25 18.4% 22.4% 26.5% 30.6% 34.7% 38.8% 42.9% 46.9% 51.0% 30 Trading Days Prior............ $9.75 48.7% 53.8% 59.0% 64.1% 69.2% 74.4% 79.5% 84.6% 89.7% 30 Trading Day Av- erage............ $11.72 23.7% 28.0% 32.3% 36.5% 40.8% 45.1% 49.3% 53.6% 57.8% LTM High.......... $16.25 -10.8% -7.7% -4.6% -1.5% 1.5% 4.6% 7.7% 10.8% 13.8% LTM Low........... $5.50 163.6% 172.7% 181.8% 190.9% 200.0% 209.1% 218.2% 227.3% 236.4% One-year Average.. $9.83 47.5% 52.6% 57.7% 62.8% 67.9% 72.9% 78.0% 83.1% 88.2% PRICE PER SHARE AS MULTIPLE OF: CY 1995 IBES EPS.. $0.60 24.1x 24.9x 25.7x 26.6X 27.4x 28.2x 29.0x 29.9x 30.7x FY 1995 IBES EPS.. $0.49 29.6 30.6 31.6 32.7 33.7 34.7 35.7 36.7 37.8 FY 1995 Management EPS.............. $0.61 23.8 24.6 25.4 26.2 27.0 27.9 28.7 29.5 30.3 FY 1996 IBES EPS.. $0.94 15.4 16.0 16.5 17.0 17.6 18.1 18.6 19.1 19.7 AGGREGATE TRANSAC- TION VALUE AS MUL- TIPLE OF: LTM Revenues...... $220,616 0.82x 0.86x 0.90x 0.95X 0.99x 1.03x 1.07x 1.11x 1.16x
(1) Treasury stock method used. Calculation based on 15,583,965 primary shares and options data as of January 3, 1995. Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- PYRAMID TECHNOLOGY CORP. STOCK PRICE AND VOLUME GRAPH Graph depicts weekly prices and trading volume of Pyramid Technology Corp Common Stock for period January 20, 1992 to January 18, 1995, with a high, low and ending price over such period of between $20 and $24, $4 and $8 and $12 and $16, respectively, and a high, low and ending volume over such period of between 4.5 and 6.0 million, 0.0 and 1.5 million and 1.5 and 3.0 million, respectively. Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- PYRAMID TECHNOLOGY CORP. GRAPH OF PERCENT OF TOTAL VOLUME TRADED AT SPECIFIED PRICES JANUARY 20, 1992 TO JANUARY 18, 1995 Bar graph depicts the percent of total volume of Pyramid Technology Corp. stock traded in specified price ranges of 5 to 7, 7 to 9, 9 to 11, 11 to 13, 13 to 15, 15 to 17, 17 to 19, 19 to 21 and 21 to 23 for the period from January 20, 1992 to January 18, 1995; such percentages for those price ranges were 2.51, 13.48, 10.83, 7.97, 24.47, 21.24, 7.63, 8.13 and 3.74, respectively. The graph shows 159,254,900 Cumulative Shares, 1023% of the 15,567,000 shares outstanding as reported on 1/18/95. Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- PYRAMID TECHNOLOGY CORP. STOCK PRICE AND VOLUME GRAPH Graph depicts daily prices and volume of Pyramid Technology Corp Common Stock from January 19, 1994 to January 18, 1995, with a high, low and ending price over such period of between $15.00 and $17.50, $5.00 and $7.50 and $12.50 and $17.50, respectively, and a high, low and ending volume over such period of between 2.4 and 3.2 million, 0.0 and 1.5 million and 0.8 and 1.6 million, respectively. Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- PYRAMID TECHNOLOGY CORP. GRAPH OF PERCENT OF TOTAL VOLUME TRADED AT SPECIFIED PRICES JANUARY 19, 1994 TO JANUARY 18, 1995 Bar Graph depicts the percentage of total volume of Pyramid Technology Corp. Common Stock traded at specified prices of 5 to 6, 6 to 7, 7 to 8, 8 to 9, 9 to 10, 10 to 11, 11 to 12, 12 to 13, 13 to 14, 14 to 15 and 15 to 16 for the period January 19, 1994 to January 18, 1995; such percentages for these price ranges were 2.46, 5.10, 15.33, 17.13, 5.69, 11.72, 4.67, 4.31, 6.19, 19.69 and 7.69, respectively. Graph shows 47,307,500 Cumulative Shares, 304% of the 15,567,000 Shares outstanding as reported on 1/18/95. Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- GRAPH OF PYRAMID VS. INDEX OF COMPARABLE COMPANIES VS. INDEX OF SELECTED COMPANIES WEEKLY: JANUARY 20, 1992 TO JANUARY 18, 1995 Graph depicts the weekly stock prices as a percentage of the price on the initial date of January 20, 1992 of Pyramid Technology Corp, an index of comparable companies, and an index of selected companies for the period January 20, 1992 to January 18, 1995. Index of Comparable Companies is a composite of: AMH, ASPX, CNX, DGN, DEC, HWP, NETF, PLLN, SQNT, SGI, SRA, SUNW, TDM, TRCD Index of Selected Companies is a composite of: ASPX, NETF, SQNT, SRA, TRCD Smith Barney ------------ Project Jupiter January 1995 - -------------------------------------------------------------------------------- GRAPH OF PYRAMID VS. INDEX OF COMPARABLE COMPANIES VS. INDEX OF SELECTED COMPANIES DAILY: JANUARY 19, 1994 TO JANUARY 18, 1995 Graph depicts the daily stock prices as a percentage of the price on the initial date of January 19, 1994 of Pyramid Technology Corp, an index of comparable companies, and an index of selected companies for the period January 19, 1994 to January 18, 1995. Index of Comparable Companies is a composite of: AMH, ASPX, CNX, DGN, DEC, HWP, NETF, PLLN, SQNT, SGI, SRA, SUNW, TDM, TRCD Index of Selected Companies is a composite of: ASPX, NETF, SQNT, SRA, TRCD Smith Barney ------------ EXHIBIT 99(b)(3) CONFIDENTIAL MATERIAL PRESENTED TO CERTAIN OFFICERS OF SIEMENS NIXDORF INFORMATIONSSYSTEME AG ________________________ AT A MEETING ON January 3, 1995 ________________________ The following pages contain material that was provided to certain officers of Siemens Nixdorf Informationssysteme AG ("SNI AG") in the context of a meeting held to evaluate the proposed acquisition to be made by SNI AG and Siemens Nixdorf Mid-Range Acquisition Corp. ("Purchaser") described in the Offer to Purchase which is part of this Schedule 13E-3. The accompanying material was compiled or prepared on a confidential basis solely for use by SNI AG and Purchaser and not with a view toward public disclosure under the Securities Act of 1933 or the Securities Exchange Act of 1934 (the "Federal Securities Laws"). The information contained in this material was obtained from SNI AG and other sources. Any estimates and projections contained herein were prepared separately by the management of either SNI AG or Pyramid Technology Corporation (the "Company") and involve numerous and significant subjective determinations, which may or may not be correct. No representation or warranty, expressed or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Because this material was prepared for use in the context of an oral presentation to certain officers of SNI AG, it was not prepared to comply with the disclosure standards set forth under the Federal Securities Laws and because it may be used by readers not as familiar with the business and affairs of the Company as such officers of SNI AG, neither SNI AG, Purchaser nor Goldman, Sachs & Co., nor any of their respective legal or financial advisors or accountants, takes any responsibility for the accuracy or completeness of any of the material when used by persons other than SNI AG. Neither SNI AG nor Goldman, Sachs & Co. expects to update or otherwise revise the accompanying materials. Discussion Materials Project Highnoon Prepared by Goldman, Sachs & Co. January 3, 1995 Table of Exhibits Summary Observations 1 Summary Financial Information 2 Summary of Selected Research Reports 3 Valuation Summary of Selected Companies 4 Historical Trading Performance 5 Future Value Analysis 6 Selected Computer Hardware Industry Acquisitions 7 Summary of Selected Valuations 8 Appendices Other Financial Information A Ownership Analysis for Highnoon B List of Other Potential Buyers C Merger Plans D Analysis at Various Prices E Summary Observations Long Term Investor Issues Product/Market . Market size and growth opportunity . Breadth of competition Financial . Sustainability of Highnoon's revenue momentum . Inherent profitability of Highnoon's business model . Inability of most players to sustain profitability year after year . Continued restructuring efforts Short Term Investor Issues . Actual earnings relative to analysts' estimates . Analysts' recommendations . New product successes and future pipeline . Costs of rebuilding direct sales capability . Quality of earnings . Stock price momentum . Technology sector stock price momentum Summary Financial Information - Historical Dollars in Millions
For the Years Ended September 30 CAGR ------------------------------------------------------------------------ -------- 1989 1990 1991 1992(a) 1993 1994 '89-'94 ------- -------- -------- -------- -------- -------- -------- Income Statement Product revenue $ 86.5 $ 148.3 $ 178.6 $ 138.9 $ 174.4 $ 152.6 12.0 % Service revenue 17.4 31.5 49.4 53.3 59.3 65.9 30.6 ------- -------- -------- -------- -------- -------- -------- Total revenue 103.9 179.7 227.9 192.2 233.7 218.5 16.0 Gross profit 57.6 96.4 106.6 68.7 101.6 79.9 6.8 EBITDA 16.4 37.9 35.8 6.7 39.3 9.2 (11.0) EBIT 10.0 22.1 16.5 (24.4) 9.3 (19.3) N.M. Net income 8.4 16.8 12.0 (32.5) 8.6 (22.4) N.M. EPS $ 0.96 $ 1.61 $ 1.02 $ (2.72) $ 0.67 $ (1.66) N.M. Average shares outstanding 8,707 10,436 11,864 11,962 12,890 13,467 9.1 Other Cash $18.2 $16.7 $31.6 $26.5 $31.4 $21.6 3.5 % Net working capital 27.9 78.1 58.0 23.7 45.4 60.4 16.7 Long term debt 0.3 0.7 2.8 1.9 0.5 1.6 44.3 Equity 69.5 154.3 174.8 117.7 137.6 136.0 14.4 Capital expenditure 10.9 25.8 26.1 16.8 13.7 12.0 1.9 Growth Product revenue 71.4 % 20.4 % (22.2)% 25.5 % (12.5)% Service revenue 81.3 57.0 7.9 11.3 11.1 Total revenue 73.0 26.8 (15.7) 21.6 (6.5) EPS 67.7 (36.6) N.M. N.M. N.M. Margin Product gross 62.1 % 60.7 % 54.0 % 43.3 % 50.2 % 42.5 % Service gross 22.4 20.3 20.4 16.0 23.7 22.8 Total gross 55.5 53.7 46.8 35.7 43.5 36.6 R&D 14.0 11.3 10.7 14.8 11.9 11.7 SG&A 31.8 30.1 28.9 33.7 27.6 33.7 EBIT 9.6 12.3 7.2 (12.7) 4.0 (8.8) Net income 8.1 9.4 5.3 (16.9) 3.7 (10.3)
(a) Excludes a $41.2 million restructuring charge, tax effected at 34%. Historical Quarterly Performance Highnoon
Quarterly Revenue Growth -------------------------------- % Growth Over Actual Actual % Growth Over Same Period Gross Net Previous Quarter Previous Year Margin Margin ---------------- ------------- ------ ------ FY1994 Q4 8.0% (4.0)% 40.5% (2.0)% Q3 15.6 (10.3) 35.0 (11.0) Q2 (22.4) (19.8) 27.1 (34.3) Q1 (0.9) 8.9 41.6 1.1 FY1993 Q4 0.9 18.6 44.4 5.6 Q3 3.4 23.5 45.3 5.6 Q2 5.3 34.5 42.8 2.5 Q1 7.9 11.5 41.2 0.8 FY1992 Q4(a) 5.1 (13.7) 32.0 (28.4) Q3 12.6 (11.4) 35.6 (8.2) Q2 (12.7) (25.9) 35.1 (16.8) Q1(b) (16.4) (11.3) 40.3 (12.5) FY1991 Q4 7.8 6.2 44.3 3.7 Q3 (5.7) 12.7 44.6 0.8 Q2 4.4 44.3 48.1 8.3 Q1 0.1 59.2 50.1 8.3
(a) Excludes a $23.4 million restructuring charge, tax effected at 34% (b) Excludes a $17.8 million restructuring charge and a legal settlement charge of $0.9 million, tax effected at 34% While SNI has reduced Highnoon's management projections, SNI believes significant synergies are attainable. IBES median EPS estimates of $0.50 and $1.02 for FY1995 and 1996, respectively, are the highest of any projections without synergies. Comparison of Projections
For the Years Ended September 30, --------------------------------------- FY 1995E FY 1996E FY 1997E -------- -------- -------- Sales 24% Ownership (a) $267 $386 $538 Highnoon Plan (b) 271 337 424 Revised Plan (c) 248 286 333 With Cost Savings (d) 299 475 730 Earnings per Share 24% Ownership (e) $0.30 $1.02 $1.43 Highnoon Plan (e) 0.35 0.80 1.29 Revised Plan (e) (0.18) 0.26 0.72 With Cost Savings (e) (1.84) 3.82 5.99 IBES Median (12/22/94) 0.50 1.02 1.19(f)
(a) Management projections for Highnoon if SNI were to exercise warrant. (b) Base plan as provided by Highnoon to SNI in August 1994. (c) Highnoon plan adjusted by SNI management. Last revised December 1994. (d) Implied realistic case for SNI. Includes SNI estimated synergies and costs to achieve those synergies. Represents the difference between SNI MR-Business Plan to Integrated Plan (SNI MR-Business pro forma for acquisition of Highnoon). (e) Assumes 16.275 million, 19.1 million, and 20.7 million shares outstanding for fiscal years 1995-1997, respectively. (f) IBES 5-year CAGR of 16.5% applied to FY 1996 estimate. Overview of Synergies (a) Dollars in Millions
Sales Pre-Tax Profit ----------------------------- ----------------------------- Description 94/95 95/96 96/97 94/95 95/96 96/97 - ---------------------------------------------------------- ----- ----- ----- ----- ----- ----- Increased sales in Europe due to greater US presence (SNI) $ 20 $ 50 $140 $ 5 $ 15 $ 35 Increase in sales due to greater market share (Highnoon) 25 50 75 5 10 15 Increase in high-end capability (Highnoon) 10 50 80 0 15 30 Increase in low-end capability (direct) (SNI) 10 30 55 0 3 5 Increase in low-end capability (indirect) (SNI) 15 30 60 3 8 15 Indirect OEMs (Highnoon) (15) (20) (20) (3) (5) (5) Cost to expand in US saved (SNI) 13 9 0 Consolidate into Germany (Highnoon) 6 9 15 R&D redundancy 0 7 20 Write-off of activated software (non-cash) (Highnoon) (18) -- -- Restructuring (roughly 2/3 cash) (20) (3) (9) Miscellaneous (1) (3) (1) ---- ---- ---- ---- ---- ---- Total $ 65 $190 $390 $(10) $ 65 $120(b)
(a) Estimated by management of SNI. (b) SNI management estimates an additional $120 in 97/98. Financing History - Highnoon Highnoon has had limited access to public financings, and none since 1990. Over the past three years, Highnoon has had negative operating cash flow.
Offer Total Where Issue Type of Date Amount Shares Offer Price Trades Security Syndicated - ------- ------ ------ ----------- ---------- -------- ---------- 12/4/85 (a) $25.1 1.5 mil $16.75 OTC Common Yes 3/14/90 57.0 2.0 28.50 NASDQ Common No
FY1992 FY1993 FY1994 - ------------------------------------------ ------ ------ ------ Nonrecurring Operating System and Manufacturing License Fees $4.9 $9.6 $5.0 ====== ====== ====== Net Income ($32.5)(b) $8.6 ($22.4) Plus: Depreciation and Amortization 18.8 30.0 28.5 Less: Net Working Capital Changes (25.8) 22.2 (9.6) Capital Expenditures 16.8 13.7 12.0 Capitalized Software 6.1 7.3 6.8 After-tax License Fees(c) 2.3 4.4 2.3 ------ ------ ------ Operating Cash Flow ($13.1) ($9.1) ($5.4) ====== ====== ======
(a) Initial public offering. (b) Restructuring charge of $41.2 million tax effected at 34%. (c) 34% tax rate assumed. Summary of Selected Research Reports The consensus of research analysts seems to be "hold." Recent financial disappointments as well as large overhead expenses detract from Highnoon's position in the high-performance server category.
Analyst/ Bank Date Comments John B. Jones/ November 22, 1994 . Hold; FY 95 $0.45 estimates Salomon Brothers . Four quarter results as expected. Gross margins to rebound and trend towards 42-43% . 45 shipments of the Nile 100 and 150 midrange systems since introduction in mid-May. . Average price of Nile 100 is $250,000-$300,000 and Nile 150 $150,000. - ------------------------------------------------------------------------------------------------------------------------ Shao F. Wang/ October 31, 1994 . Buy, high risk(1H); target price: $16; FY95 $0.49; FY 96 $.94 estimates Smith Barney . New products utilizing a new architecture to be announced and a sales force that has been revamped . Lowered losses and continued sequential improvements pending . Looking to new head of marketing to justify symmetric multiprocessing and MPP products. . Expanding market for high-end systems remains key. Development of new applications such as electronic messaging necessary. . Current Nile product and pending introduction of MPP-based MESHine could prove to be a conflict - ------------------------------------------------------------------------------------------------------------------------ Jay P. Stevens/ October 31, 1994 . Neutral; FY95 $0.50 estimates Dean Witter . Fairly valued at current price ($9 7/8), which was 16.5 CY95 P/E . Excellent products and technology but poor recent financial performance . Expect to benefit from move to MPP architecture . Product lines require extensive review and analysis, resulting in extended selling cycles . Salesforce realignment required . Competitors include Hewlett-Packard, Sequent Computer, Data General and Digital Equipment - ------------------------------------------------------------------------------------------------------------------------
Continued on next page Summary of Selected Research Reports Continued
Analyst/ Bank Date Comments Thomas T. Rooney/ March 22, 1994 . Neutral; FY95 $1-$1.05 estimate. Donaldson, Lufkin & Jenrette . Target value at 15x P/E, or $15-16 per share . Earlier optimism for rightsizing/re-hosting opportunity dimmed due to IBM's expected announcement of new lower-cost CMOS mainframes. . Replacing a mainframe with a Unix-based multiprocessing server threatened by Compaq moving up from low end. . Reduced growth prospects from 25-30% to 15-20% . Only way to cut costs is to increase indirect distribution; recent OEM deal with ICL - ------------------------------------------------------------------------------------------------------------------------ Joseph Payne/ January 31, 1994 . Long-term buy, high risk; FY95 $1.40 estimate Kemper Securities, Inc. . Best positioned company in the high-performance server category . Has focused on large systems for use in specific vertical markets and has developed partnerships and alliances to support its strategy - ------------------------------------------------------------------------------------------------------------------------
VALUATION SUMMARY OF SELECTED COMPANIES (Dollars in Millions)
Latest Quarter Data As % Capitalization Growth ------------------------------------------------- Latest of 52 ------------------- LQ Rev/ Annualized Enterprise Annualized Enterprise Company Close(a) Wk High Equity Enterprise Yr. Ago Revenue Multiple EBITDA(b) Multiple - ------------------------- -------- ------- ------ ---------- ------- ---------- ---------- ---------- ---------- Highnoon $13.00 79% $ 203 $ 184 (4)% $ 233 0.79x $ 18 10.0x RISC Auspex Systems $ 6.75 68 155 142 17 95 1.49 17 8.4 Concurrent Computer 1.44 58 43 61 (16) 166 0.37 25 2.4 Data General 10.00 83 366 383 5 1,170 0.33 59 6.5 Encore Computer 3.13 49 106 160 (23) 66 2.41 (29) N.M. Median 63% $ 130 $ 151 (5)% $ 131 0.93x $ 21 6.5x OLTP Sequent Computer Systems $19.75 96 615 653 33 485 1.35 87 7.5 Stratus Computer 38.00 95 921 690 15 583 1.18 135 5.1 Tandem Computers 17.13 90 1,963 1,981 9 2,418 0.82 455 4.4 Median 95% $ 921 $ 690 15% $ 583 1.18x $135 5.1x Superserver Netframe Systems $ 7.63 44 102 85 44 98 0.86 14 6.2 Parallan Computer 4.00 28 30 22 (98) 0 N.M. (5) N.M. Tricord Systems 5.25 20 68 54 (12) 77 0.71 4 13.9 Median 28% $ 68 $ 54 (12)% $ 77 0.79x $ 4 10.0x Technical Convex Computer $ 7.88 89 207 248 (15) 146 1.70 190 1.3 Cray Research 15.63 46 401 493 9 879 0.56 211 2.3 Silicon Graphics 31.16 94 4,416 4,394 42 1,710 2.57 322 13.6 Sun Microsystems 35.50 94 3,367 3,146 33 5,094 0.62 481 6.5 Median 91% $1,884 $1,820 21% $1,294 1.16x $267 4.4x - ------------------------------------------------------------------------------------------------------------------------------- High 96% $4,416 $4,394 44% $5,094 2.57x $481 13.9x Low 20 30 22 (98) 0 0.33 (29) 1.3 Mean 68 911 894 3 928 1.15 140 6.5 Median 75 287 315 9 326 0.86 73 6.4 - ------------------------------------------------------------------------------------------------------------------------------- Latest Quarter Data ----------------------- Annualized Enterprise Company EBIT Multiple - ------------------------- ---------- ---------- Highnoon $ (4) (42.2)x RISC Auspex Systems 9 15.9 Concurrent Computer 13 4.9 Data General (45) N.M. Encore Computer (40) N.M. Median $ (15) 10.4x Sequent Computer Systems 43 15.3 Stratus Computer 84 8.2 Tandem Computers 296 6.7 Median $ 84 8.2x Superserver Netframe Systems 10 8.8 Parallan Computer (5) N.M. Tricord Systems (0) N.M. Median $ (0) 8.8x Technical Convex Computer 172 1.4 Cray Research 87 5.7 Silicon Graphics 230 19.1 Sun Microsystems 215 14.6 Median $ 194 10.1x - ---------------------------------------------------- High $ 296 19.1x Low (45) 1.4 Mean 76 10.1 Median 28 8.5 - ----------------------------------------------------
(a) Closing prices as of December 30, 1994. (b) Latest quarter depreciation and amortization was estimated where not available. VALUATION SUMMARY OF SELECTED COMPANIES (Dollars in Millions)
Last 12 Months Margin P/E Ratio 5Yr. ---------------------------------------------- ------------------------------------- IBES Company Gross EBIT EBITDA Net Income SG&A R&D LTM LQ Annual. CY 1994E CY 1995E EPS Est. - ------------------------- ----- ----- ------ ---------- ---- --- ------ ---------- -------- -------- -------- Highnoon 37% (9)% 4% (10)% 34% 12% (7.8)x (40.6)x (11.6)x 20.6x 17% RISC Auspex Systems 56 9 18 9 31 14 20.7 18.8 17.2 13.9 25 Concurrent Computer 40 6 13 0 25 13 (7.6) 6.0 N.M. 5.2 15 Data General 35 (4) 5 (8) 30 8 (4.1) N.M. (5.7) 32.3 10 Encore Computer 30 N.M. N.M. N.M. 46 36 (1.9) (2.2) (2.7) 10.4 N.A. Median 37% 6% 13% 0% 31% 13% (3.0)x 6.0x (2.7)x 12.2x 15% OLTP Sequent Computer Systems 46 7 18 1 31 8 N.M. 17.6 19.4 15.8 20 Stratus Computer 55 7 16 5 28 15 30.5 12.5 13.3 11.7 12 Tandem Computers 55 7 15 7 34 13 12.5 6.9 11.8 10.0 10 Median 55% 7% 16% 5% 31% 13% 21.5x 12.5x 13.3x 11.7x 12% Superserver Netframe Systems 53 9 13 9 31 12 13.0 10.0 10.9 9.5 30 Parallan Computer N.M. N.M. N.M. N.M. 14 33 N.M. N.M. (6.2) (6.3) 45 Tricord Systems 37 6 10 6 16 8 12.9 N.M. 30.9 13.8 23 Median 45% 7% 12% 8% 16% 12% 12.9x 10.0x 10.9x 9.5x 30% Technical Convex Computer 35 N.M. N.M. N.M. 44 22 (2.8) N.M. (4.9) 31.5 18 Cray Research 43 32 44 7 17 15 5.8 6.3 6.9 15.6 10 Silicon Graphics 18 14 19 10 9 4 31.0 28.8 28.8 21.9 29 Sun Microsystems 41 6 11 4 25 9 15.6 22.2 15.2 12.3 15 Median 38% 14% 19% 7% 21% 12% 10.7x 22.2x 11.1x 18.7x 16% - ------------------------------------------------------------------------------------------------------------------------------- High 56% 32% 44% 10% 46% 36% 31.0x 28.8x 30.9x 32.3x 45% Low 18 (4) 5 (8) 9 4 (7.6) (2.2) (6.2) (6.3) 10 Mean 42 9 17 5 27 15 10.5 12.7 10.4 14.1 20 Median 41 7 15 6 29 13 12.7 11.3 11.8 13.1 18 - ------------------------------------------------------------------------------------------------------------------------------- Total Debt/ Total Company Capitalization - ------------------------- -------------- Highnoon 2% RISC Auspex Systems 1 Concurrent Computer 42 Data General 34 Encore Computer 98(a) Median 38% OLTP Sequent Computer Systems 19 Stratus Computer 3 Tandem Computers 13 Median 13% Superserver Netframe Systems 0 Parallan Computer 0 Tricord Systems 0 Median 0% Technical Convex Computer 54 Cray Research 11 Silicon Graphics 20 Sun Microsystems 8 Median 16% - ----------------------------------------- High 98% Low 0 Mean 22 Median 12 - -----------------------------------------
(a) Includes $59.5 million of revolving loan agreement with Gould Electronics. 46% debt to capitalization excluding revolver. HISTORICAL TRADING PERFORMANCE Latest Two Weeks STOCK PRICE AND VOLUME GRAPH DAILY PRICES AND VOLUMES: December 16, 1994 to December 30, 1994 HISTORICAL TRADING PERFORMANCE OF HIGHNOON Since June 1, 1994 STOCK PRICE AND VOLUME GRAPH DAILY PRICES AND VOLUMES: June 6, 1994 to December 30, 1994 HISTORICAL TRADING PERFORMANCE OF HIGHNOON Latest 3 Years The highest Highnoon has closed within the past three years was $22.875 on August 26, 1993. The lowest was $5.50 on July 22, 1994. STOCK PRICE AND VOLUME GRAPH WEEKLY PRICES AND VOLUMES: December 31, 1991 to December 31, 1994 HISTORICAL TRADING PERFORMANCE OF HIGHNOON Latest 9 Years (Since IPO) The highest Highnoon has closed since its IPO on December 4, 1985 was $35 during May 1990. The lowest was $4 during December 1986. STOCK PRICE AND VOLUME GRAPH MONTHLY PRICES AND VOLUMES: December 31, 1985 to December 31, 1994 SHARES TRADED AT VARIOUS PRICES Since the IPO, Highnoon's weighted average share price has steadily declined.
Weighted Total Shares as Average % of Shares Period Price Range Outstanding (a) - --------------- -------- -------------- --------------- Since IPO $15.68 $4.00 - $35.00 135% Latest 5 years 16.34 5.50 - 35.00 200 Latest 3 years 13.79 5.50 - 22.88 203 Latest year 10.50 5.50 - 16.25 169 Latest 6 months 9.29 5.50 - 12.88 156
(a) Annualized and normalized for NASDAQ trading (60% weight assumed). RELATIVE TRADING PERFORMANCE Latest Week Performance graph of the Company's stock price vs. three separate composite indices: the Midrange Composite, the PC Composite and the Software Composite. Daily: December 27, 1994 to December 30, 1994. The Midrange Composite is a composite of Auspex Systems, Convex Computer, Cray Research, Data General, Encore Computer, Netframe Systems, Parallan Computer, Sequent Computer, Silicon Graphics, Stratus Computer, Sun Microsystems, Tandem, Teradata Corp; the PC Composite is a composite of Apple, AST, Compaq, Dell; and the Software Composite is a composite of Adobe, Lotus, Microsoft, Novell, Symantec. RELATIVE TRADING PERFORMANCE Latest Two Weeks Performance graph of the Company's stock price vs. three separate composite indices: the Midrange Composite, the PC Composite and the Software Composite. Daily: December 16, 1994 to December 30, 1994. The Midrange Composite is a composite of Auspex Systems, Convex Computer, Cray Research, Data General, Encore Computer, Netframe Systems, Parallan Computer, Sequent Computer, Silicon Graphics, Stratus Computer, Sun Microsystems, Tandem and Teradata Corp; the PC Composite is a composite of Apple, AST, Compaq and Dell; and the Software Composite is a composite of Adobe, Lotus, Microsoft, Novell and Symantec. RELATIVE TRADING PERFORMANCE Latest Month Performance graph of the Company's state price vs. three separate composite indices: the Midrange Composite, the PC Composite and the Software Composite. Daily: November 30, 1994 to December 30, 1994. The Midrange Composite is a composite of Auspex Systems, Convex Computer, Cray Research, Data General, Encore Computer, Netframe Systems, Parallan Computer, Sequent Computer, Silicon Graphics, Stratus Computer, Sun Microsystems, Tandem and Teradata Corp; the PC Composite is a composite of Apple, AST, Compaq and Dell; and the Software Composite is a composite of Adobe, Lotus, Microsoft, Novell and Symantec. RELATIVE TRADING PERFORMANCE July 1 - Present Performance graph of the Company's stock price vs. three separate composite indices: the Midrange Composite, the PC Composite, and the Software Composite. Daily: July 1, 1994 to December 30, 1994. The Midrange Composite is a composite of Auspex Systems, Convex Computer, Cray Research, Data General, Encore Computer, Netframe Systems, Parallan Computer, Sequent Computer, Silicon Graphics, Stratus Computer, Sun Microsystems, Tandem, Teradata Corp.; the PC Composite is a composite of Apple, AST, Compaq, Dell; and the Software Composite is a composite of Adobe, Lotus, Microsoft, Novell, Symantec. RELATIVE TRADING PERFORMANCE Latest Year Performance graph of the Company's stock price vs. three separate composite indices: the Midrange Composite, the PC Composite, and the Software Composite. Daily: December 30, 1993 to December 30, 1994. The Midrange Composite is a composite of Auspex Systems, Convex Computer, Cray Research, Data General, Encore Computer, Netframe Systems, Parallan Computer, Sequent Computer, Silicon Graphics, Stratus Computer, Sun Microsystems, Tandem and Teradata Corp; the PC Composite is a composite of Apple, AST, Compaq and Dell; and the Software Composite is a composite of Adobe, Lotus, Microsoft, Novell and Symantec. RELATIVE TRADING PERFORMANCE Latest 3 Years Performance graph of the Company's stock price vs. three separate composite indices: the Midrange Composite, the PC Composite, and the Software Composite. Weekly: December 31, 1991 to December 30, 1994. The Midrange Composite is a composite of Auspex Systems, Convex Computer, Cray Research, Data General, Encore Computer, Netframe Systems, Parallan Computer, Sequent Computer, Silicon Graphics, Stratus Computer, Sun Microsystems, Tandem, Teradata Corp.; the PC Composite is a composite of Apple, AST, Compaq, Dell; and the Software Composite is a composite of Adobe, Lotus, Microsoft, Novell, Symantec. FUTURE VALUE ANALYSIS (a)
Discount Rate ------------------------------------ $27 MM Net Income (b) 10% 12% 14% 16% - --------------------- ------ ------ ------ ------ 10 x P/E $13.93 $13.50 $13.09 $12.70 12 16.48 15.97 15.48 15.02 14 18.93 18.34 17.78 17.25 16 21.38 20.71 20.08 19.48
Discount Rate ------------------------------------ $18 MM Net Income (c) 10% 12% 14% 16% - --------------------- ------ ------ ------ ------ 10 x P/E $ 9.56 $ 9.27 $ 8.98 $ 8.71 12 11.32 10.96 10.63 10.31 14 13.33 12.91 12.52 12.15 16 15.17 14.70 14.25 13.82
(a) Prices are fully diluted for in-the-money options. (b) Per Highnoon stand-alone management projections for FY1997. (c) FY1996 First Call median EPS estimate of $1.02 grown at 16.5% (IBES 5 year CAGR) multiplied by 15.6 million shares. Selected Hardware Industry Acquisitions
Levered Multiple of Latest 12 Months - ----------------------------------------------------------------------------------------------------------------------------------- Aggregate Close Consideration Date Acquiror Target (Millions) Sales EBIT EBITD - ---------- ---------------------------------- ---------------------------------------- -------------- ------- ------ ------- 10/94 Quantum Corp. Disk Drive division of Digital Equipment $ 360.00 NA NA NA Corp. 07/93 AST Research PC Division of Tandy Corporation 105.00 NA NA NA 06/92 Silicon Graphics, Inc. MIPS Computer Systems, Inc. 209.53(a) 0.98x NA NA 02/92 FDS Corporation (of American Teradata Corporation 453.83(a) 1.64 17.7x 8.1x Telephone and Telegraph Company) 11/91 Storage Technology Corporation XL/Datacomp, Inc. 160.53(a) 0.93 28.7 23.7 09/91 American Telephone & Telegraph Co. NCR Corporation 7,276.57(a) 1.24 9.6 7.0 09/90 Acer Incorporated Altos Computer Systems 91.64 0.50 NA NA 08/90 Forstmann Little & Co. General Instrument Corp. 1,442.57 1.08 8.7 5.7 04/90 Archive Corporation Cipher Data Products, Inc. 117.29 1.41 NA NA 04/90 Siemens AG Nixdorf Computer AG 256.00(b) 0.16 37.9 NA 04/90 Machines Bull SA Zenith Computer Group of Zenith 511.40 0.48 34.1 NA 01/90 J.H. Whitney & Co. Prime Computer, Inc. 1,056.66 0.78 7.3 3.6 06/89 Novell, Inc. Excelan, Inc. 154.97(a) 2.02 18.7 13.2 05/89 Hewlett-Packard Company Apollo Computer Inc. 477.26 0.92 56.1 11.3 06/88 Memorex International N.V The Telex Corporation 911.33 1.15 9.6 7.5 02/88 Prime Computer, Inc. Computervision Corporation 438.82 0.98 16.4 5.7 09/87 3Com Corporation Bridge Communications, Inc. 192.79(a) 2.84 14.3 11.9 09/86 Burroughs Corporation Sperry Corporation 4,772.81 0.86 9.1 6.4 11/84 International Business Machines ROLM Corporation 1,317.31 2.28 26.9 20.0 Corporation High $7,276.57 2.84x 56.1x 23.7x Low 91.64 0.16 7.3 3.6 Median 438.82 0.98 17.1 7.8
- ------------------------------------------------------------------------------------------------------------------------- Multiple of Latest Close 12 Months EPS/Net Premium Over Date Acquiror Target Income Market Value - ---------- ---------------------------------- ---------------------------------------- ------------------- -------------- 10/94 Quantum Corp. Disk Drive division of Digital Equipment NA NM Corp. 07/93 AST Research PC Division of Tandy Corporation NA NM 06/92 Silicon Graphics, Inc. MIPS Computer Systems, Inc. NA 5.7% 02/92 FDS Corporation (of American Teradata Corporation 51.2x 22.8 Telephone and Telegraph Company) 11/91 Storage Technology Corporation XL/Datacomp, Inc. 58.2 57.4 09/91 American Telephone & Telegraph Co. NCR Corporation 19.3 129.2 09/90 Acer Incorporated Altos Computer Systems NA 42.1 08/90 Forstmann Little & Co. General Instrument Corp. 14.0 22.8 04/90 Archive Corporation Cipher Data Products, Inc. 9.9 69.2 04/90 Siemens AG Nixdorf Computer AG 6.7 NM 04/90 Machines Bull SA Zenith Computer Group of Zenith NA NM 01/90 J.H. Whitney & Co. Prime Computer, Inc. NA 10.9 06/89 Novell, Inc. Excelan, Inc. 33.0 33.3 05/89 Hewlett-Packard Company Apollo Computer Inc. NA 61.5 06/88 Memorex International N.V The Telex Corporation 16.8 48.5 02/88 Prime Computer, Inc. Computervision Corporation 29.4 66.7 09/87 3Com Corporation Bridge Communications, Inc. 30.8 6.8 09/86 Burroughs Corporation Sperry Corporation 15.5 39.1 11/84 International Business Machines ROLM Corporation 47.3 57.3 Corporation High 58.2x 129.2% Low 6.7 5.7 Median 24.4 42.1
(a) Stock Consideration (b) Acquisition of 51% majority interest. Multiples are pro forma for 100% acquisition. Summary of Selected Valuations GRAPH OF RANGES OF IMPLIED SHARE PRICES RESULTING FROM VARIOUS VALUATION METHODOLOGIES, INCLUDING: (A) COMPARISON OF THE FOLLOWING RATIOS TO THOSE OF CERTAIN SELECTED COMPANIES: THE PRICE TO 1995 EARNINGS ESTIMATES, MARKET CAPITALIZATION AS A PERCENTAGE OF LATEST QUARTER ANNUALIZED SALES, MARKET CAPITILIZATION TO LATEST QUARTER ANNUALIZED EBITDA; (B) COMPARISON OF THE FOLLOWING MULTIPLES BASED ON PRICES PAID IN SELECTED MERGER AND ACQUISITION TRANSACTIONS: AGGREGATE CONSIDERATION TO SALES FOR THE LATEST TWELVE MONTHS PRIOR TO THE ANNOUNCEMENT OF EACH TRANSACTION, AGGREGATE CONSIDERATION TO EBITDA FOR THE LATEST TWELVE MONTHS, AGGREGATE CONSIDERATION TO NET INCOME FOR THE LATEST TWELVE MONTHS, AND THE MARKET PREMIUMS FOR THE SELECTED TRANSACTIONS; AND (C) FUTURE VALUE ANALYSES BASED UPON CERTAIN FINANCIAL PROJECTIONS OF THE COMPANY AND CERTAIN INDEPENDENT RESEARCH ANALYSTS' ESTIMATES OF FUTURE FINANCIAL PERFORMANCE. THE GRAPH SHOWS THAT THE MEDIAN LOW END OF THE VARIOUS VALUATION METHODOLOGIES IS $11.50 AND THE MEDIAN HIGH END IS $15.17. Summary Financial Information - Projected Dollars in Millions
BASE CASE-HIGHNOON(a) REVISED BASE CASE(b) -------------------------------------------- ------------------------------------------- For the Years Ended September 30, For the Years Ended September 30, -------------------------------------------- ------------------------------------------- 1994 1995E 1996E 1997E 1994 1995E 1996E 1997E ------- ------- ------- -------- -------- ------- ------- ------- Revenue $219 $271 $337 $424 $219 $248 $286 $333 Cost of Sales 139 154 190 242 139 145 169 196 --- --- --- --- --- --- --- --- Gross Profit 80 117 147 182 80 103 117 137 R&D 25 27 32 38 25 27 28 30 SG&A 74 86 97 112 74 79 83 89 --- --- --- --- --- --- --- --- Operating Income (19) 4 18 32 (19) (3) 6 18 Other Income/Expense 0 2 1 1 0 0 0 0 --- --- --- --- --- --- --- --- Income (Loss) Before Taxes (19) 6 19 33 (19) (3) 6 18 Income Taxes 3 0 4 6 3 0 1 3 --- --- --- --- --- --- --- --- Income (Loss) After Taxes (22) 6 15 27 (22) (3) 5 15 Growth Revenue 23.7% 24.4% 25.8% 13.2% 15.3% 16.4% Gross Profit 46.3 25.6 23.8 28.8 13.6 17.1 R&D 8.0 18.5 18.8 8.0 3.7 7.1 SG&A 16.2 12.8 15.5 6.8 5.1 7.2 Operating Income (121.1) 350.0 77.8 (84.2) (300.0) 200.0 Income (Loss) After Taxes (127.3) 150.0 80.0 (86.4) (266.7) 200.0 Margins Gross Profit 36.5% 43.2% 43.6% 42.9% 36.5% 41.5% 40.9% 41.1% R&D 11.4 10.0 9.5 9.0 11.4 10.9 9.8 9.0 SG&A 33.8 31.7 28.8 26.4 33.8 31.9 29.0 26.7 Operating Income (8.7) 1.5 5.3 7.5 (8.7) (1.2) 2.1 5.4 Income (Loss) After Taxes (10.0) 2.2 4.5 6.4 (10.0) (1.2) 1.7 4.5
(a) Prepared by Highnoon management. (b) Restated by SNI management. Summary Financial Information - Projected Dollars in Millions
SNI MR-BUSINESS(a) INTEGRATED(b) INCREASE -------------------------------- ------------------------ -------------------- For the Years Ended For the Years Ended For the Years Ended September 30, September 30, September 30, -------------------------------- ------------------------ -------------------- 1994 1995E 1996E 1997E 1995E 1996E 1997E 1995E 1996E 1997E ------ ------- ------- ------- -------- ------- ------ ------ ------- ----- Revenue $816 $919 $994 $1,138 $1,218 $1,469 $1,868 $299 $475 $730 Cost of Sales 404 433 466 530 597 715 907 164 249 377 --- --- --- --- --- --- --- --- --- --- Gross Profit 412 486 528 608 621 754 961 135 226 353 R&D 173 172 172 172 214 194 192 42 22 20 SG&A 242 279 303 346 376 426 524 97 123 178 --- --- --- --- --- --- --- --- --- --- Operating Income (3) 35 53 90 31 134 245 (4) 81 155 Other Income/ Expense (13) 19 7 6 (7) (2) (9) (26) (9) (15) --- --- --- --- --- --- --- --- --- --- Income (Loss) Before Taxes (15) 54 59 96 24 132 236 (30) 73 140 Income Taxes 0 0 0 0 0 0 16 0 0 16 --- --- --- --- --- --- --- --- --- --- Income (Loss) After Taxes (15) 54 59 96 24 132 220 (30) 73 124 Growth Revenue 12.6% 8.2% 14.5% 49.3% 20.6% 27.2% 36.6% 12.4% 12.7% Gross Profit 18.0 8.6 15.2 50.7 21.4 27.5 32.8 12.8 12.3 R&D (0.6) 0.0 0.0 23.7 (9.3) (1.0) 24.3 (9.3) (1.0) SG&A 15.3 8.6 14.2 55.4 13.3 23.0 40.1 4.7 8.8 Operating Income N.M. 51.4 69.8 N.M. 332.3 82.8 133.3 280.8 13.0 Income (Loss) After Taxes N.M 9.3 62.7 N.M. 450.0 66.7 N.M. 440.7 4.0 Margins Gross Profit 50.5% 52.9% 53.1% 53.4% 51.0% 51.3% 51.4% (1.9)% (1.8)% (2.0)% R&D 21.2 18.7 17.3 15.1 17.6 13.2 10.3 (1.1) (4.1) (4.8) SG&A 29.7 30.4 30.5 30.4 30.9 29.0 28.1 0.5 (1.5) (2.4) Operating Income (0.4) 3.8 5.3 7.9 2.5 9.1 13.1 (1.3) 3.8 5.2 Income (Loss) After Taxes (1.8) 5.9 5.9 8.4 2.0 9.0 11.8 (3.9) 3.1 3.3
(a)SNI estimates for midrange server business. (b)SNI MR-Business merged with Highnoon (revised base case) with synergies. Contribution of Licensing Fees (Dollars in Millions)
FY 1992 FY 1993 FY 1994 ------------------- -------------------- -------------------- $ % $ % $ % ------- ------- ------- ------- ------- ------- Revenue - ------- Product $134.0 70% $164.8 71% $147.6 68% License 4.9 3 9.6 4 5.0 2 ------ --- ------ --- ------ --- Total Product 138.9 72 174.4 75 152.6 70 Service 53.3 28 59.3 25 65.9 30 ------ --- ------ --- ------ --- Total $192.2 100% $233.7 100% $218.9 100% Gross Profit - ------------ Product $56.7 42% $ 80.8 49% $61.4 42% License 3.4 70(a) 6.7 70(a) 3.5 70(a) ------ --- ------ --- ------ --- Total Product 60.2 43 87.5 50 64.9 43 Service 8.5 16 14.0 24 15.1 23 ------ --- ------ --- ------ --- Total $68.7 36% $101.6 43% $79.9 37%
(a) Assumed. Ownership Analysis for Highnoon (a) Warrant Not Exercised
Holder # of Shares % - -------------------------------------------- ------------- ------- Siemens Nixdorf Information Systems Inc. (b) 2,717,743 17.4% Managers and Directors (b) 582,759 3.7 Richard H. Lussier (c) 203,290 1.3 Institutional Holders College Retirement Equities Fund 479,800 3.1 Wells Fargo Institutional Trust National 290,300 1.9 Mellon Bank Corporation 234,185 1.5 Dimensional Fund Advisors 218,800 1.4 Bankers Trust Company 193,700 1.2 Bankamerica Corp. 170,000 1.1 Merrill Lynch Asset Management 103,000 0.7 Florida State Board of Administration 78,000 0.5 QCI Asset Management Inc. 71,780 0.5 Travelers Inc. 53,508 0.3 California State Teachers Retirement System 52,180 0.3 Vanguard Index-Extended Market 45,300 0.3 Merrill Lynch & Co. Inc. 37,318 0.2 American National Bank & Trust 37,000 0.2 Vanguard Index-Small Cap St. 36,100 0.2 Total Top 15 2,100,971 13.5 Other Institutional 147,549 0.9 --------- ----- Total Institutional 2,248,520 14.4 Other 10,034,943 64.4 Total 15,583,965 100.0%
(a) Source: Spectrum Institutional Ownership report, data as of September 30, 1994. (b) Source: Proxy Statement January 26, 1995. (c) Included in Managers and Directors' holdings. Ownership Analysis for Highnoon (a) Exercising the warrant would increase Siemens' ownership in Highnoon from 17.4% to 23.9% Warrant Exercised
Holder # of Shares % - ----------------------------------------------- ------------- -------- Siemens Nixdorf Information Systems Inc. (b) 4,047,743 23.9% Managers and Directors (b) 582,759 3.4 Richard H. Lussier (c) 203,290 1.2 Institutional Holders College Retirement Equities Fund 479,800 2.8 Wells Fargo Institutional Trust National 290,300 1.7 Mellon Bank Corporation 234,185 1.4 Dimensional Fund Advisors 218,800 1.3 Bankers Trust Company 193,700 1.1 Bankamerica Corp. 170,000 1.0 Merrill Lynch Asset Management 103,000 0.6 Florida State Board of Administration 78,000 0.5 QCI Asset Management Inc. 71,780 0.4 Travelers Inc. 53,508 0.3 California State Teachers Retirement System 52,180 0.3 Vanguard Index-Extended Market 45,300 0.3 Merrill Lynch & Co. Inc. 37,318 0.2 American National Bank & Trust 37,000 0.2 Vanguard Index-Small Cap St. 36,100 0.2 Total Top 15 2,100,971 12.4 Other Institutional 147,549 0.9 ---------- ----- Total Institutional 2,248,520 13.3 Other 10,034,943 59.3 Total 16,913,965 100.0%
(a) Source: Spectrum Institutional Ownership report, data as of September 30, 1994. (b) Source: Proxy Statement January 26, 1995. (c) Included in Managers and Directors' holdings. Options Stock Option Analysis - as of 12/16/94
Number Outstanding Value Outstanding Outstanding Outstanding Options - Cumulative Cumulative Options - Cumulative Cumulative Price Number % of Total % of Total % of Total Strike Value % of Total % of Total % of Total - --------------------------------------------------------------------------------------------------------------------------------- $ 1.313 463 0.0% 0.0% 100.0% $ 608 0.0% 0.0% 100.0% 5.000 16,358 0.6% 0.6% 100.0% 81,790 0.2% 0.2% 100.0% 6.500 4,938 0.2% 0.7% 99.4% 32,097 0.1% 0.3% 99.8% 6.625 19,600 0.7% 1.4% 99.3% 129,850 0.3% 0.6% 99.7% 7.125 25,000 0.8% 2.2% 98.6% 178,125 0.4% 1.1% 99.4% 7.750 364,982 12.3% 14.6% 97.8% 2,828,611 7.1% 8.2% 98.9% 8.500 56,830 1.9% 16.5% 85.4% 483,055 1.2% 9.4% 91.8% 8.875 314,300 10.6% 27.1% 83.5% 2,789,413 7.0% 16.4% 90.6% 9.375 18,500 0.5% 27.7% 72.9% 173,438 0.4% 16.8% 83.6% 10.250 104,126 3.5% 31.3% 72.3% 1,067,292 2.7% 19.5% 83.2% 10.500 6,944 0.2% 31.5% 68.7% 72,912 0.2% 19.7% 80.5% 11.000 87,500 3.0% 34.5% 68.5% 962,500 2.4% 22.1% 80.3% 11.250 6,411 0.2% 34.7% 65.5% 72,124 0.2% 22.3% 77.9% 11.750 900 0.0% 34.7% 65.3% 10,575 0.0% 22.3% 77.7% 12.000 11,152 0.4% 35.1% 65.3% 133,824 0.3% 22.6% 77.7% 12.875 70,250 2.4% 37.5% 64.9% 904,469 2.3% 24.9% 77.4% 13.250 63,487 2.1% 39.6% 62.5% 841,203 2.1% 27.0% 75.1% 13.500 3,000 0.1% 39.7% 60.4% 40,500 0.1% 27.1% 73.0% 14.250 15,645 0.5% 40.2% 60.3% 222,941 0.6% 27.7% 72.9% 14.500 45,374 1.5% 41.8% 59.8% 657,923 1.7% 29.3% 72.3% 14.625 14,000 0.5% 42.2% 58.2% 204,750 0.5% 29.8% 70.7% 14.750 793,021 26.8% 69.0% 57.8% 11,697,060 29.3% 59.2% 70.2% 14.875 10,500 0.4$ 69.4% 31.0% 156,188 0.4% 59.6% 40.8% 15.000 20,000 0.7% 70.1% 30.6% 300,000 0.8% 60.3% 40.4% 15.250 2,500 0.1% 70.1% 29.9% 38,125 0.1% 60.4% 39.7% 15.500 8,975 0.3% 70.4% 29.9% 139,113 0.3% 60.8% 39.6% 15.750 25,271 0.9% 71.3% 29.6% 398,018 1.0% 61.8% 39.2% 16.000 13,065 0.4% 71.7% 28.7% 209,040 0.5% 62.3% 38.2% 16.500 273,171 9.2% 81.0% 28.3% 4,507,322 11.3% 73.6% 37.7% 17.000 158,151 5.3% 86.3% 19.0% 2,688,567 6.7% 80.3% 26.4% 17.500 1,000 0.0% 86.4% 13.7% 17,600 0.0% 80.4% 19.7% 18.000 186,156 6.3% 92.6% 13.6% 3,350,808 8.4% 88.8% 19.6% 18.500 6,139 0.2% 92.9% 7.4% 113,572 0.3% 89.1% 11.2% 20.250 157,583 5.3% 98.2% 7.1% 3,191,056 8.0% 97.1% 10.9% 20.500 27,250 0.9% 99.1% 1.8% 558,625 1.4% 98.5% 2.9% 20.750 2,012 0.1% 99.2% 0.9% 41,749 0.1% 98.6% 1.5% 22.750 20,416 0.7% 99.9% 0.8% 464,464 1.2% 99.7% 1.4% 24.250 3,850 0.1% 100.0% 0.1% 93,363 0.2% 100.0% 0.3% 29.000 400 0.0% 100.0% 0.0% 11,600 0.0% 100.0% 0.0% Total 2,959,220 39,864,165
-------------------------------- Avg Exercise Price $ 13.47 -------------------------------- LIST OF OTHER POTENTIAL BUYERS A List Rationale - ------------------------- --------------------------------------------------- Fujitsu Joint venture in Australia with Highnoon; rumored to have been interested in Highnoon in August 1994 Silicon Graphics Good business fit Tandem Appeal of growth strategy B List - ------------------------- AT&T Compaq EDS EMC Hewlett Packard Hitachi IBM LSI Logic NEC Toshiba Western Digital LIST OF SELECTED COMPETITORS MIPS Manufacturer Intel Manufacturer MIPS Users - -------------------------- ---------------------- ------------------------- Control Data Sequent Acer Technologies IDC Stratus Deskstation Technologies LSI Logic NEC NEC NeTpower Performance Semiconductor Siemens Siemens Silicon Graphics Silicon Graphics Sony Tandem Tandem Toshiba Techtronic SUMMARY OF MERGER PLANS (Dollars in millions) Assumes IBES median EPS estimates for Highnoon, which are higher than Highnoon's or SNI's estimates. Assumes no synergies, 15 years for goodwill amortization, 34% tax rate, and 9% cost of debt. Prices and earnings estimates as of January 1, 1995.
50% Debt/ 100% Stock Silicon Graphics 100% Debt 50% Stock Pooling - ------------------------------------------------- ---------- ---------- ---------- At $15 FY 1995 Accretion/(Dilution) (14.6)% (13.0)% (7.9)% FY 1996 Accretion/(Dilution) (5.8) (5.2) (1.9) FY 1995 Pre-tax Synergies to Breakeven $ 40.3 $ 36.8 $ 23.0 FY 1996 Pre-tax Synergies to Breakeven 20.5 19.0 7.2 Total Debt to Total Capitalization 33.1% 24.9% 18.0% At $20 FY 1995 Accretion/(Dilution) (21.0)% (18.6)% (9.7)% FY 1996 Accretion/(Dilution) (10.8) (9.9) (3.8) FY 1995 Pre-tax Synergies to Breakeven $ 58.0 $ 53.1 $ 28.6 FY 1996 Pre-tax Synergies to Breakeven 38.2 36.1 14.4 Total Debt to Total Capitalization 37.1% 26.4% 18.0% 50% Debt/ 100% Stock Tandem 100% Debt 50% Stock Pooling - ------------------------------------------------- ---------- ---------- ---------- At $15 FY 1995 Accretion/(Dilution) (6.6)% (8.6)% (7.3)% FY 1996 Accretion/(Dilution) (2.7) (4.7) (3.3) FY 1995 Pre-tax Synergies to Breakeven $20.0 $27.5 $24.7 FY 1996 Pre-tax Synergies to Breakeven 7.7 14.4 10.7 Total Debt to Total Capitalization 29.1% 20.1% 12.1% At $20 FY 1995 Accretion/(Dilution) (12.5)% (14.8)% (11.1)% FY 1996 Accretion/(Dilution) (8.9) (11.2) (7.2) FY 1995 Pre-tax Synergies to Breakeven $37.7 $48.1 $38.9 FY 1996 Pre-tax Synergies to Breakeven 25.4 34.7 24.2 Total Debt to Total Capitalization 33.8% 22.1% 12.1%
Project Highnoon PRO FORMA MERGER PLANS (US Dollars in millions, except per share data)
100% Straight Debt 50% Straight Debt 100% Common Stock 50% Common Stock Seller Buyer Merger Pro Forma Merger Pro Forma Merger Pro Forma Highnoon Silicon Graphics Inc $15 per Share $15 per Share $15 per Share ------------------- -------------------- --------------------- --------------------- --------------------- Structure Purchase Purchase Pooling - --------- -------- -------- ------- Common Equity $ 0.0 0.0% $ 119.1(a) 50.0% $ 238.3(b) 100.0% Long Term Debt 238.3 100.0 119.1 50.0 0.0 0.0 Cash 0.0 0.0 0.0 0.0 0.0 0.0 -------- ----- -------- ----- -------- ----- Aggregate Consideration $ 238.3 100.0% $ 238.3 100.0% $ 238.3 100.0% ======== ===== ======== ===== ======== ===== Capitalization September 30, 1994 September 30, 1994 - -------------- ------------------- -------------------- Short Term Debt $ 1.4 1.0% $ 9.1 0.8% $ 10.6 0.7% $ 10.6 0.7% $ 10.6 0.7% Long Term Debt 1.6 1.1 231.9 19.1 471.7 32.4 352.6 24.2 233.4 17.2 ------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Debt 3.0 2.2 241.0 19.8 482.3 33.1 363.2 24.9 244.0 18.0 Convertible Preferred Stock 0.0 0.0 35.0 2.9 35.0 2.4 35.0 2.4 35.0 2.6 Common Equity 136.0 97.8 939.0 77.3 939.0 64.5 1,058.1 72.7 1,075.0 79.4 ------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Capitalization $ 139.0 100.0% $ 1,215.0 100.0% $ 1,456.3 100.0% $ 1,456.3 100.0% $ 1,354.0 100.0% ======= ===== ======== ===== ======== ===== ======== ===== ======== ===== Shares Outstanding 15,584,000 141,735,700 141,735,700 141,559,700 149,383,800 - ------------------ Cash/Market Capitalization $ 21.6 $202.6 $ 297.4 $4,416.0 $ 319.0 $4,416.0 $ 319.0 $4,535.1 $ 319.0 $4,654.2 - ---------------- Market Information 12/21/94 12/21/94 - ------------------- -------- -------- Stock Price/P/E Ratio $ 13 (325.0)x $ 31 1/8 24.9x Market Premium/ Deal P/E 15.4% (375.0)x 15.4% (375.0)x 15.4% (375.0)x Exchange Ratio 0.48x 0.48x 0.48x Seller's Ownership in Pro Forma 0.0% 2.6% 5.1% Breakdown of Book Book Book Consideration Value Consideration Value Consideration Value Consideration - --------------- ----- ------------- ----- ------------- ----- ------------- Common Equity 136.0 238.3(c)100.0 136.0 238.3(d)100.0 136.0 238.3(e)100.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total $136.0 $238.3 100.0% $136.0 $238.3 100.0% $136.0 $238.3 100.0% ===== ============ ===== ============ ===== ============ Costs After Tax(1) - --------------- Cost of Cash at 5.9% (g) $ 0.0 $ 0.0 $ 0.0 Interest on Debt $ 0.2 $ 14.3 14.2(h) $28.6 7.1(i) $21.6 0.0 $14.5 Amortization of Goodwill (j) 0.0 0.0 6.8 6.8 6.8 6.8 0.0 0.0 ----- ----- -------- ---- -------- ---- -------- ---- Total $ 0.2 $ 14.3 $ 21.0 $35.5 $ 13.9 $28.4 $ 0.0 $14.5 ===== ===== ======== ==== ======== ==== ======== ====
- ------------------------- (a) Represents 3,824,060 common shares. (b) Represents 7,648,119 common shares. (c) Based on $233.8MM paid for common plus $4.5MM for options (d) Based on $233.8MM paid for common plus $4.5MM for options (e) Based on $233.8MM paid for common plus $4.5MM for options (f) Assumes a 34.0% tax rate for 1994. (g) Cost of cash at 5.9% reflects the after tax effect of 9.0% opportunity cost. (h) Interest Expense on Debt at 5.9% reflects the after tax effect of debt at 9.0%. (i) Interest Expense on Debt at 5.9% reflects the after tax effect of debt at 9.0%. Goldman Sachs Project Highnoon PRO FORMA MERGER PLANS (US Dollars in millions, except per share data)
100% Straight Debt 50% Straight Debt 100% Common Stock 50% Common Stock Seller Buyer Merger Pro Forma Merger Pro Forma Merger Pro Forma Highnoon Silicon Graphics Inc $15 per Share $15 per Share $15 per Share ------------------- -------------------- --------------------- --------------------- --------------------- Income to Common/ Primary Shares FYE June 30(k) FYE June 30 - ---------------- ------------------- -------------------- 1994LTM $ (22.4) 13,467,000 $ 156.0 156,023,300 $ 112.7 160,023,300 $ 119.8 163,847,400 $ 133.7 167,671,400 1995E (0.6) 15,054,700 177.2 141,735,700 155.6 145,735,700 162.7 149,559,700 176.6 153,383,800 1996E 13.9 15,584,000 226.8 141,735,700 219.7 145,735,700 226.8 149,559,700 240.6 153,383,800 1997E - - - - - - - - - - 1998E - - - - - - - - - - 1999E - - - - - - - - - - Primary EPS/% Accretion/(Dilution) FYE June 30(l) FYE June 30 - -------------------- ------------------- -------------------- 1994LTM $ (1.66) $ 1.00 $ 0.70 (29.6)% $ 0.73 (26.9)% $ 0.80 (20.3)% 1995E (0.04) 1.25 1.07 (14.6) 1.09 (13.0) 1.15 (7.9) 1996E 0.89 1.60 1.51 (5.8) 1.52 (5.2) 1.57 (1.9) 1997E 1.15 - - - - - - - 1998E - - - - - - - - 1999E - - - - - - - - Pre-Tax Adjustments/Breakeven Adjustments (Primary/Fully Diluted) - ---------------------------------------------------------------- 1995E $ 0.0 $ 40.3 - $ 0.0 $ 36.8 - $ 0.0 $ 23.0 - 1996E 0.0 20.5 - 0.0 19.0 - 0.0 7.2 - 1997E 0.0 - - 0.0 - - 0.0 - - 1998E 0.0 - - 0.0 - - 0.0 - - 1999E 0.0 - - 0.0 - - 0.0 - -
- ------------------------- (j) Positive excess cost amortized over 15.0 years. Negative excess cost amortized over 10.0 years. (k) Seller's Fiscal Data has been adjusted to match Buyer's Fiscal Year End. (l) Seller's Fiscal Data has been adjusted to match Buyer's Fiscal Year End. Goldman Sachs Project Highnoon PRO FORMA MERGER PLANS (US Dollars in millions, except per share data)
100% Straight Debt 50% Straight Debt 100% Common Stock 50% Common Stock Seller Buyer Merger Pro Forma Merger Pro Forma Merger Pro Forma Highnoon Silicon Graphics Inc $20 per Share $20 per Share $20 per Share ------------------- -------------------- --------------------- --------------------- --------------------- Structure Purchase Purchase Pooling - --------- -------- -------- ------- Common Equity $ 0.0 0.0% $ 165.5(a) 50.0% $ 331.0(b) 100.0% Long Term Debt 331.0 100.0 165.5 50.0 0.0 0.0 Cash 0.0 0.0 0.0 0.0 0.0 0.0 -------- ----- -------- ----- -------- ----- Aggregate Consideration $ 331.0 100.0% $ 331.0 100.0% $ 331.0 100.0% ======== ===== ======== ===== ======== ===== Capitalization September 30, 1994 September 30, 1994 - -------------- ------------------- -------------------- Short Term Debt $ 1.4 1.0% $ 9.1 0.8% $ 10.6 0.7% $ 10.6 0.7% $ 10.6 0.8% Long Term Debt 1.6 1.1 231.9 19.1 564.4 36.4 398.9 25.8 233.4 17.2 ------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Debt 3.0 2.2 241.0 19.8 575.0 37.1 409.5 26.4 244.0 18.0 Convertible Preferred Stock 0.0 0.0 35.0 2.9 35.0 2.3 35.0 2.3 35.0 2.6 Common Equity 136.0 97.8 939.0 77.3 939.0 60.6 1,104.5 71.3 1,075.0 79.4 ------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Capitalization $ 139.0 100.0% $ 1,215.0 100.0% $ 1,549.0 100.0% $ 1,549.0 100.0% $ 1,354.0 100.0% ======= ===== ======== ===== ======== ===== ======== ===== ======== ===== Shares Outstanding 15,584,000 141,735,700 141,735,700 147,047,700 152,359,600 - ------------------ Cash/Market Capitalization $ 21.6 $202.6 $ 297.4 $4,416.0 $ 319.0 $4,416.0 $ 319.0 $4,581.5 $ 319.0 $4,747.0 - ---------------- Market Information 12/21/94 12/21/94 - ------------------- -------- -------- Stock Price/P/E Ratio $ 13 (325.0)x $ 31 1/8 24.9x Market Premium/ Deal P/E 53.8% (500.0)x 53.8% (500.0)x 53.8% (500.0)x Exchange Ratio 0.64x 0.64x 0.64x Seller's Ownership in Pro Forma 0.0% 3.6% 7.0% Breakdown of Book Book Book Consideration Value Consideration Value Consideration Value Consideration - --------------- ----- ------------- ----- ------------- ----- ------------- Common Equity 136.0 331.0(c)100.0 136.0 331.0(d)100.0 136.0 331.0(e)100.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total $136.0 $331.0 100.0% $136.0 $331.0 100.0% $136.0 $331.0 100.0% ===== ============ ===== ============ ===== ============ Costs After Tax(f) - --------------- Cost of Cash at 5.9% (g) $ 0.0 $ 0.0 $ 0.0 Interest on Debt $ 0.2 $ 14.3 19.7(h) $34.2 9.8(i) $24.3 0.0 $14.5 Amortization of Goodwill (j) 0.0 0.0 13.0 13.0 13.0 13.0 0.0 0.0 ----- ----- -------- ---- -------- ---- -------- ---- Total $ 0.2 $ 14.3 $ 32.7 $47.2 $ 22.8 $37.3 $ 0.0 $14.5 ===== ===== ======== ==== ======== ==== ======== ====
- ------------------------- (a) Represents 5,311,976 common shares. (b) Represents 10,623,952 common shares. (c) Based on $311.7MM paid for common plus $19.3MM for options. (d) Based on $311.7MM paid for common plus $19.3MM for options. (e) Based on $311.7MM paid for common plus $19.3MM for options. (f) Assumes a 34.0% tax rate for 1994. (g) Cost of cash at 5.9% reflects the after tax effect of 9.0% opportunity cost. (h) Interest Expense on Debt at 5.9% reflects the after tax effect of debt at 9.0%. (i) Interest Expense on Debt at 5.9% reflects the after tax effect of debt at 9.0%. Goldman Sachs Project Highnoon PRO FORMA MERGER PLANS (US Dollars in millions, except per share data)
100% Straight Debt 50% Straight Debt 100% Common Stock 50% Common Stock Seller Buyer Merger Pro Forma Merger Pro Forma Merger Pro Forma Highnoon Silicon Graphics Inc $20 per Share $20 per Share $20 per Share ------------------- -------------------- --------------------- --------------------- --------------------- Income to Common/ Primary Shares FYE June 30(k) FYE June 30 - ---------------- ------------------- -------------------- 1994LTM $ (22.4) 13,467,000 $ 156.0 156,023,300 $ 101.0 160,023,300 $ 110.8 163,335,300 $ 133.7 170,647,200 1995E (0.6) 15,054,700 177.2 141,735,700 143.9 145,735,700 153.7 151,047,700 176.6 156,359,600 1996E 13.9 15,584,000 226.8 141,735,700 208.0 145,735,700 217.8 151,047,700 240.6 156,359,600 1997E - - - - - - - - - - 1998E - - - - - - - - - - 1999E - - - - - - - - - - Primary EPS/% Accretion/(Dilution) FYE June 30(l) FYE June 30 - -------------------- ------------------- -------------------- 1994LTM $ (1.66) $ 1.00 $ 0.63 (36.9)% $ 0.67 (33.0)% $ 0.78 (21.7)% 1995E (0.04) 1.25 0.99 (21.0) 1.02 (18.6) 1.13 (9.7) 1996E 0.89 1.60 1.43 (10.8) 1.44 (9.9) 1.54 (3.8) 1997E 1.15 - - - - - - - 1998E - - - - - - - - 1999E - - - - - - - - Pre-Tax Adjustments/Breakeven Adjustments (Primary/Fully Diluted) - ---------------------------------------------------------------- 1995E $ 0.0 $ 58.0 - $ 0.0 $ 53.1 - $ 0.0 $ 28.6 - 1996E 0.0 38.2 - 0.0 36.1 - 0.0 14.4 - 1997E 0.0 - - 0.0 - - 0.0 - - 1998E 0.0 - - 0.0 - - 0.0 - - 1999E 0.0 - - 0.0 - - 0.0 - -
- ------------------------- (j) Positive excess cost amortized over 15.0 years. Negative excess cost amortized over 10.0 years. (k) Seller's Fiscal Data has been adjusted to match Buyer's Fiscal Year End. (l) Seller's Fiscal Data has been adjusted to match Buyer's Fiscal Year End. Goldman Sachs Project Highnoon PRO FORMA MERGER PLANS (US Dollars in millions, except per share data)
100% Straight Debt 50% Straight Debt 100% Common Stock 50% Common Stock Seller Buyer Merger Pro Forma Merger Pro Forma Merger Pro Forma Highnoon Tandem Computers Inc $15 per Share $15 per Share $15 per Share ------------------- -------------------- --------------------- --------------------- --------------------- Structure Purchase Purchase Pooling - --------- -------- -------- ------- Common Equity $ 0.0 0.0% $ 119.1(a) 50.0% $ 238.3(b) 100.0% Long Term Debt 238.3 100.0 119.1 50.0 0.0 0.0 Cash 0.0 0.0 0.0 0.0 0.0 0.0 -------- ----- -------- ----- -------- ----- Aggregate Consideration $ 238.3 100.0% $ 238.3 100.0% $ 238.3 100.0% ======== ===== ======== ===== ======== ===== Capitalization September 30, 1994 September 30, 1994 - -------------- ------------------- -------------------- Short Term Debt $ 1.4 1.0% $ 58.1 5.4% $ 59.6 4.5% $ 59.6 4.5% $ 59.6 4.9% Long Term Debt 1.6 1.1 86.5 8.0 326.3 24.6 207.2 15.6 88.0 7.2 ------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Debt 3.0 2.2 144.6 13.3 385.9 29.1 266.7 20.1 147.6 12.1 Common Equity 136.0 97.8 938.8 86.7 938.8 70.9 1,058.0 79.9 1,074.9 87.9 ------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Capitalization $ 139.0 100.0% $ 1,083.4 100.0% $ 1,324.7 100.0% $ 1,324.7 100.0% $ 1,222.5 100.0% ======= ===== ======== ===== ======== ===== ======== ===== ======== ===== Shares Outstanding 15,584,000 114,628,100 114,628,100 121,585,400 128,542,600 - ------------------ Cash/Market Capitalization $ 21.6 $202.6 $ 124.0 $1,963.0 $ 145.6 $1,963.0 $ 145.6 $2,082.1 $ 145.6 $2,201.3 - ---------------- Market Information 12/21/94 12/21/94 - ------------------- -------- -------- Stock Price/P/E Ratio $ 13 28.0x $ 17 1/8 9.9x Market Premium/ Deal P/E 15.4% 30.0x 15.4% 30.0x 15.4% 30.0x Exchange Ratio 0.68x 0.88x 0.88x Seller's Ownership in Pro Forma 0.0% 5.7% 10.8% Breakdown of Book Book Book Consideration Value Consideration Value Consideration Value Consideration - --------------- ----- ------------- ----- ------------- ----- ------------- Common Equity 136.0 238.3(c)100.0 136.0 238.3(d)100.0 136.0 238.3(e)100.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total $136.0 $238.3 100.0% $136.0 $238.3 100.0% $136.0 $238.3 100.0% ===== ============ ===== ============ ===== ============ Costs After Tax(f) - --------------- Cost of Cash at 5.9% (g) $ 0.0 $ 0.0 $ 0.0 Interest on Debt $ 0.2 $ 8.6 14.2(h) $22.9 7.1(i) $15.8 0.0 $ 8.8 Amortization of Goodwill (j) 0.0 0.4 6.8 7.3 6.8 7.3 0.0 0.4 ----- ----- -------- ---- -------- ---- -------- ---- Total $ 0.2 $ 9.0 $ 21.0 $30.2 $ 13.9 $23.1 $ 0.0 $ 9.2 ===== ===== ======== ==== ======== ==== ======== ====
- ------------------------- (a) Represents 6,957,287 common shares. (b) Represents 13,914,574 common shares. (c) Based on $233.8MM paid for common plus $4.5MM for options. (d) Based on $233.8MM paid for common plus $4.5MM for options. (e) Based on $233.8MM paid for common plus $4.5MM for options. (f) Assumes a 34.0% tax rate for 1994. (g) Cost of cash at 5.9% reflects the after tax effect of 9.0% opportunity cost. (h) Interest Expense on Debt at 5.9% reflects the after tax effect of debt at 9.0%. (i) Interest Expense on Debt at 5.9% reflects the after tax effect of debt at 9.0%. Goldman Sachs Project Highnoon PRO FORMA MERGER PLANS (US Dollars in millions, except per share data)
100% Straight Debt 50% Straight Debt 100% Common Stock 50% Common Stock Seller Buyer Merger Pro Forma Merger Pro Forma Merger Pro Forma Highnoon Tandem Computers Inc $15 per Share $15 per Share $15 per Share ------------------- -------------------- --------------------- --------------------- --------------------- Income to Common/ Primary Shares FYE September 30(k) FYE September 30 - ---------------- ------------------- -------------------- 1994LTM $ (22.4) 13,467,000 $ 170.2 113,449,000 $ 126.8 113,449,000 $ 133.9 120,406,300 $ 147.8 127,363,600 1995E 7.8 15,584,000 198.3 114,628,100 185.1 114,628,100 192.2 121,585,400 206.1 128,542,600 1996E 15.9 15,584,000 189.1 114,628,100 184.1 114,628,100 191.1 121,585,400 205.0 128,542,600 1997E - - - - - - - - - - 1998E - - - - - - - - - - 1999E - - - - - - - - - - Primary EPS/% Accretion/(Dilution) FYE September 30(l) FYE September 30 - -------------------- ------------------- -------------------- 1994LTM $ (1.66) $ 1.50 $ 1.12 (25.5)% $ 1.11 (25.8)% $ 1.16 (22.6)% 1995E 0.50 1.73 1.62 (6.6) 1.58 (8.6) 1.60 (7.3) 1996E 1.02 1.65 1.61 (2.7) 1.57 (4.7) 1.60 (3.3) 1997E 1.19 - - - - - - - 1998E - - - - - - - - 1999E - - - - - - - - Pre-Tax Adjustments/Breakeven Adjustments (Primary/Fully Diluted) - ---------------------------------------------------------------- 1995E $ 0.0 $ 20.0 - $ 0.0 $ 27.5 - $ 0.0 $ 24.7 - 1996E 0.0 7.7 - 0.0 14.4 - 0.0 10.7 - 1997E 0.0 - - 0.0 - - 0.0 - - 1998E 0.0 - - 0.0 - - 0.0 - - 1999E 0.0 - - 0.0 - - 0.0 - -
- ------------------------- (j) Positive excess cost amortized over 15.0 years. Negative excess cost amortized over 10.0 years. (k) Seller's Fiscal Data has been adjusted to match Buyer's Fiscal Year End. (l) Seller's Fiscal Data has been adjusted to match Buyer's Fiscal Year End. Goldman Sachs Project Highnoon PRO FORMA MERGER PLANS (US Dollars in millions, except per share data)
100% Straight Debt 50% Straight Debt 100% Common Stock 50% Common Stock Seller Buyer Merger Pro Forma Merger Pro Forma Merger Pro Forma Highnoon Tandem Computers Inc $20 per Share $20 per Share $20 per Share ------------------- -------------------- --------------------- --------------------- --------------------- Structure Purchase Purchase Pooling - --------- -------- -------- ------- Common Equity $ 0.0 0.0% $ 165.5(a) 50.0% $ 331.0(b) 100.0% Long Term Debt 331.0 100.0 165.5 50.0 0.0 0.0 Cash 0.0 0.0 0.0 0.0 0.0 0.0 -------- ----- -------- ----- -------- ----- Aggregate Consideration $ 331.0 100.0% $ 331.0 100.0% $ 331.0 100.0% ======== ===== ======== ===== ======== ===== Capitalization September 30, 1994 September 30, 1994 - -------------- ------------------- -------------------- Short Term Debt $ 1.4 1.0% $ 58.1 5.4% $ 59.6 4.2% $ 59.6 4.2% $ 59.6 4.9% Long Term Debt 1.6 1.1 86.5 8.0 419.0 29.6 253.5 17.9 88.0 7.2 ------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Debt 3.0 2.2 144.6 13.3 478.6 33.8 313.1 22.1 147.6 12.1 Common Equity 136.0 97.8 938.8 86.7 938.8 66.2 1,104.3 77.9 1,074.9 87.9 ------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Capitalization $ 139.0 100.0% $ 1,083.4 100.0% $ 1,417.4 100.0% $ 1,417.4 100.0% $ 1,222.5 100.0% ======= ===== ======== ===== ======== ===== ======== ===== ======== ===== Shares Outstanding 15,584,000 114,628,100 114,628,100 124,292,400 133,956,700 - ------------------ Cash/Market Capitalization $ 21.6 $202.6 $ 124.0 $1,963.0 $ 145.6 $1,963.0 $ 145.6 $2,128.5 $ 145.6 $2,294.0 - ---------------- Market Information 12/21/94 12/22/94 - ------------------- -------- -------- Stock Price/P/E Ratio $ 13 26.0x $ 17 1/8 9.9x Market Premium/ Deal P/E 53.8% 40.0x 53.8% 40.0x 53.8% 40.0x Exchange Ratio 1.17x 1.17x 1.17x Seller's Ownership in Pro Forma 0.0% 7.8% 14.4% Breakdown of Book Book Book Consideration Value Consideration Value Consideration Value Consideration - --------------- ----- ------------- ----- ------------- ----- ------------- Common Equity 136.0 331.0(c)100.0 136.0 331.0(d)100.0 136.0 331.0(e)100.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total $136.0 $331.0 100.0% $136.0 $331.0 100.0% $136.0 $331.0 100.0% ===== ============ ===== ============ ===== ============ Costs After Tax(f) - --------------- Cost of Cash at 5.9% (g) $ 0.0 $ 0.0 $ 0.0 Interest on Debt $ 0.2 $ 8.6 19.7(h) $28.4 9.8(i) $18.6 0.0 $ 8.8 Amortization of Goodwill (j) 0.0 0.4 13.0 13.4 13.0 13.4 0.0 0.4 ----- ----- -------- ---- -------- ---- -------- ---- Total $ 0.2 $ 9.0 $ 32.7 $41.9 $ 22.8 $32.0 $ 0.0 $ 9.2 ===== ===== ======== ==== ======== ==== ======== ====
- ------------------------- (a) Represents 9,664,322 common shares. (b) Represents 19,328,644 common shares. (c) Based on $311.7MM paid for common plus $19.3MM for options. (d) Based on $311.7MM paid for common plus $19.3MM for options. (e) Based on $311.7MM paid for common plus $19.3MM for options. (f) Assumes a 34.0% tax rate for 1994. (g) Cost of cash at 5.9% reflects the after tax effect of 9.0% opportunity cost. (h) Interest Expense on Debt at 5.9% reflects the after tax effect of debt at 9.0%. (i) Interest Expense on Debt at 5.9% reflects the after tax effect of debt at 9.0%. Goldman Sachs Project Highnoon PRO FORMA MERGER PLANS (US Dollars in millions, except per share data)
100% Straight Debt 50% Straight Debt 100% Common Stock 50% Common Stock Seller Buyer Merger Pro Forma Merger Pro Forma Merger Pro Forma Highnoon Tandem Computers Inc $20 per Share $20 per Share $20 per Share ------------------- -------------------- --------------------- --------------------- --------------------- Income to Common/ Primary Shares FYE September 30(k) FYE September 30 - ---------------- ------------------- -------------------- 1994LTM $ (22.4) 13,467,000 $ 170.2 113,449,000 $ 115.2 113,449,000 $ 125.0 123,113,300 $ 147.8 132,777,600 1995E 7.8 15,584,000 198.3 114,628,100 173.4 114,628,100 183.3 124,292,400 206.1 133,956,700 1996E 15.9 15,584,000 189.1 114,628,100 172.4 114,628,100 182.2 124,292,400 205.0 133,956,700 1997E - - - - - - - - - - 1998E - - - - - - - - - - 1999E - - - - - - - - - - Primary EPS/% Accretion/(Dilution) FYE September 30(l) FYE September 30 - -------------------- ------------------- -------------------- 1994LTM $ (1.66) $ 1.50 $ 1.02 (32.3)% $ 1.02 (32.3)% $ 1.11 (25.8)% 1995E 0.50 1.73 1.51 (12.5) 1.47 (14.8) 1.54 (11.1) 1996E 1.02 1.65 1.50 (8.9) 1.47 (11.2) 1.53 (7.2) 1997E 1.19 - - - - - - - 1998E - - - - - - - - 1999E - - - - - - - - Pre-Tax Adjustments/Breakeven Adjustments (Primary/Fully Diluted) - ---------------------------------------------------------------- 1995E $ 0.0 $ 37.7 - $ 0.0 $ 48.1 - $ 0.0 $ 38.9 - 1996E 0.0 25.4 - 0.0 34.7 - 0.0 24.2 - 1997E 0.0 - - 0.0 - - 0.0 - - 1998E 0.0 - - 0.0 - - 0.0 - - 1999E 0.0 - - 0.0 - - 0.0 - -
- ------------------------- (j) Positive excess cost amortized over 15.0 years. Negative excess cost amortized over 10.0 years. (k) Seller's Fiscal Data has been adjusted to match Buyer's Fiscal Year End. (l) Seller's Fiscal Data has been adjusted to match Buyer's Fiscal Year End. Goldman Sachs Project Highnoon Analysis at Various Prices (US Dollars in millions, except per share data) Consideration Per Share $ 10.00 $ 12.00 $ 14.00 $ 16.00 $ 18.00 $ 20.00 $ 22.00 $ 24.00 $ 26.00 - ----------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Aggregate Consideration(a) $ 155.8 $ 187.0 $ 219.7 $ 256.8 $ 293.9 $ 331.0 $ 368.1 $ 405.2 $ 442.3 - -------------------------- Levered Consideration(b) $ 137.3 $ 168.5 $ 201.2 $ 238.3 $ 275.4 $ 312.4 $ 349.5 $ 386.6 $ 423.7 - ------------------------ Premium Over Market Price Per Share - ----------------------------------- December 30, 1994 $ 13.00 -23.1% -7.7% 7.7% 23.1% 38.5% 53.8% 69.2% 84.6% 100.0% Multiple of Revenue (Levered) - ----------------------------- 1993 $ 233.7 0.6x 0.7x 0.9x 1.0x 1.2x 1.3x 1.5x 1.7x 1.8x 1994 218.5 0.6 0.8 0.9 1.1 1.3 1.4 1.6 1.8 1.9 1995E 271.0 0.5 0.6 0.7 0.9 1.0 1.2 1.3 1.4 1.6 1996E 336.8 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.3 Multiple of EBIT (Levered) - -------------------------- 1993 $ 9.3 14.7x 18.0x 21.6x 25.5x 29.6x 33.5x 37.4x 41.4x 45.4x 1994 -19.3 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 1995E 4.5 30.7 37.7 45.0 53.3 61.6 69.9 78.2 86.5 94.8 1996E 17.8 7.8 9.6 11.4 13.5 15.7 17.8 19.9 22.0 24.1 Multiple of Earnings Per Share - ------------------------------ 1993 $ 0.67 14.9x 17.9x 20.9x 23.9x 26.9x 29.9x 32.8x 35.8x 38.8x 1994 -1.66 N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. 1995E 0.35 28.6 34.3 40.0 45.7 51.4 57.1 62.9 68.6 74.3 1996E 0.80 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0 32.5 Premium Over Tangible Book Value Per Share - ------------------------------------------ September 30, 1994 $ 8.74 14.4% 37.3% 60.2% 83.1% 106.0% 128.9% 151.7% 174.6% 197.5% Aggregate Goodwill Per Share(c) $ 1.27 $ 3.27 $ 5.37 $ 7.75 $ 10.13 $ 12.51 $ 14.69 $ 17.27 $ 19.65 - ------------------------------- Transaction Costs Per Share(d) - ------------------------------ Interest Expense(s) $ 1.00 $ 1.20 $ 1.41 $ 1.65 $ 1.89 $ 2.12 $ 2.36 $ 2.60 $ 2.84 Purchase Accounting Adjustments(f) 0.08 0.22 0.36 0.52 0.68 0.83 0.99 1.15 1.31 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Transaction Costs $ 1.08 $ 1.42 $ 1.77 $ 2.16 $ 2.56 $ 2.96 $ 3.35 $ 3.75 $ 4.15 ======== ======== ======== ======== ======== ======== ======== ======== ========
- ---------- (a) Based on 15,683,965 shares outstanding on 9/30/94 and 2,959,220 options with an average exercise price of $13.47. (b) Aggregate Consideration plus Debt and Preferred Outstanding minus Cash and Equivalents. (c) Aggregate Consideration minus Tangible Book Value of $136.OMM. (d) Based on Aggregate Consideration and 15,583,965 shares outstanding. (e) Assumes a 0.0% tax rate and an interest rate of 10.0%. (f) Estimated. Assumes positive excess cost is amortized over 15 years. Goldman Sachs EXHIBIT 99(c)(2) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COMMON STOCK AND WARRANT PURCHASE AGREEMENT dated as of August 21, 1994 by and between PYRAMID TECHNOLOGY CORPORATION and SIEMENS NIXDORF INFORMATION SYSTEMS, INC. TABLE OF CONTENTS Page ---- SECTION 1 - SALE OF COMMON STOCK AND WARRANT..................... 1 1.1 Sale of Common Stock and Warrant..................... 1 1.2 Closing Date......................................... 1 1.3 Delivery............................................. 1 1.4 Legend............................................... 1 SECTION 2 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY........ 2 2.1 Organization......................................... 2 2.2 Capitalization....................................... 3 2.3 Authorization........................................ 4 2.4 No Conflict.......................................... 5 2.5 Accuracy of Reports.................................. 5 2.6 Financial Statements and Changes..................... 6 2.7 Consents, etc........................................ 7 2.8 Amendment to Rights Agreement........................ 7 2.9 Intellectual Property Rights......................... 8 2.10 Litigation........................................... 9 2.11 Taxes................................................ 9 2.12 Agreements........................................... 10 2.13 Compliance........................................... 11 2.14 Disclosure........................................... 11 2.15 Certain Transactions................................. 12 2.16 Insurance............................................ 12 2.17 Definitions.......................................... 12 SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...... 12 3.1 Investment........................................... 12 3.2 Organization......................................... 13 3.3 Authority............................................ 13 3.4 Government Consents, etc............................. 13 3.5 Investigation........................................ 14 3.6 Financing............................................ 14 SECTION 4 - CONDITIONS TO OBLIGATIONS OF THE PURCHASER........... 14 4.1 Representations and Warranties Correct............... 14 4.2 Covenants............................................ 14 4.3 Opinion of Company's Counsel......................... 14 4.4 No Order Pending..................................... 14 4.5 HSR Act.............................................. 14 4.6 No Law Prohibiting or Restricting Such Sale.......... 15 4.7 Compliance Certificate............................... 15 4.8 Technology Agreement................................. 15 4.9 Registration Rights Agreement........................ 15 -i- TABLE OF CONTENTS (continued) 4.10 Material Adverse Change.............................. 15 4.11 Corporate Authorizations............................. 15 SECTION 5 - CONDITIONS TO OBLIGATIONS OF COMPANY................. 16 5.1 Representations and Warranties Correct............... 16 5.2 Covenants............................................ 16 5.3 No Order Pending..................................... 16 5.4 HSR Act.............................................. 16 5.5 No Law prohibiting or Restricting Such Sale.......... 16 5.6 Compliance Certificate............................... 17 5.7 Technology Agreement................................. 17 5.8 Registration Rights Agreement........................ 17 SECTION 6 - COVENANTS OF THE COMPANY............................. 17 6.1 Sale of Additional Shares............................ 17 6.2 Membership on the Board of Directors................. 17 6.3 Information Rights................................... 18 6.4 Access to Records.................................... 19 6.5 Affirmative Covenants................................ 19 6.6 Three-Year Business Plan............................. 19 6.7 Emergency Business Plan.............................. 19 SECTION 7 - COVENANTS OF THE PURCHASER........................... 20 7.1 Limitation on Ownership of Voting Stock.............. 20 7.2 Voting............................................... 21 7.3 Voting Trust, etc.................................... 22 7.4 Solicitation of Proxies.............................. 22 7.5 Acts in Concert with Others.......................... 22 7.6 Restrictions on Transfer of Voting Stock............. 22 7.7 Confidential Information............................. 23 7.8 Right to Maintain.................................... 24 7.9 Acquisition of Stock................................. 27 7.10 Termination of Certain Sections...................... 28 7.11 Further Termination.................................. 28 7.12 Repurchase Option.................................... 28 SECTION 8 - COMPANY RIGHT OF FIRST REFUSAL....................... 28 8.1 Right of First Refusal............................... 28 8.2 Tender Offer Sale.................................... 29 8.3 Assignment of Rights................................. 31 8.4 Termination.......................................... 31 -ii- TABLE OF CONTENTS (continued) SECTION 9 - INDEMNIFICATION...................................... 31 9.1 Survival of Representations and Warranties........... 31 9.2 Obligation to Indemnify.............................. 31 9.3 Notice and Opportunity to Defend..................... 32 SECTION 10 - MISCELLANEOUS....................................... 33 10.1 Certain Definitions.................................. 33 10.2 Termination of Agreement............................. 35 10.3 Effect of Termination................................ 35 10.4 Best Efforts......................................... 35 10.5 Governing Law........................................ 36 10.6 Successors and Assigns............................... 36 10.7 Entire Agreement; Amendment.......................... 37 10.8 Notices.............................................. 37 10.9 Brokers.............................................. 38 10.10 Severability......................................... 38 10.11 Injunctive Relief.................................... 38 10.12 Attorneys' Fees...................................... 39 10.13 Costs and Expenses................................... 39 10.14 No Third Party Rights................................ 39 10.15 Publicity............................................ 39 10.16 Counterparts......................................... 39 -iii- COMMON STOCK AND WARRANT PURCHASE AGREEMENT THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") is dated as of August 21, 1994, by and between Pyramid Technology Corporation, a Delaware corporation (the "Company") and Siemens Nixdorf Information Systems, Inc., a Massachusetts corporation (the "Purchaser"). SECTION 1 SALE OF COMMON STOCK AND WARRANT 1.1 Sale of Common Stock and Warrant. Subject to the terms and conditions -------------------------------- hereof, the Company will issue and sell to the Purchaser, and the Purchaser will purchase from the Company, at the Closing (as defined below), for an aggregate purchase price of $17,250,000 (i) 2,000,000 shares (the "Shares") of the Company's common stock, $.01 par value (the "Common Stock"), and (ii) a warrant to purchase up to 1,330,000 shares of Common Stock (the "Warrant Shares") at an exercise price of $10.00 per share and on such other terms and conditions as are specified in substantially the form of warrant attached as Exhibit A hereto (the --------- "Warrant"). 1.2 Closing Date. The closing of the purchase and sale of the Shares and ------------ the Warrant (the "Closing") shall be held at the law offices of Wilson, Sonsini, Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California at 10:00 a.m. not later than the third business day following expiration or early termination of all waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and satisfaction of all closing conditions set forth in Sections 4 and 5 hereof or at such other time and place upon which the Company and the Purchaser shall mutually agree (the date of the Closing is hereinafter referred to as the "Closing Date"). 1.3 Delivery. At the Closing, the Company will deliver to the Purchaser -------- (i) a certificate registered in the name of the Purchaser representing the Shares, against payment of the purchase price of $17,250,000 therefor by check payable to the order of the Company or by wire transfer in same day funds to the Company's account, (ii) the duly executed Warrant, and (iii) all documents and certificates required to be delivered under Section 4 of this Agreement. 1.4 Legend. The certificate for the Shares and the Warrant shall be ------ subject in each case to a legend restricting transfer under the Securities Act of 1933, as amended (the "Securities Act"), and referring to restrictions on transfer and rights of first refusal herein, such legend to be substantially as follows: "The securities represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933. Such securities may not be sold or transferred in the absence of such registration or an exemption from such registration. "The securities represented by this certificate are subject to restrictions on transfer, including any sale, pledge or other hypothecation, and rights of first refusal set forth in a certain Common Stock and Warrant Purchase Agreement dated as of August 19, 1994, a copy of which may be obtained at no cost by written request made by the holder of record of this certificate to the secretary of the Company at the Company's principal executive offices." None of the Shares or the Warrant may be sold, assigned, transferred or otherwise disposed of unless registered under the Securities Act of 1933, as amended (the "Securities Act"), or unless an exemption from such registration is available and perfected. SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as disclosed in the disclosure statement dated the date hereof (the "Disclosure Schedule"), delivered in connection with this Agreement, the Company hereby represents and warrants to the Purchaser as follows: 2.1 Organization. The Company is a corporation duly organized and validly ------------ existing under the laws of the State of Delaware and is in good standing under such laws. The Company has all requisite corporate power and authority to own, lease and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction in which the ownership of its property or the nature of its business requires such qualification, except where failure to so qualify would not have a material adverse effect on the Company or any of its Subsidiaries, their condition (financial or otherwise), their results of operations, their assets, their liabilities or their business, taken as a whole ("Material Adverse Effect"). The Company has furnished to the Purchaser true and correct copies of its Certificate of Incorporation and Bylaws, as amended to date, and will furnish true and correct copies of any amendments thereto through the term of this Agreement. -2- 2.2 Capitalization. The authorized capital stock of the Company consists -------------- of 30,000,000 shares of Common Stock, $.01 par value, of which at August 11, 1994, 13,418,189 shares were issued and outstanding. All such issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. As of August 11, 1994, the Company has duly reserved a total of 6,116,666 shares of its Common Stock for issuance under its Amended 1982 Incentive Stock Option Plan, of which 2,670,788 shares are duly reserved for issuance upon exercise of outstanding options; a total of 400,000 shares for issuance under its Executive Officers Nonstatutory Stock Option Plan, of which 20,313 shares are duly reserved for issuance upon exercise of outstanding options; a total of 160,000 shares for issuance under its Amended and Restated Directors' Option Plan, of which 99,500 shares are duly reserved for issuance upon exercise of outstanding options; and a total of 1,150,000 shares for issuance under its 1987 Employee Stock Purchase Plan. On December 8, 1988, the Company entered into a Common Shares Rights Agreement (the "Rights Agreement") with Bank of America, NT & SA, and has announced the distribution of rights under the Rights Agreement to all stockholders of record as of January 17, 1989. In addition, effective upon the Closing, the Company has duly authorized the reservation of such number of shares of Common Stock as shall be necessary to provide for the exercise of the Warrant. Except as provided or described in this Agreement, there are no other options, warrants, conversion privileges, convertible securities or other contractual rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of any of the Company's capital stock or other securities. Schedule 2.2 to the Disclosure Statement identifies, assuming the consummation at the Closing of the transactions contemplated hereby (1) to the best of the Company's knowledge, based upon filings pursuant to Section 13(g) of the Securities Exchange Act of 1934 (the "Exchange Act") received by the Company as of December 31, 1993, and based upon filings pursuant to Section 13(d) of the Exchange Act received as of the date hereof, each record and beneficial owner of 5% or more of the outstanding Common Stock, including the name, address and number of shares of Common Stock held by each such holder. Except as provided in this Agreement, immediately prior to the Closing there were, and upon the Closing there will be, no preemptive or similar rights to purchase or otherwise acquire shares of Voting Stock of the Company or its Subsidiaries pursuant to any provision of law, the Certificates of Incorporation or By-laws of the Company, in each case as amended to the date hereof, or any agreement to which the Company is a party, or otherwise; there was, and upon the Closing there will be, no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting trust, etc.) with respect to the sale or voting of any -3- shares of the Company's Voting Stock (whether outstanding or issuable upon conversion or exercise of outstanding securities), except as contemplated by this Agreement. To the best of the Company's knowledge, the Company has not violated Section 5 of the Securities Act or any state securities or blue sky laws in connection with the issuance of any shares of Common Stock or other securities prior to or on the date hereof to the extent any such violation would have a material adverse effect on the Company or any of its Subsidiaries, taken as a whole. Subject to normal year-end adjustment and except for obligations incurred in the normal course of business that are not required to be reflected, reserved against, accrued for or otherwise disclosed on the Company's unaudited consolidated balance sheet in order for such balance sheet to fairly present the financial condition of the Company and the Subsidiaries as of July 1, 1994 in accordance with generally accepted accounting principles consistently applied, to the best of the Company's knowledge (a) the Company and the subsidiaries of the Company which are consolidated with the Company for financial accounting purposes (the "Subsidiaries") had no liabilities, obligations, payments or commitments exceeding $100,000 (whether matured or unmatured, fixed or contingent) that were not provided for on such balance sheet or described in the notes thereto and (b) all reserves established by the Company and set forth on the balance sheet were adequate in all material respects. 2.3 Authorization. The Company has all corporate right, power and ------------- authority to enter into this Agreement, the Registration Rights Agreement in substantially the form attached hereto as Exhibit B (the "Registration Rights --------- Agreement") and the Warrant and to consummate the transactions contemplated hereby and thereby. All requisite corporate and stockholder action on the part of the Company, its directors and stockholders necessary for (i) the authorization, execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Warrant by the Company, (ii) the authorization, sale, issuance and delivery of the Shares and the Warrant Shares upon exercise of the Warrant pursuant to the terms thereof, and (iii) the performance of the Company's obligations hereunder and under the Registration Rights Agreement and the Warrant have been duly authorized and taken. This Agreement and, as of the Closing, the Registration Rights Agreement and the Warrant will have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable -4- remedies, and to limitations of public policy as they may apply to Section 7 of the Registration Rights Agreement. Upon their issuance and delivery pursuant to this Agreement, the Shares will be duly authorized, validly issued, fully paid and nonassessable. Upon exercise of the Warrant in accordance with the terms thereof, the Warrant Shares will be duly authorized, validly issued, fully paid and nonassessable. The issuance and sale of the Shares, the Warrant and the Warrant Shares upon exercise of the Warrant will not give rise to any preemptive rights or rights of first refusal on behalf of any person in existence either on the date hereof or immediately prior to the Closing. 2.4 No Conflict. Subject to compliance with the HSR Act, the execution ----------- and delivery of this Agreement, the Registration Rights Agreement and the Warrant do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to the creation of any lien, security interest or encumbrance, or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit, under, any provision of (i) the Certificate of Incorporation or Bylaws of the Company or any judgment, order decree, statute, law, ordinance, rule ore regulation applicable to the Company, its properties or assets, or (ii) any mortgage, indenture, lease or other agreement or instrument, permit, concession, franchise, license, which violation under this Section 2.4(ii) would have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as a whole, or materially impair or restrict its power to perform its obligations as contemplated hereby or thereby. 2.5 Accuracy of Reports. The Company has, since September 30, 1990, filed ------------------- with the Securities and Exchange Commission ("SEC") all forms, reports and documents (collectively, the "SEC Reports") which it has been required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder. Each of the SEC Reports complied as of its filing date in all material respects with all applicable requirements of the Exchange Act. Except as subsequently disclosed or corrected in an SEC Report filed prior to the date of this Agreement, none of such SEC Reports, including, without limitation, any financial statement, schedule or footnote included therein, contained at the time filed any untrue statement of a material fact or omitted to state a material fact required to be stated therein, or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. -5- 2.6 Financial Statements and Changes. The Company's (a) unaudited -------------------------------- consolidated balance sheet as of July 1, 1994 and the related consolidated statement of income, cash flows and stockholders' equity for the interim period then ended contained in the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1994 (together with footnotes), and (b) audited consolidated balance sheets as of September 30, 1993 and 1992 and the related audited consolidated statements of income, cash flows and stockholders' equity for the fiscal years then ended contained in the Company's Annual Report on Form 10-K for the years ended September 30, 1993 and 1992 (together with footnotes) (i) comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, (ii) are in accordance with the books and records of the Company and its Subsidiaries, (iii) have been prepared in accordance with generally accepted accounting principles (except to the extent that certain footnote disclosures regarding any period may have been omitted in accordance with the applicable rules of the SEC under the Exchange Act) consistently applied except as noted therein and except, in the case of unaudited interim financial statements, for normal year-end adjustments, (iv) fairly present the consolidated financial position of the Company and its consolidated Subsidiaries as of the respective dates set forth therein and the results of operations and cash flows for the Company and its consolidated Subsidiaries for the respective fiscal periods set forth therein and (v) are true and correct in all material respects. Except as otherwise disclosed herein or in the SEC Reports, since July 1, 1994, there has been no material adverse change in the business condition (financial or otherwise), results of operations, assets, liabilities or obligations of the Company and its consolidated Subsidiaries, taken as a whole. Except as set forth on Schedule 2.6 to the Disclosure Schedule, since July 1, 1994 there has not been (a) any material adverse change in the condition (financial or otherwise), operations, results of operations, assets, liabilities, or business of the Company or any of the Subsidiaries, (b) any liabilities or obligations that involve payments or commitments in excess of $100,000 (whether contingent or otherwise) incurred by the Company or any of the Subsidiaries, other than current liabilities or obligations incurred in the ordinary course of business, (c) any assets or properties of the Company or any of the Subsidiaries having a value in excess of $100,000 individually or $250,000 in the aggregate made subject to a lien of any kind, (d) any cancellation of any debts or claims held by the Company or any of the subsidiaries, in either case having a value in excess of $100,000 individually or $250,000 in the aggregate, (e) any payment of dividends on, or otherwise distributions with respect to, or any direct or indirect redemption or acquisition of, any shares of the capital stock of the Company -6- or any of the Subsidiaries, or any agreement or commitment therefor, (f) any issuance of any stock, bonds or other securities of the Company or any of the Subsidiaries except as contemplated by this Agreement and except for the grant or exercise of options and the issuance of stock to directors, officers, employees and consultants in connection with their service to the Company and the Subsidiaries, (g) any sale, assignment, transfer or other disposition (other than in the ordinary course of business) of any tangible or intangible assets of the Company or any of the Subsidiaries, having a value in excess of $100,000 individually or $250,000 in the aggregate, (h) any loan by the Company to any officer, director, employee or stockholder of the Company or any of the Subsidiaries, or any agreement or commitment therefor other than travel advances or other advances not in excess of $2,500 as to any such person or $25,000 as to all such persons, (i) any increase, direct or indirect, in the compensation paid or payable to any officer, director, employee or agent of the Company or any of the Subsidiaries by an amount exceeding 10% of such compensation prior to such increase or (j) any change in the accounting methods or practices followed by the Company or any of the Subsidiaries or any change in depreciation policies or rates therefore adopted. 2.7 Consents, etc. No consent, approval or authorization of or ------------- designation, declaration or filing with (i) any governmental authority or (ii) any third party (pursuant to any of the Company's contracts or otherwise) which absence of such third party consent would have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as a whole, or materially impair or restrict its power to perform its obligations hereunder, on the part of the Company is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the Shares, the Warrant or the Warrant Shares upon exercise of the Warrant, or the consummation of any other transaction contemplated hereby, except the filing of such forms with the United States Department of Justice and the Federal Trade Commission as shall be required by the HSR Act and the expiration of any waiting periods thereunder and such filings as may be required to be made with the SEC and the NASD, filings or notices, if any, to be made in compliance with applicable blue sky requirements and any other filings agreed by counsel to the Company and counsel to the Purchaser to be required under applicable law. 2.8 Amendment to Rights Agreement. All necessary corporate action ----------------------------- required under the Rights Agreement to amend the Rights Agreement has been duly authorized and taken (or will have been duly authorized and taken prior to the Closing) so that the issuance of the Shares, the Warrant and the Warrant Shares upon exercise of the Warrant and any purchases by the Purchaser of -7- Voting Stock pursuant to Section 7.8 below shall not cause the Purchaser to become an "Acquiring Person" or cause a "Shares Acquisition Date", "Distribution Date" or "Triggering Event" to occur (each as defined in the Rights Agreement). 2.9 Intellectual Property Rights. In each case, except as set forth on ---------------------------- Schedule 2.9 to the Disclosure Schedule: (a) each of the Company and the Subsidiaries owns, possesses, and has the right to use, has the right to bring actions for the infringement of, or where necessary, has made timely and proper application for, all Intellectual Property Rights (as hereinafter defined) necessary or required for the conduct of its business as currently conducted. (b) no royalties, honorariums or fees in excess of $50,000 per annum are payable by the Company or its Subsidiaries to other persons by reason of the ownership or use of said Intellectual Property Rights; (c) to the best of the Company's knowledge, no product or service that is manufactured, marketed, performed or sold by the Company or the Subsidiaries violates any license or infringes any Intellectual Property Rights of another, nor is there any pending or written threat of a claim or litigation against the Company or Subsidiaries (nor does there exist any basis therefor) contesting the validity of, or right to use, any of the foregoing Intellectual Property Rights; (d) none of the Company or the Subsidiaries has received notice that any of such Intellectual Property Rights, or that the operation or proposed operation of the Company's or the Subsidiaries' businesses, conflicts or will conflict with the asserted rights of others; and (e) the Company has not granted any exclusive rights to any third party to develop, manufacture, use, market or service the Company's current products. As used herein, the term "Intellectual Property Rights" means all industrial and intellectual property rights, including, without limitation, Proprietary Technology (as hereinafter defined), patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, know-how, certificates of public convenience and necessity, franchises, licenses, trade secrets, proprietary processes and formulae used by the Company in its businesses. As used herein, "Proprietary Technology" means all source code, -8- designs, algorithms, layouts, processes, inventions, trade secrets, know-how and other proprietary rights owned or licensed by the Company or the Subsidiaries pertaining to any product or service manufactured, marketed, performed or sold, or proposed to be manufactured, marketed, performed or sold (as the case may be), by the Company or the Subsidiaries or used, employed or exploited in the development, license, sale, marketing, distribution or maintenance thereof, and all documentation and media embodying or relating to the above, including, without limitation, manuals, models, prototypes, memoranda, know-how, notebooks, patents and patent applications, trademarks and trademark applications, copyrights and copyright applications, records and disclosures. 2.10 Litigation. Except as set forth on Schedule 2.10 to the Disclosure ---------- Schedule, there are no actions, suits, claims, investigations or legal or administrative or arbitration proceedings (collectively, "Claims"), pending and served or of which the Company or any Subsidiary has received written notification or, to the Company's best knowledge, threatened against the Company or any of the Subsidiaries, whether at law or in equity, whether civil or criminal in nature or whether before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign; except as set forth on Schedule 2.10 to the Disclosure Schedule, to the best of the Company's knowledge, there are no orders, judgments or decrees of any court or governmental agency which would have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as a whole, that apply to the Company or any of the Subsidiaries. Also set forth on Schedule 2.10 are all lawsuits filed and served by or against the Corporation or any Subsidiary during the previous two (2) years that involves claims in excess of $500,000. 2.11 Taxes. The Company and the Subsidiaries have filed all Federal, ----- state, local and foreign tax returns that are required to be filed by them on or prior to the Closing and all such returns are true and complete. The Company and the Subsidiaries have paid all taxes pursuant to such returns or pursuant to any assessments received by them or which they are obligated to withhold from amounts owing to any employee, creditor or third party. Except as disclosed on Schedule 2.11 to the Disclosure Schedule, the Company has not been notified in writing of any examination by the Internal Revenue Service or by appropriate state or departmental tax authorities of any Federal, state or local income tax or franchise tax returns of or with respect to the Company or any of the Subsidiaries through all relevant periods. The liability for taxes payable on the Company's unaudited consolidated balance sheet as of July 1, 1994 are sufficient for the future payment of all accrued -9- and unpaid Federal, state, local and foreign taxes as of such date, the failure for which to provide would have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as whole. Except as set forth on Schedule 2.11 to the Disclosure Schedule, the Company and the Subsidiaries have not waived any statute of limitations with respect to taxes or agreed to any extension of time with respect to any tax assessment or deficiency. 2.12 Agreements. Except as set forth on Schedule 2.12 to the Disclosure ---------- Schedule, to the best of the Company's knowledge, the Company and the Subsidiaries are not parties to any material written or oral contract or commitment not made in the ordinary course of business and, whether or not made in the ordinary course of business, the Company and the Subsidiaries are not parties to any written or oral (i) contract or commitment with any labor union, (ii) contract or commitment for the future purchase of fixed assets in excess of $250,000 in the aggregate or for the future purchase of materials, supplies or equipment in excess of normal operating requirements, (iii) contract or commitment for the employment of any officer, individual employee or other person on a full-time basis or any contract with any individual on a consulting basis, except for such similar contracts listed in the documents filed by the Company with the SEC pursuant to the Exchange Act, (iv) bonus, pension, profit- sharing, retirement, stock purchase, stock option, or extraordinary hospitalization, medical insurance or similar plan, contract or understanding in effect with respect to employees or any of them or the employees of others, (v) agreements, indentures or commitments relating to the borrowing of money in excess of $250,000 in the aggregate or to the mortgaging, pledging or otherwise placing a lien on any assets of the Company or the Subsidiaries (other than relating to equipment held under capitalized leases or secured by purchase money security interests), (vi) guaranty of any obligation (other than any obligation of a Subsidiary) in excess of $250,000 in the aggregate, (vii) lease or agreement under which the Company or the Subsidiaries are lessees of or hold or operate (A) any real property or (B) personal property pursuant to which annual rental payments to the lessor thereof exceed $250,000 (other than as incidental to the leasing of any real property), (viii) lease or agreement under which the Company or the Subsidiaries are lessor of or permits any third party to hold or operate any property, real or personal, owed or controlled by the Company or the Subsidiaries, (ix) agreement or other commitment for capital expenditures in excess of $250,000 individually, (x) contract or agreement under which the Company or the Subsidiaries are obligated to pay any broker's fees, finder's fees or any such similar fees to any third party (other than as are incidental to the operation of its business in the ordinary course of business consistent with industry practices), (xi) contract or agreement for -10- the payment or receipt of any royalty, (xii) license for the use of any patent, know-how, trademark, trade name, copyright or other intellectual property which is material to the financial condition or operations of the Company or (xiii) any other contract, agreement, arrangement or understanding that is material to the financial condition or operations of the Company and the Subsidiaries, taken as a whole. The Company has furnished or made available to counsel for the Purchaser true and correct copies of all such agreements and such other documents as have been requested by the Purchaser or their authorized representatives. Each of the foregoing contracts are valid, binding and in full force and effect in accordance with its terms. 2.13 Compliance. Except as set forth on Schedule 2.13 to the Disclosure ---------- Schedule, to the best of the Company's knowledge, the Company and the Subsidiaries have (or have applied for and which none of the Company or any Subsidiary has any reason to believe and does not believe will not be obtained in due course) all governmental approvals, authorizations, consents, qualifications, licenses and permits necessary or required to conduct their business as currently conducted or as planned to be conducted where the failure to obtain such approvals, authorizations, consents, qualifications, licenses and permits would result in liability in excess of $200,000 or materially impede the timely development of any of the products being developed by the Company or any Subsidiary. To the best of the Company's knowledge, the Company and the Subsidiaries are currently and at all times since inception have been in compliance with all Federal, state, local or foreign laws, ordinances, regulations and orders (including, without limitation, those relating to the provisions of health insurance, environmental protection, occupational safety and health, Federal securities laws, equal employment opportunity, consumer protection, credit reporting, "truth-in-lending", warranties and trade practices) applicable to their business where the failure to be in compliance would result in liability in excess of $250,000 or materially impede the timely development of any of the products being developed by the Company or any Subsidiary; and, to the best of the Company's knowledge, all such licenses, qualifications and permits are in full force and effect and no violations exist in respect of any such licenses or permits and no proceeding is pending or threatened to revoke or limit any thereof. 2.14 Disclosure. Neither this Agreement, the Disclosure Schedule, the ---------- Warrant, or the Registration Rights Agreement contains any untrue statement of a material fact or omits to state a material fact necessary, in light of the circumstances under such statements were made, in order to make the statements contained herein and therein, not misleading. -11- 2.15 Certain Transactions. Except as set forth in the Company's SEC -------------------- Reports, no executive officer or director of the Company or any Subsidiary has engaged in any transaction since September 30, 1990 that would require disclosure in the document filed with the Commission pursuant to Item 404 of Regulation S-K promulgated under the Securities Act. 2.16 Insurance. Each of the Company and the Subsidiaries maintains such --------- insurance coverage, including amounts, described on Schedule 2.16 to the Disclosure Schedule. Such insurance listed on Schedule 2.16 to the Disclosure Schedule is outstanding and in full force and effect and all premiums with respect to such policies are currently paid. Each of the Company and the Subsidiaries has not during the past three (3) fiscal years been denied or had revoked or rescinded any insurance policy. 2.17 Definitions. As used in this Section 2, the term "to the best of the ----------- Company's knowledge" shall mean actual knowledge of the officers, directors and key employees of the Company or the Subsidiaries obtained in the management of his or her business affairs after making due inquiry of officers, directors, and key employees of the Company and the Subsidiaries. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser hereby represents and warrants to the Company as follows: 3.1 Investment. The Purchaser will acquire the Shares, the Warrant and ---------- any Warrant Shares purchased from the Company pursuant to this Agreement for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Purchaser understands that the Shares, the Warrant and any Warrant Shares purchased by it from the Company pursuant to this Agreement have not been, and will not be, registered (unless sold in connection with a public offering by the Company or pursuant to a demand registration under the Registration Rights Agreement) under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the Purchaser's investment intent and the accuracy of the Purchaser's representations as expressed in this Section 3.1. -12- 3.2 Organization. The Purchaser is a corporation duly organized and ------------ validly existing and in good standing under the laws of the state of its incorporation, with all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted and as proposed to be conducted. 3.3 Authority. The Purchaser has all corporate right, power and authority --------- to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Registration Rights Agreement by the Purchaser and the consummation by the Purchaser of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on behalf of the Purchaser. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Purchaser and constitute legal, valid and binding obligations of the Purchaser, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and to limitations of public policy as they may apply to Section 7 of the Registration Rights Agreement. Subject to compliance with the HSR Act and such filings as may be required to be made with the SEC and any exchange or quotation system on which the Purchaser's securities are listed or designated, the execution and delivery of this Agreement and the Registration Rights Agreement do not, and the consummation of the transactions contemplated hereby and thereby will not, conflict with or result in any violation of any obligation under any provision of the Certificate or Articles of Incorporation or Bylaws of the Purchaser or any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Purchaser. 3.4 Government Consents, etc. No consent, approval or authorization of or ------------------------ designation, declaration or filing with any governmental authority on the part of the Purchaser is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the Shares or the Warrant, the issuance of the Warrant Shares upon exercise of the Warrant or the consummation of any other transaction contemplated hereby, except the filing of such forms with the United States Department of Justice and the Federal Trade Commission as shall be required by the HSR Act and the expiration of any waiting periods thereunder and such filings as may be required to be made with the SEC and any exchange or quotation system on which the Purchaser's securities are listed or principally traded. -13- 3.5 Investigation. The Purchaser has had a reasonable opportunity to ------------- discuss the Company's business management and financial affairs with the Company's management. 3.6 Financing. The Purchaser has or will have the funds to provide the --------- Company with the funds necessary to consummate the transactions to occur at the Closing. SECTION 4 CONDITIONS TO OBLIGATIONS OF THE PURCHASER The obligation of the Purchaser to purchase the Shares and the Warrant at the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any or all of which may be waived at the option of the Purchaser: 4.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by the Company in Section 2 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. 4.2 Covenants. All covenants, agreements and conditions (including --------- corporate proceedings) contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects. 4.3 Opinion of Company's Counsel. The Purchaser shall have received from ---------------------------- Wilson Sonsini Goodrich & Rosati, P.C., counsel to the Company, an opinion addressed to it, dated the Closing Date, in substantially the form attached hereto as Exhibit C. --------- 4.4 No Order Pending. There shall not then be pending or threatened in ---------------- writing any order, injunction or other action by any court, arbitrator or governmental body or authority enjoining or restraining the transactions contemplated by this Agreement or imposing any material condition on the consummation thereof. 4.5 HSR Act. The Purchaser and the Company shall have filed such forms ------- with the United States Department of Justice and the Federal Trade Commission as shall be required by the HSR Act and the applicable waiting periods under such HSR Act shall have expired (or been terminated) without notice from such governmental agencies that additional inquiries are being made. -14- 4.6 No Law Prohibiting or Restricting Such Sale. There shall not be in ------------------------------------------- effect any law, rule or regulation prohibiting or restricting such sale, or imposing material conditions on such sale, or requiring any consent or approval of any person which shall not have been obtained (including blue sky filings) to issue the Shares, the Warrant or the Warrant Shares (except as otherwise provided in this Agreement). 4.7 Compliance Certificate. The Company shall have delivered to the ---------------------- Purchaser a certificate in substantially the form attached hereto as Exhibit D, --------- executed on behalf of the Company by the Chief Executive Officer and Chief Financial Officer of the Company, dated the Closing Date, and certifying to the fulfillment of the conditions specified in Sections 4.1 and 4.2 of this Agreement. 4.8 Technology Agreement. The Company shall have delivered to the -------------------- Purchaser a duly executed counterpart of the license and OEM agreements on terms and conditions satisfactory to Purchaser in its sole discretion, which agreement shall include at a minimum the terms and conditions set forth on Exhibit E --------- attached hereto (the "Technology Agreement"). Notwithstanding anything to the contrary herein, in the event of a material breach by the Company of its obligations under the Technology Agreement, all of the restrictions on Purchaser's ability to transfer Voting Stock set forth in Section 7.6 shall terminate and, except with respect to a transfer by the Purchaser of Voting Stock then held by the Purchaser which represents 20% or more of the Total Voting Power of the Company in a single transaction to a single person or group (as defined hereinafter), the Company's right of first refusal set forth in Section 8 hereof, shall terminate. 4.9 Registration Rights Agreement. The Company shall have delivered to ----------------------------- the Purchaser a duly executed counterpart of the Registration Rights Agreement. 4.10 Material Adverse Change. There shall not have occurred or been ----------------------- discovered (whether through due diligence review or otherwise) since July 1, 1994, the date of the Company's most recent balance sheet any material adverse change in the condition (financial or otherwise), results of operations, assets, liabilities or business of the Company and its Subsidiaries, taken as a whole. 4.11 Corporate Authorizations. Purchaser shall have received (i) certified ------------------------ copies of the resolutions adopted by the Company's Board of Directors, authorizing the execution, delivery and performance of this Agreement, the Registration Rights Agreement, the Warrant, the Technology Agreement and (ii) copies of the -15- Company's Certificate of Incorporation and By-Laws, as in effect on the Closing Date. SECTION 5 CONDITIONS TO OBLIGATIONS OF COMPANY The Company's obligation to sell and issue the Shares and the Warrant at the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any or all of which may be waived at the option of the Company: 5.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by the Purchaser in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. 5.2 Covenants. All covenants, agreements and conditions (including --------- corporate proceedings) contained in this Agreement to be performed by the Purchaser on or prior to the Closing Date shall have been performed or complied with in all material respects. 5.3 No Order Pending. There shall not then be pending or threatened in ---------------- writing in effect any order, injunction or other action by any court, arbitrator or governmental body or authority enjoining or restraining the transactions contemplated by this Agreement or imposing any material condition on the consummation thereof. 5.4 HSR Act. The Purchaser and the Company shall have filed such forms ------- with the United States Department of Justice and the Federal Trade Commission as shall be required by the HSR Act and the applicable waiting periods under such HSR Act shall have expired (or been terminated)without notice from such governmental agencies that additional inquiries are being made. 5.5 No Law prohibiting or Restricting Such Sale. There shall not be in ------------------------------------------- effect any law, rule or regulation prohibiting or restricting such sale, or imposing material conditions on such sale, or requiring any consent or approval of any person which shall not have been obtained (including blue sky filings) to issue the Shares, the Warrant or the Warrant Shares (except as otherwise provided in this Agreement). -16- 5.6 Compliance Certificate. The Purchaser shall have delivered to the ---------------------- Company a certificate substantially in the form attached hereto as Exhibit E, --------- executed on behalf of the Purchaser by an executive officer of the Purchaser, dated the Closing Date, and certifying to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this Agreement. 5.7 Technology Agreement. The Purchaser shall have delivered to the -------------------- Company a duly executed counterpart of the Technology Agreement on terms and conditions satisfactory to the Company in its sole discretion, which agreement shall include at a minimum the terms and conditions set forth on Exhibit E hereto. 5.8 Registration Rights Agreement. The Purchaser shall have delivered to ----------------------------- the Company a duly executed counterpart of the Registration Rights Agreement. SECTION 6 COVENANTS OF THE COMPANY Until the termination of this Agreement in accordance with Section 10.2 hereof or the particular covenant, as the case may be: 6.1 Sale of Additional Shares. The Company shall take such action as is ------------------------- reasonably necessary, including any necessary amendment to the Rights Agreement and any action required under the Registration Rights Agreement, subject to compliance with applicable law (including federal and state securities laws), to issue and sell to the Purchaser any Shares or Warrant Shares or any additional securities which the Purchaser shall be entitled to purchase from the Company pursuant to this Agreement. 6.2 Membership on the Board of Directors. ------------------------------------ (a) Upon or after the Closing, the Company shall cause to be appointed as a director to the Company's Board of Directors, at the request of the Purchaser, any person designated by the Purchaser and approved by the Company, which approval shall not unreasonably be withheld. Any such person shall serve until such person's successor has been duly elected and qualified. Thereafter, the Company shall include in the slate of nominees recommended by the Company's Board of Directors or management to stockholders for election as directors at each annual meeting of stockholders of the Company any person designated pursuant to this paragraph, or such substitute as may be designated by the Purchaser and who is reasonably acceptable to the Company, and the Company -17- shall use its best efforts to cause the shares for which the Company's management or directors hold proxies or are otherwise entitled to vote to be voted in favor of the election of such designee to the extent necessary to ensure his election, assuming that all Voting Stock beneficially owned by the Purchaser is voted for such designee. In the event that any such designee shall cease to serve as a director for any reason, the Company shall use its best efforts to fill such vacancy by a designee of the Purchaser approved by the Company, which approved shall not be unreasonably withheld. Notwithstanding the foregoing, the Company's obligation under this paragraph and under paragraphs 6.3, 6.4 and 6.5 below shall terminate if the percentage interest of the Purchaser in the Total Voting Power of the Company, after adjustment for the exercise, or failure to exercise, of the right to maintain by the Purchaser pursuant to Section 7.8 below (except in the event of a delaying notice pursuant to Section 7.8(e)) is less than 5% (even if the Purchaser's percentage interest should subsequently increase for any reason to 5% or more). (b) The Company shall be entitled to excuse any designee of the Purchaser serving as a director on the Company's Board of Directors from all discussions and deliberations of the Board of Directors of the Company (or any committee constituted by the Board) concerning competitors of the Purchaser or relationships between the Company and the Purchaser. Upon notice to the Purchaser's designee, the Company may refrain from sending or providing to the Purchaser, or the Purchaser may refuse to receive, any information otherwise disseminated to the directors of the Company concerning competitors of the Purchaser or relationships between the Company and the Purchaser. The Company shall not be obligated to compensate a designee-director of the Purchaser on the same terms as other outside directors but shall provide all rights and benefits of indemnity to such designee-director as are provided such other directors. 6.3 Information Rights. So long as Purchaser holds at least 5% of the ------------------ Total Voting Power of the Company, the Company shall provide to the Purchaser copies of all SEC Reports filed by Company with the Securities and Exchange Commission and all business plans, budgets, financial statements and other information made available to the Company's Board of Directors, subject to the Company's fiduciary duties and obligations to keep such materials confidential. -18- 6.4 Access to Records. Each of the Company and the Subsidiaries shall ----------------- afford to the Purchaser and the Purchaser's authorized employees, counsel, accountants and other representatives free and full access, at all reasonable times to all of the books, records and properties of the Company or the Subsidiaries, as the case may be, and to all officers of the Company or the Subsidiaries, as the case may be, upon reasonable advance notice by the Purchaser to the Company or its Subsidiaries, as the case may be, in order to verify the representations and warranties made and information delivered to the Purchaser pursuant to this Agreement. 6.5 Affirmative Covenants. Each of the Company and the Subsidiaries --------------------- covenants and agrees with the Purchasers as follows: (a) Corporate Existence Properties, Etc. Each of the Company and the ----------------------------------- Subsidiaries shall, and shall cause each of its Affiliates (as defined in Section 10.1(i) below) to: maintain, preserve, and keep in full force and effect its corporate existence and all rights, franchises, licenses, insurance policies and permits necessary to the proper conduct of its business and to the ownership, lease, or operation of its properties which, if not so maintained, could reasonably be expected to have a $100,000 or greater adverse effect on it, except that this provision shall not restrict the Company's ability to effect merger of the Subsidiaries of the Company. The Company agrees to take all action that may be reasonably required to obtain, preserve, renew and extend all material licenses, permits, authorizations, trade names, trademarks, service names, service marks, copyrights and patents that are necessary for the continuance of the operation of any such property by it. (b) Payment of Taxes. Each of the Company and the Subsidiaries shall, ---------------- and shall cause each of its Affiliates to, pay all taxes, assessments and governmental charges or liens imposed upon it or upon its income or receipts or upon any of its properties (except with respect to taxes being contested in good faith by appropriate legal proceedings), which if not so paid could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as a whole. 6.6 Three-Year Business Plan. The Company agrees to provide to the ------------------------ Purchaser, as soon as practicable after it is available, copies of the Company's Three-Year Business Plan. 6.7 Emergency Business Plan. The Company will provide the Purchaser prior ----------------------- to Closing with copies of its emergency business plans. -19- SECTION 7 COVENANTS OF THE PURCHASER Until the termination of this Agreement in accordance with the provisions of Section 10.2 hereof or the particular covenant, as the case may be: 7.1 Limitation on Ownership of Voting Stock. The Purchaser shall not (and --------------------------------------- Purchaser shall not permit any of its Affiliates to) acquire, directly or indirectly, beneficial ownership of any Voting Stock, any securities convertible into or exchangeable for Voting Stock, or any other right to acquire Voting Stock (except, in any case, as provided in this Agreement or the Warrant or by way of stock dividends or other distributions or offerings made available to holders of any Voting Stock generally) or authorize or make a tender, exchange or other offer, without the written consent of the Company, if the effect of such acquisition or offer would be to increase the Voting Power of all Voting Stock then owned by Purchaser or its Affiliates or which it has a right to acquire to more than the percentage of the Total Voting Power of the Company which Purchaser is entitled to hold at such time as provided in this Section 7.1: (a) The Purchaser shall be entitled to hold Voting Stock up to, and not to exceed except as permitted by this Agreement, 25% of the Total Potential Voting Power of the Company. Subject to such limitation, shares of Voting Stock not acquired by the Purchaser from the Company upon exercise of the Warrant or pursuant to Section 7.8 may be acquired by the Purchaser in the open market, from third parties or otherwise, so long as the Warrant has been exercised prior to such purchases. (b) The Purchaser may acquire Voting Stock without regard to the limitations in this Section 7.1 if a tender offer is made (as evidenced by the filing with the SEC of a Schedule 14D-1 (or any successor schedule or form promulgated or adopted for such purpose by the SEC) and the actual dissemination of tender offer materials to security holders) by another person or group to purchase or exchange for cash or other consideration any Voting Stock which, if successful, would result in such person or group owning or having the right to acquire shares of Voting Stock with aggregate Voting Power of at least 40% of the Total Voting Power of the Company then in effect; provided, however, that this provision shall not be effective until such time as the Purchaser in the exercise of the sole reasonable judgment of its Board of Directors, after consultation with its advisors, shall reasonably conclude -20- that such tender offeror can finance such tender offer. If an offer or proposed acquisition is made by any person or group which pursuant to this Section 7.1(b) releases the Purchaser from the limitations set forth herein, which offer or proposed acquisition subsequently expires, is enjoined or terminated prior to any purchases thereunder or is otherwise withdrawn, upon the effectiveness of such expiration, injunction or termination the limitations of this Section 7.1(b) shall be reimposed, except that the Purchaser shall not be obligated to dispose of any Voting Stock acquired of record or beneficially during the pendency of such tender offer or proposed acquisition. (c) Purchaser may acquire Voting Stock (or rights to acquire Voting Stock) without regard to the limitations in this Section 7.1 as soon as it is publicly disclosed or Purchaser otherwise learns that another person or group subject to the filing requirements of Section 13(d)(i) of the Exchange Act with respect to such purchase has acquired, whether from the Company or otherwise, any Voting Stock (or rights to acquire Voting Stock), which results in such person or group owning or having the right to acquire Voting Stock with Total Voting Power of not less than 20%. (d) The Purchaser will not be obligated to dispose of any shares of Voting Stock if the aggregate percentage ownership of the Purchaser in the Total Voting Power of the Company is increased as a result of a recapitalization of the Company or a repurchase of securities by the Company or any other action taken by the Company or its affiliates, but the Purchaser shall not acquire any additional Voting Stock above the limitations then applicable pursuant to Section 7.1, unless such acquisition would otherwise be permitted under this Agreement. If, after the Purchaser has acquired Voting Stock in response to the acquisition of Voting Stock by another person or group, as permitted by this Section 7.1, then the Purchaser shall not be obligated to dispose of any shares of Voting Stock if the aggregate percentage ownership of such third party or group is thereafter reduced. (e) Notwithstanding the other provisions of this Section 7.1, the covenants and agreements of the Purchaser under this Section 7.1 shall terminate September 1, 1996. 7.2 Voting. The Purchaser shall take such action as may be required so ------ that all shares of Voting Stock owned by the Purchaser are voted for the Purchaser's nominee to the Board of Directors of the Company in accordance with the recommendation of the Board of Directors consistent with the provisions of Section 6.2. Unless the Company otherwise consents in writing, the Purchaser shall take such action as may be required so that all shares of Voting Stock -21- owned by the Purchaser are voted in accordance with the recommendations of the Board of Directors on all matters to be voted on by holders of Voting Stock in not less than the same proportion as the votes cast by the other holders of Voting Stock with respect to such matters; provided, however, that Voting Stock owned by Purchaser may be voted as the Purchaser determines in its sole discretion on any Significant Event (as defined in Section 10.1(c) below) presented to be voted on by the holders of Voting Stock. The Purchaser, as a holder of shares of Voting Stock, shall be present, in person or by proxy, at all meetings of stockholders of the Company so that all shares of Voting Stock beneficially owned by the Purchaser may be counted for the purposes of determining the presence of a quorum at such meetings. Notwithstanding any other provision of this Section 7.2, the provisions of this Section 7.2 shall terminate and be of no further force and effect should the provisions of Sections 7.1 and 7.6 be terminated for any reason. 7.3 Voting Trust, etc. So long as Section 7.1 hereof is in effect and has ------------------ not been terminated for any reason, the Purchaser shall not deposit any shares of Voting Stock in a voting trust or, except as otherwise provided herein, subject any Voting Stock to any arrangement or agreement with respect to the voting of such Voting Stock. 7.4 Solicitation of Proxies. So long as Section 7.1 hereof is in effect ----------------------- and has not been terminated for any reason, without the Company's prior written consent, the Purchaser shall not solicit proxies with respect to any Voting Stock or become a "participant" in any "election contest" (as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act relating to the election of directors of the Company); provided, however, that the Purchaser shall not be deemed to be a "participant" by reason of the exercise of any right permitted by Section 6.2. 7.5 Acts in Concert with Others. So long as Section 7.1 hereof is in --------------------------- effect and has not been terminated for any reason, the Purchaser shall not join a partnership, limited partnership, syndicate or other group, or otherwise act in concert with any third person, for the purpose of acquiring, holding, or disposing of Voting Stock; provided, however, that Purchaser shall be permitted to act in concert with any of its Affiliates or Subsidiaries to transfer the Voting Stock the Purchaser is then authorized to hold pursuant to this Section 7 among such entities. 7.6 Restrictions on Transfer of Voting Stock. Prior to September 1, 1996, ---------------------------------------- Purchaser and its Affiliates shall not, directly or indirectly, without the written consent of the Company, sell or -22- transfer any Voting Stock except (i) to the Company or any person or group approved by the Company; (ii) to any Subsidiary or Affiliate of the Purchaser, all of the voting stock of which is owned by the Purchaser or its Affiliates (a "Wholly-Owned Subsidiary"); (iii) pursuant to a bona fide public offering registered under the Securities Act of either Voting Stock or securities exchangeable or exercisable for Voting Stock or pursuant to a rights offering or a dividend or other ratable distribution to stockholders of the Purchaser; (iv) pursuant to Rule 144 under the Securities Act (but only to the extent the sale or transfer of Voting Stock at any time is in compliance with the volume limitations under paragraph (e) thereunder); (v) in any other transactions not otherwise described in this Section 7.6 (including open market transactions), subject to the Company's right of first refusal as set forth in Section 8.1 hereof or in response to (1) an offer to purchase or exchange for cash or other consideration any Voting Stock (a) which is made by or on behalf of the Company or (b) which is made by another person or group and is not opposed by the Board of Directors of the Company within the time such Board is required, pursuant to regulations under the Exchange Act, to advise the Company's stockholders of such Board's position on such offer, or (2) subject to the Company's right of first refusal as set forth in Section 8.2, any other offer made by another person or group to purchase or exchange for cash or other consideration any Voting Stock which, if successful, would result in such person or group owning or having the right to acquire Voting Stock with aggregate Voting Power of more than 40% of the Total Voting Power of the Company then in effect. Notwithstanding the foregoing, with respect to Section 7.6(v), Purchaser shall not sell or transfer any Voting Stock in single transactions exceeding 5% of the Total Voting Power of the Company to any single person or group and such sales or transfers shall not directly or indirectly, result, to the best knowledge of the Purchaser after reasonable inquiry, in any single person or group owning or having the right to acquire Voting Stock with aggregate Voting Power of 10% or more of the Total Voting Power of the Company then in effect. Notwithstanding the foregoing, upon the acquisition by a single person or group (as defined hereinafter) of Voting Stock, whether from the Company or otherwise, representing 20% or more of the Company's Total Voting Power, the restrictions set forth in this Section 7.6 shall terminate. 7.7 Confidential Information. The Company may from time to time pursuant ------------------------ to this Agreement (including pursuant to Section 6.4 hereof) disclose to Purchaser certain strategic, technical, financial or other information which the Company deems to be confidential. The Purchaser agrees that all such confidential information -23- will be kept confidential unless such information (i) is already lawfully in the Purchaser's or its Affiliates' possession, (ii) becomes generally available to the public other than as a result of a disclosure by the Purchaser or any of its directors, officers, employees, agents, advisors or Affiliates, (iii) becomes available to the Purchaser or its Affiliates on a nonconfidential basis from a source other than the Company or its advisors, provided that such source is not known to the Purchaser or its Affiliates to be bound by a confidentiality agreement with or other obligation of secrecy to the Company or another party, (iv) is required to be disclosed by the Purchaser or its Affiliates by operation of law, (v) is disclosed by the Purchaser or its Affiliates with the Company's prior written approval, (vi) has been held by the Purchaser or its Affiliates for not less than two (2) years from the date of receipt, provided that the confidentiality of confidential information furnished to an individual designated by the Purchaser as a director on the Company's Board of Directors (and not additionally furnished to other representatives of the Purchaser) shall not lapse by virtue of this clause, or (vii) is independently developed by the Purchaser or its Affiliates. Notwithstanding anything to the contrary, the Purchaser may disclose such confidential information to its directors, officers, employees, agents or advisors so long as it takes appropriate measures to protect the confidentiality thereof, which measures shall include at least the same degree of care that the Purchaser uses to protect its own confidential information of a similar nature. In the event that the Purchaser or any of its representatives is requested or required to disclose any of the confidential information referred to above, the Purchaser will provide the Company with prompt notice of such request or requirement so that the Company may, at the Company's expense, seek a protective order or waive the Purchaser's compliance with this Section 7.7, as appropriate. The Purchaser further acknowledges and understands that any information so obtained which may be considered "insider" nonpublic information will not be utilized by the Purchaser in connection with purchases and/or sales of the Company's securities except in compliance with applicable state and federal securities laws. 7.8 Right to Maintain. ----------------- (a) If the percentage interest of the Purchaser in the Total Potential Voting Power of the Company is at or less than 25%, (the "Threshold Interest"), and is reduced as a result of an issuance by the Company of any Voting Stock (including any issuance following conversion of any security convertible into or exchangeable for Voting Stock or upon exercise of any option, warrant or other right to acquire any Voting Stock, but excluding issuance of -24- the Warrant Shares), the Purchaser shall have the right to purchase from the Company for cash upon the terms set forth in this Section 7.8 up to and including that number of shares of Voting Stock which, if purchased by the Purchaser, would result in the Purchaser's retaining the Threshold Interest held by the Purchaser immediately prior to such reduction of the Purchaser's interest. (b) The purchase price per share at which the Purchaser shall be entitled to purchase Voting Stock under this Section 7.8 shall be determined as follows: (i) If the event giving rise to the Purchaser's rights is one or more issuances of Voting Stock (including any issuance resulting from the conversion or exercise of any security or other right to acquire Voting Stock, but excluding issuance of the Warrant Shares) pursuant to the Company's present or future stock option, stock purchase or other stock plans for the benefit of employees, directors, officers, consultants or others, the price shall be the Average Market Price per share of Voting Stock determined as of the date of the issuance and sale of such Voting Stock. (ii) If the event giving rise to the Purchaser's rights is a sale or issuance of Voting Stock for cash or property, including, without limitation, for securities or assets or by way of merger in connection with the acquisition of another company, and is not treated under paragraph 7.8(b)(i) above, the price shall be the price per share specified in the agreement relating to such issuance or, if no such price is specified, the Average Market Price per share of Voting Stock determined as of the date of issuance and sale of such Voting Stock; (iii) If the event giving rise to the Purchaser's rights is an issuance of Voting Stock upon conversion of any security convertible into or exchangeable for Common Stock or upon exercise of any option, warrant or right to acquire any Voting Stock, but excluding issuance of the Warrant Shares, and is not treated under paragraph 7.8(b)(i) or (ii) above, the price shall be the Average Market Price per share of Voting Stock determined as of the date of such conversion or exercise. (iv) If the event giving rise to the Purchaser's rights is an underwritten public offering or an institutional private placement, the price shall be the price per share at which the Voting Stock was sold by the Company. -25- (v) In all other cases, the price shall be the Average Market Price per share of Voting Stock determined as of the date of the issuance and sale of such Voting Stock. (c) The Company shall notify the Purchaser by written, dated notice not later than ten (10) business days after an issuance giving rise to the Purchaser's rights under this Section 7.8 and, if such offer is accepted in writing within thirty (30) days of such offer (except as provided in the next sentence), effect the sale of the securities to the Purchaser in accordance with this paragraph. If the event giving rise to the Purchaser's rights is an underwritten public offering or an institutional private placement of securities by the Company, and if the Company gives the Purchaser notice of such offering at least fifteen (15) days in advance of the effective date of the offering, then unless the Purchaser notifies the Company of its irrevocable acceptance of such offer within the first ten (10) days of such 15-day period (for the purpose of permitting the Company to disclose the fact of the Purchaser's intention in the prospectus relating to such underwritten public offering or institutional private placement), the Company shall be under no obligation to sell securities to the Purchaser under this Section 7.8 as a result of such underwritten public offering or institutional private placement. (d) The purchase and sale of any shares of Voting Stock pursuant to any offer made under this Section 7.8 that is accepted by the Purchaser shall take place at 10:00 a.m. on the third business day following the expiration or early termination of all waiting periods imposed on such purchase and sale by the HSR Act and the receipt of all other applicable regulatory approvals, or, if no waiting period is imposed on such purchase and sale by the HSR Act, on the third business day following the Purchaser's acceptance of such offer and compliance with applicable laws and regulations, at the offices of the Company located at the address set forth in this Agreement, or at such other time and place as the Company and the Purchaser may agree. The purchase price shall be payable by wire transfer in same day funds. The Company and the Purchaser shall comply with all federal and state laws and regulations and requirements of the NASD, or any securities exchange on which the Company's securities may then be listed, applicable to any purchase and sale of shares of Voting Stock under this Section 7.8. (e) Notwithstanding the foregoing, if any issuance of securities requiring the Company to make an offer of Voting Stock to the Purchaser under this Section 7.8 shall be for a number of securities representing less than 2% of the Total Voting Power of the Company immediately following such issuance, the Company shall -26- have the right to delay giving the notice otherwise required by Section 7.8(c) until the earlier of (i) the next issuance which, together with all issuances after which notice was delayed pursuant to this sentence, shall represent an aggregate of 2% or more of the Total Voting Power of the Company then in effect or (ii) the 45th calendar day preceding the last day of the Company's fiscal year for accounting purposes, and, thereupon, the Company shall give such notice with respect to all shares of Voting Stock which it shall be obligated to offer to sell to the Purchaser at the price determined in Section 7.8(b) hereof and which shall not have been the subject of a previous notice pursuant to Section 7.8(c); provided, however, that the Purchaser shall have the right to request the purchase of all shares of Voting Stock which the Purchaser has a right to acquire under this Section 7.8 at any time (a) if a bona fide tender or exchange offer is made by another person or group to purchase or exchange for cash or other consideration any Voting Stock from the Company's stockholders generally, or (b) upon the Company's publication or setting of a record date of its stockholders; and, in either such event and upon the receipt of such request, the Company shall use its reasonable efforts to issue all such shares to the Purchaser pursuant to the provisions of this Section 7.8. (f) If Purchaser sells any Voting Stock, or fails to exercise its right to acquire additional Voting Stock as permitted in this Section 7.8 within the time period prescribed, the Threshold Interest which the Purchaser is then entitled to maintain under this Section 7.8 shall be reduced to the Purchaser's percentage ownership that results immediately following such sale or failure to exercise. (g) The Purchaser shall forfeit all rights under this Section 7.8 if at any time the Purchaser's Voting Stock represents less than 5% (inclusive of the shares the Purchaser is entitled to purchase under an outstanding offer pursuant to this Section 7.8) of the Total Voting Power the Company (even if the Purchaser's percentage interest should subsequently increase for any reason to 5% or more). 7.9 Acquisition of Stock. The Purchaser shall advise management of the -------------------- Company as to the Purchaser's general plans to acquire any additional shares of Voting Stock, or rights thereto, reasonably in advance of any such acquisitions; provided, however, that if advance notice of acquisitions of Voting Stock, or rights thereto, in the open market is not reasonably practicable, notice of any such acquisition shall be made promptly following such acquisition. All of the Purchaser's purchases of Voting Stock -27- shall be in compliance with applicable laws and regulations and the provisions of this Agreement. 7.10 Termination of Certain Sections. Notwithstanding any other provision ------------------------------- in this Section 7, the provisions of Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.8 and 7.9 shall terminate and be of no further force and effect on the earliest of (i) September 1, 1996, (ii) such time as Purchaser holds less than 5% of the Total Voting Power of the Company, or (iii) such earlier time as may be provided in the relevant section of this Agreement. 7.11 Further Termination. Notwithstanding any other provision in this ------------------- Section 7, the provisions of Sections 7.1, 7.2, 7.3, 7.4, 7.5 and 7.6 of this Agreement shall terminate upon the commencement of any bankruptcy, insolvency or reorganization action by the Company or against the Company by any other party. 7.12 Repurchase Option. A separate agreement will be negotiated between ----------------- the Company and the Purchaser covering measures to ensure continuity of core management. As part of this agreement, the Purchaser will offer to the Company the option to repurchase to 300,000 shares of the Shares purchased by the Purchaser under this Agreement at $8.625 per share. SECTION 8 COMPANY RIGHT OF FIRST REFUSAL 8.1 Right of First Refusal. Prior to making any sale or transfer of ---------------------- Voting Stock of the Company pursuant to Section 7.6(v), Purchaser shall give the Company the opportunity to purchase such Voting Stock in the following manner: (a) The Purchaser shall give notice (the "Transfer Notice") to the Company in writing of such intention specifying the names of the proposed purchasers or transferees, the amount of Voting Stock proposed to be sold or transferred, the proposed price per share therefor (the "Transfer Price") and the other material terms upon which such disposition is proposed to be made. (b) The Company shall have the right, exercisable by written notice given by the Company to the Purchaser within twenty (20) days after receipt of such Transfer Notice, to purchase all or any portion of the Voting Stock specified in such Transfer Notice for cash per share equal to the Transfer Price. -28- (c) If the Company exercises its right of first refusal hereunder, the closing of the purchase of the Voting Stock with respect to which such right has been exercised shall take place within sixty (60) days after the Company gives notice of such exercise, which period of time shall be extended if necessary to comply with applicable securities laws and regulations. Upon exercise of its right of first refusal, the Company and the Purchaser shall be legally obligated to consummate the purchase contemplated thereby and shall use their best efforts to secure any approvals required in connection therewith. (d) If the Company does not exercise its right of first refusal hereunder within the time specified for such exercise, the Purchaser shall be free, during the period of ninety (90) days following the expiration of such time for exercise, to sell the Voting Stock specified in such Transfer Notice on terms no less favorable to the Purchaser than the terms specified in such Transfer Notice, which period shall be extended, if necessary, to comply with applicable securities laws and regulations. The transferee shall acquire such Voting Stock free from any of the provisions of this Agreement, provided, however, such Voting Stock shall be subject to any restrictions imposed under applicable securities laws and regulations. (e) The right of first refusal granted under this Section 8.1 shall expire on September 1, 1996, subject to the provisions of Sections 4.8 and 7.6 above. 8.2 Tender Offer Sale. Prior to making any sale or exchange of Voting ----------------- Stock pursuant to Section 7.6(vi)(2) in response to a tender or exchange offer, Purchaser shall give the Company the opportunity to purchase such Voting Stock in the following manner: (a) The Purchaser shall give notice (the "Tender Notice") to the Company in writing of such intention no later than ten (10) days prior to the latest time (as the same may be extended) by which Voting Stock must be tendered in order to be accepted pursuant to such offer or to qualify for any proration applicable to such offer (the "Tender Date"), specifying the amount of Voting Stock proposed to be tendered. For purposes hereof, a tender offer to purchase Voting Stock shall be deemed to be an offer at the price specified therein, without regard to any provisions thereof with respect to proration or conditions to the offeror's obligation to purchase (assuming such conditions are not impossible to fulfill when the offer is made, without giving effect to the Company's right of first refusal). -29- (b) If the Tender Notice is given, the Company shall have the right, exercisable by giving notice (the "Purchase Notice") to the Purchaser at least five (5) business days prior to the Tender Date, to purchase all or any portion of the Voting Stock specified in the Tender Notice for cash. If the Company exercises such right by giving such notice, the closing of the purchase of such Voting Stock shall take place on the fifth business day after the tender offer is consummated, or such earlier time as the Company and Purchaser shall agree; provided that the Company's obligation to purchase such shares of Voting Stock following delivery of any Purchase Notice shall be contingent on consummation of the tender offer referred to in the corresponding Tender Notice. As a condition to the effectiveness of any exercise by the Company of its rights to purchase under this Section 8.2, at the time the Company delivers a Purchase Notice, it shall have provided for the payment to the Purchaser of the purchase price for such shares by an escrow of funds, letter of credit facility, bank guarantee or similar arrangement reasonably acceptable to the Purchaser. Upon exercise of this right of first refusal (including provision for payment as described above), the Company and the Purchaser shall be legally obligated to consummate the purchase contemplated thereby and shall use their best efforts to secure any approvals required in connection therewith, subject only to consummation of the tender offer referred to in the corresponding Tender Notice. (c) The purchase price to be paid by the Company pursuant to this Section 8.2, if such tender offer is consummated, shall be the purchase price that the Purchaser would have received if it had tendered the Voting Stock purchased by the Company and all such Voting Stock had been purchased in such tender offer, including any increases in the price paid by the tender offeror after exercise by the Company of its right of first refusal hereunder. If the purchase price paid by the tender offeror includes any property other than cash, the value of such property shall be determined in good faith by the Board of Directors of the Company. The Company and the Purchaser shall use their best efforts to cause any determination of the value of any such property included in the purchase price to be made within two (2) business days after consummation of the tender offer. The Company and the Purchaser shall each share equally the costs of any investment banking firm selected hereunder. (d) If the Company does not exercise such right by giving such notice or fails to complete the purchase, then the Purchaser shall be free to accept the tender offer with respect to which the Tender Notice was given. -30- (e) The provisions of this Section 8.2 shall expire on September 1, 1996, subject to the provisions of Sections 4.8 and 7.6 above. 8.3 Assignment of Rights. In the event that the Company elects to -------------------- exercise a right of first refusal under this Section 8, the Company may specify prior to closing such purchase another person as its designee to purchase all or part of the Voting Stock to which such notice relates. Any such designee shall be subject to the approval of the Purchaser proposing to sell or tender, as the case may be, any of its Shares, which approval shall not unreasonably be withheld. If the Company shall designate another person as the purchaser pursuant to this Section 8, the giving of notice of acceptance of the right of first refusal by the Company shall constitute a legally binding obligation of the Company to complete such purchase if such person shall fail to do so. 8.4 Termination. Notwithstanding any other provision of this Section 8, ----------- the provisions of this Section shall terminate and be of no further force and effect if the Total Voting Power then held by the Purchaser becomes less than five percent (5%) of the Total Voting Power of the Company. SECTION 9 INDEMNIFICATION 9.1 Survival of Representations and Warranties. Notwithstanding any right ------------------------------------------ of Purchaser fully to investigate the affairs of the Company and notwithstanding any knowledge of facts determined or determinable by Purchaser pursuant to such investigation or right of investigation, the Purchaser has the right to rely fully upon the representations, warranties, covenants and agreements of the Company contained in this Agreement. All representations and warranties here shall survive the execution and delivery of this Agreement for a period of two and one-half (2 1/2) years after the Closing and all covenants and agreements shall survive until performed or waived. 9.2 Obligation to Indemnify. ----------------------- (a) The Company agrees to indemnify, defend and hold harmless the Purchaser and its Affiliates (and the directors, officers, employees, successors and assigns of each of them) from and against all claims, actions, suits, losses, liabilities, damages, deficiencies, judgments, settlements, costs of investiga- -31- tion or other expenses (including but not limited to interest, penalties and reasonable attorneys' fees and disbursements incurred in connection with enforcing this indemnification or otherwise in connection with any of the foregoing) (collectively, the "Losses") based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation or warranty or non-performance or non-compliance of any covenant of the Company contained in this Agreement, the Registration Rights Agreement (except as otherwise provided therein) and the Warrant. (b) The Purchaser agrees to indemnify, defend and hold harmless the Company and its Affiliates (and the directors, officers, employees, successors and assigns of each of them) from and against all Losses based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation or warranty of the Purchaser or non-performance or non-compliance of any covenant of the Purchaser contained in this Agreement, the Registration Rights Agreement (except as otherwise provided therein) and the Warrant. 9.3 Notice and Opportunity to Defend. -------------------------------- (a) In the event that any party hereto shall sustain or incur any Losses in respect of which indemnification may be sought by such person pursuant to Section 9.2, the person seeking such indemnification (the "Indemnitee") shall assert a claim for indemnification by giving prompt written notice thereof (a "Claims Notice") which shall describe in reasonable detail the facts and circumstances upon which the asserted claim for indemnification is based, to the party providing indemnification (the "Indemnitor") and shall thereafter keep the Indemnitor reasonably informed with respect thereto; provided that failure of the Indemnitee to give the Indemnitor prompt notice as provided herein shall not relieve the Indemnitor of any of its obligations hereunder, except to the extent that the Indemnitor is materially prejudiced by such failure. In case any claim, action, suit, hearing or other proceeding (a "Claim") is brought against any Indemnitee, the Indemnitor shall have the right to assume, conduct and control the defense, compromise or settlement thereof, by written notice to the Indemnitee of its intention to do so within ten (10) days after receipt of the Claims Notice, with counsel reasonably satisfactory to the Indemnitee, at the Indemnitor's own expense, and thereupon to prosecute in the name and on behalf of the Indemnitee any available cross-claims, counterclaims or third-party claims arising with respect to the Claim. If the Indemnitor shall assume the defense of such Claim, it shall not settle such Claim unless such settlement includes as an unconditional term thereof the giving by the claimant or the plaintiff of a release of the Indemnitee, satisfactory -32- to the Indemnitee, from all liability with respect to such Claim nor shall the Indemnitor settle such Claim without the written consent of the Indemnitee. As long as the Indemnitor is contesting any such Claim in good faith and on a timely basis, the Indemnitee shall not pay or settle any such Claim. Notwithstanding the assumption by the Indemnitor of the defense of any Claim as provided in this Section 9.3.(a) and without limiting the Indemnitor's right to assume, conduct and control the defense, compromise or settlement thereof, the Indemnitee shall be permitted to join in the defense of such Claim and to employ counsel at its own expense, so long as such joining does not interfere with the Indemnitor's right to conduct and control such matter. (b) If the Indemnitor shall fail to notify the Indemnitee of its desire to assume the defense of any such Claim within the prescribed ten (10) day period set forth in Section 9.3.(a), or shall notify the Indemnitee that it will not assume the defense of any such Claim, or if the Indemnitee shall have defenses available to it which conflict with or are different than the defenses of the Indemnitor, then the Indemnitee may assume the defense of any such Claim at the Indemnitor's expense, in which event it may do so in such manner as it may deem appropriate, and the Indemnitor shall be bound by any determinations made in any litigation or other proceeding with respect to such Claim or any settlement thereof effected by the Indemnitee. SECTION 10 MISCELLANEOUS 10.1 Certain Definitions. As used in this Agreement: ------------------- (a) The term "Total Voting Power of the Company" means the total number of votes which may be cast in the election of directors of the Company at any meeting of stockholders of the Company if all securities entitled to vote in the election of directors of the Company were present and voted at such meeting. (b) The term "Voting Stock" means the Common Stock and any other securities issued by the Company, including the Warrant Shares when issued upon exercise of the Warrant, having the ordinary power to vote in the election of directors of the Company. (c) The term "Significant Event" means (i) any proposed amendment to the Certificate of Incorporation or Bylaws of the Company (other than a proposal to create an authorized class of Preferred Stock or increase the number of authorized shares of -33- Common Stock or Preferred Stock), (ii) disposition of the Company (by way of merger, sale of stock or disposition of all or substantially all assets or otherwise), (iii) recapitalization, (iv) liquidation or dissolution, (v) any vote pursuant to any provision of law or the Company's Certificate of Incorporation or Bylaws requiring or permitting stockholders to approve any business combination proposed by or with another person or its affiliates which have acquired a certain percentage of the Company's shares or to grant voting rights to such person or to waive or adopt provisions requiring such a vote, or (vi) any action, including a change in the size, structure or membership of the Company's Board of Directors which the Purchaser, in its sole discretion, determines would be materially adverse to the Purchaser's interest in the Company (other than actions contemplated by this Agreement). (d) "Average Market Price" of the Voting Stock at any date shall be the average, based on the ten (10) consecutive trading days ending on the trading date last preceding the date of determination of such price (the "Average"), of the closing prices for a share of such security on the principal national securities exchange on which such security is listed, or, if such security is not listed on any national securities exchange, the Average of the closing prices for a share of such security on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or, if such closing prices shall not be reported on NASDAQ, the Average of the mean between the closing bid and asked prices of a share of such security in such case as reported by The Wall Street Journal, or, if such prices shall not be so ----------------------- reported, as the same shall be reported by the National Quotation Bureau Incorporated, or, in all other cases, the value as determined by a single nationally recognized investment banking firm jointly selected by the Company and the Purchaser. For this purpose, the parties shall use their best efforts to cause any determination of the value to be made within ten (10) business days after the date on which the value is to be measured. The determination by the investment banking firm selected in the manner set forth above shall be conclusive. (e) The terms "beneficial ownership" or "beneficial owner" refer to the meaning of such terms as provided in Rule 13d-3 promulgated under the Exchange Act. References to the acquiring, holding or ownership of Voting Stock hereunder mean beneficial ownership. (f) The term "group" shall have the meaning comprehended by Section 13(d)(3) of the Exchange Act and the rules and regulations promulgated thereunder. -34- (g) The term "person" shall mean any person, individual, corporation, partnership, trust or other nongovernmental entity or any governmental agency, court, authority or other body (whether foreign, federal, state, local or otherwise). (h) The term "Total Potential Voting Power," as it relates to Purchaser's equity position in the Company shall mean Purchaser's percentage of Total Voting Power after taking into account the exercise by Purchase of the Warrant and any other securities or other instruments held by Purchaser which are convertible into Voting Stock. (i) The term "Affiliate" shall mean any person that controls, is controlled by or is under common control with the referenced person. 10.2 Termination of Agreement. This Agreement may be terminated: ------------------------ (a) by either party prior to the Closing if the other party violates or fails to perform any of the material covenants or agreements of the other party under this Agreement; provided, however, that neither party shall be entitled to terminate this Agreement pursuant to this sentence unless it shall have delivered written notice of such default to the other party and such default shall not have been cured within thirty (30) days after delivery of such notice; (b) by Purchaser or the Company if the Closing shall not have taken place on or before October 31, 1994; or (c) upon mutual consent of Purchaser of the Company. 10.3 Effect of Termination. From and after the termination of this --------------------- Agreement, the covenants, obligations and agreements of the parties set forth herein shall be of no further force or effect and the parties shall be under no further obligation with respect thereto; provided, however, that in the event of such termination, to the extent the terms thereof continue to be applicable, the covenant of the Purchaser contained in Section 7.7 shall continue in full force and effect. 10.4 Best Efforts. The Company and Purchaser shall use their respective ------------ best efforts to take all actions required under the HSR Act and under any law, rule or regulation adopted subsequent to the date hereto in order that the Company may sell the Shares and the Warrant to the Purchaser and the Purchaser may purchase the Shares and the Warrant and any Voting Stock it may wish to purchase in the -35- future and to ensure that the conditions to the Closing set forth herein are satisfied on or before the scheduled date of such Closing. 10.5 Governing Law; Disputes. This Agreement is made subject to and shall ----------------------- be construed under the laws of the State of Delaware as applied to contracts entered into solely between residents of, and to be performed entirely within, such state. The parties agree that the state and federal courts situated in the State of Delaware shall have exclusive jurisdiction to resolve any disputes with respect to this Agreement, with each party irrevocably consenting to the jurisdiction thereof for any actions, suits or proceedings arising out of or relating to this Agreement. The parties hereto irrevocably waive trial by jury. In the event of any litigation hereunder, the prevailing party shall be entitled to costs and reasonable attorneys' fees. In the event of any breach of the provisions of this Agreement, the parties shall be entitled to equitable relief, including in the form of injunctions and orders for specific performance, where the applicable legal standards for such relief in such courts are met, in addition to all other remedies available to the parties with respect thereto at law or in equity. Notwithstanding anything to the contrary herein or which may be based on facts or circumstances pertaining to this Agreement, the Company hereby irrevocably and unconditionally waives and releases all rights and claims that it may now or hereafter have that Purchaser's parent, Siemens Aktiengesellschaft or any of Purchaser's Affiliates organized outside the United States (including Siemens Nixdorf Informationssysteme AG, ("SNI")), is subject to the jurisdiction of the federal or state courts of the United States with respect to this Agreement, provided that nothing in such waiver and release -------- shall affect the Company's rights, if any, to pursue any claim whatsoever against Siemens Aktiengesellschaft or SNI in the courts of the Federal Republic of Germany. In addition, Purchaser hereby irrevocably and unconditionally waives and releases all rights and claims that it may now or hereafter have that the Company is subject to the jurisdiction of the courts of the Federal Republic of Germany with respect to this Agreement, provided that nothing in such waiver and release shall affect Purchaser's rights, if any, to pursue any claim whatsoever against the Company in the federal or state courts of the United States. 10.6 Successors and Assigns. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by a party without the prior written consent of the other party; provided, however, that the Purchaser shall have the right, upon prior notice to the Company, to assign this Agreement -36- to any Wholly-Owned Subsidiary of the Purchaser, the principal offices of which are located in the United States. 10.7 Entire Agreement; Amendment. This Agreement and the other documents --------------------------- delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof and supersede all prior agreements and understandings among the parties relating to the subject matter hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 10.8 Notices and Dates. Any notice or other communication given under this ----------------- Agreement shall be sufficient if in writing and sent by registered, certified mail or facsimile, return receipt requested, postage prepaid, to a party at its address set forth below (or at such other address as shall be designated for such purpose by such party in a written notice to the other party hereto): (a) if to the Company, to it at: Pyramid Technology Corporation 3860 North First Street San Jose, CA 95134 Attn: General Counsel (408) 428-8820 (fax) with a copy to: Larry W. Sonsini, Esq. Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304-1050 (415) 496-4084 (fax) (b) if to Purchaser, to it at: Siemens Nixdorf Information Systems, Inc. c/o Siemens Nixdorf Informationssysteme AG Postcach 2160 Furstenalle 7W-4790 Paderborn, Germany Attn: Mr. G. Schulmeyer 011-4989-636-2519 (fax) -37- with a copy to: Siemens Corporation 1301 Avenue of the Americas, 42nd Floor New York, NY 10019 Attn: E. Robert Lupone, Esq., Legal Department (212) 258-4945 (fax) All such notices and communications shall be effective when received by the addressee. In the event that any date provided for in this Agreement falls on a Saturday, Sunday or legal holiday, such date shall be deemed extended to the next business day. 10.9 Brokers. ------- (a) The Company has not engaged, consented to or authorized any broker, finder or intermediary, except Smith Barney Inc. ("Smith Barney"), to act on its behalf, directly or indirectly, as a broker, finder or intermediary in connection with the transactions contemplated by this Agreement. All fees, commissions and other payments owing to Smith Barney as a result of its or its employees' participation, negotiations, or other actions, taken in connection with this Agreement are the sole responsibility and obligation of the Company. The Company hereby agrees to indemnify and hold harmless the Purchaser from and against all fees, commissions or other payments owing to Smith Barney or any other party acting on behalf of the Company hereunder. (b) The Purchaser has not engaged, consented to or authorized any broker, finder or intermediary to act on its behalf, directly or indirectly, as a broker, finder or intermediary in connection with the transactions contemplated by this Agreement. The Purchaser hereby agrees to indemnify and hold harmless the Company from and against all fees, commissions or other payments owing to any party acting on its behalf. 10.10 Severability. If any term, provision, covenant or restriction of ------------ this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restriction of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 10.11 Injunctive Relief. Purchaser, on the one hand, and the Company, ----------------- on the other, acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that -38- the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specific performance of the terms and provisions hereof in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which they may be entitled at law or equity. 10.12 Attorneys' Fees. The prevailing party in any litigation between --------------- Purchaser and the Company involving this Agreement, the Registration Rights Agreement or the Warrant shall be entitled to recover from the other party its reasonable attorneys' fees and costs. 10.13 Costs and Expenses. Each party hereto shall pay its own costs ------------------ and expenses incurred in connection herewith, including the fees of its counsel, auditors and other representatives, whether or not the transactions contemplated herein are consummated. 10.14 No Third Party Rights. Nothing in this Agreement shall create or --------------------- be deemed to create any rights in any person or entity not a party to this Agreement. 10.15 Publicity. Purchaser and the Company shall not, without the --------- prior approval of each other party hereto, make or cause to be made any press release or other public statement concerning the transactions contemplated from time to time by this Agreement, except as and to the extent that any party hereto is so obligated by law or the regulations of any stock exchange or the NASD (but only after the Company or the Purchaser, as the case may be, shall have consulted with the other party in advance regarding the form and substance of such press release or public statement). 10.16 Counterparts. This Agreement may be executed in counterpart ------------ copies, each of which shall be deemed as original and all of which, when taken together, shall constitute one instrument. -39- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers as of the date aforesaid. -40- "COMPANY" PYRAMID TECHNOLOGY CORPORATION By: ________________________________ Name: Title: "PURCHASER" SIEMENS NIXDORF INFORMATION SYSTEMS, INC. By: ________________________________ Name: Title: By: ________________________________ Name: Title: -41- EXHIBIT 99(d)(2) SUPPLEMENT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF PYRAMID TECHNOLOGY CORPORATION AT $16.00 NET PER SHARE BY SIEMENS NIXDORF MID-RANGE ACQUISITION CORP. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF SIEMENS NIXDORF INFORMATIONSSYSTEME AG A DIRECT WHOLLY OWNED SUBSIDIARY OF SIEMENS AKTIENGESELLSCHAFT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, FEBRUARY 24, 1995, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED OF RECORD BY SIEMENS NIXDORF INFORMATIONSSYSTEME AG OR ANY OF ITS SUBSIDIARIES ON THE DATE HEREOF (OTHER THAN SHARES ISSUABLE UPON EXERCISE OF THE WARRANT (AS DEFINED BELOW)), SHALL CONSTITUTE A MAJORITY OF THE THEN OUTSTANDING SHARES ON A FULLY DILUTED BASIS (OTHER THAN ANY SHARES ISSUABLE UPON THE EXERCISE OF THE WARRANT AND OTHER THAN THE RIGHTS (AS DEFINED IN THE OFFER TO PURCHASE)) AND (II) THE EXPIRATION OR TERMINATION OF ALL WAITING PERIODS IMPOSED UPON CONSUMMATION OF THE OFFER BY ANY APPLICABLE FOREIGN COMPETITION STATUTES AND REGULATIONS, AS WELL AS THE OTHER CONDITIONS DESCRIBED IN THE OFFER TO PURCHASE. SEE SECTION 14 OF THE OFFER TO PURCHASE, WHICH SETS FORTH IN FULL THE CONDITIONS OF THE OFFER, AS WELL AS SECTION 15 OF THE OFFER TO PURCHASE AND THE SECTION OF THIS SUPPLEMENT ENTITLED "CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS", WHICH DISCUSS CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. THE BOARD OF DIRECTORS OF PYRAMID TECHNOLOGY CORPORATION HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF PYRAMID TECHNOLOGY CORPORATION, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. -------------- IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's shares of common stock, par value $.01 per share (the "Shares"), of Pyramid Technology Corporation should either (1) complete and sign the Letter of Transmittal which was mailed together with the Offer to Purchase (or a facsimile thereof) in accordance with the instructions in such Letter of Transmittal and mail or deliver it together with the certificate(s) evidencing tendered Shares, and any other required documents, to the Depositary or tender such Shares pursuant to the procedure for book-entry transfer set forth in Section 3 of the Offer to Purchase or (2) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Any stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such stockholder desires to tender such Shares. A stockholder who desires to tender Shares and whose certificates evidencing such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedure for guaranteed delivery set forth in Section 3 of the Offer to Purchase. Questions or requests for assistance may be directed to the Information Agent at its address and telephone numbers set forth on the back cover of this Supplement. Questions or requests for assistance may also be directed to the Dealer Managers at their address on the back cover of this Supplement. Additional copies of this Supplement, the Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. -------------- The Dealer Managers for the Offer are: GOLDMAN, SACHS & CO. -------------- TABLE OF CONTENTS
PAGE ---- INTRODUCTION.............................................................. 1 SPECIAL FACTORS........................................................... 3 1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger................................. 3 2. Opinion of Smith Barney as Financial Advisor to the Company.......... 5 3. Position of SNI AG Regarding the Fairness of the Offer and the Merg- er................................................................... 8 4. Analysis of Goldman Sachs as Financial Advisors to SNI AG............ 9 5. Purpose and Structure of the Offer and the Merger; Reasons of SNI AG for the Offer and the Merger......................................... 11 6. Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger.................................. 11 7. Rights of Stockholders in the Merger................................. 12 8. Interests of Certain Persons in the Offer and the Merger............. 13 CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS............................ 14 FEES AND EXPENSES......................................................... 14 MISCELLANEOUS............................................................. 15
Annex A --Summary of Stockholder Appraisal Rights and Text of Section 262 of the Delaware General Corporation Law Annex B --Audited Consolidated Financial Statements (and Related Notes) for the Company for the Fiscal Years ended September 30, 1993 and September 30, 1994 and Unaudited Consolidated Financial Statements (and Related Notes) for the Company for the First Quarter of the Fiscal Year ending September 30, 1995
To the Holders of Common Stock of Pyramid Technology Corporation: INTRODUCTION The information contained in this Supplement (the "Supplement") amends and supplements the Offer to Purchase dated January 27, 1995 (the "Offer to Purchase") of Siemens Nixdorf Mid-Range Acquisition Corp. ("Purchaser"), a Delaware corporation and an indirect wholly owned subsidiary of Siemens Nixdorf Informationssysteme AG ("SNI AG"), a company organized under the laws of the Federal Republic of Germany and a direct wholly owned subsidiary of Siemens Aktiengesellschaft ("Siemens AG"), a company organized under the laws of the Federal Republic of Germany. Pursuant to the Offer to Purchase and this Supplement, Purchaser hereby offers to purchase all outstanding shares of common stock, par value $.01 per share (the "Shares"), of Pyramid Technology Corporation, a Delaware corporation (the "Company"), at a price of $16.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Supplement, the Offer to Purchase and in the related Letter of Transmittal (which together constitute the "Offer"). Purchaser is a direct wholly owned subsidiary of Siemens Nixdorf Information Systems, Inc., a Massachusetts corporation ("SNI U.S."), which is itself a direct wholly owned subsidiary of SNI AG. This Supplement is being provided to the Company's stockholders in response to the Commission's position that SNI AG controls the Company and therefore is an "affiliate" of the Company for purposes of Rule 13e-3 ("Rule 13e-3") promulgated under the Securities Exchange Act of 1934, as amended. Although neither SNI AG nor the Company believes that SNI AG controls the Company and therefore is an "affiliate" of the Company for purposes of Rule 13e-3, SNI AG and the Company are nevertheless providing this Supplement to the Company's stockholders in order to supplement the information already provided to them in the Offer to Purchase which was mailed to the Company's stockholders on January 27, 1995. Except as otherwise set forth in this Supplement, the terms and conditions previously set forth in the Offer to Purchase remain applicable in all respects to the Offer, and this Supplement should be read in conjunction with the Offer to Purchase. Unless the context requires otherwise, terms not defined herein have the meanings ascribed to them in the Offer to Purchase. THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") UNANIMOUSLY (WITH ONE DIRECTOR RECUSING HIMSELF) HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED BELOW) IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. Smith Barney Inc. ("Smith Barney"), the Company's financial advisor, has delivered to the Company's Board of Directors its written opinion to the effect that, as of the date of such opinion, the consideration to be received by the stockholders of the Company pursuant to each of the Offer and the Merger is fair from a financial point of view. A copy of the opinion of Smith Barney is attached as Annex B to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which was mailed to the Company's stockholders on January 27, 1995. THE OFFER IS CONDITIONED UPON (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED OF RECORD BY SNI AG OR ANY OF ITS SUBSIDIARIES ON THE DATE HEREOF (OTHER THAN SHARES ISSUABLE UPON EXERCISE OF THE WARRANT (AS DEFINED BELOW)), SHALL CONSTITUTE A MAJORITY OF THE THEN OUTSTANDING SHARES ON A FULLY DILUTED BASIS (INCLUDING, WITHOUT LIMITATION, ALL SHARES ISSUABLE UPON THE EXERCISE OF ANY OPTIONS, WARRANTS OR RIGHTS (OTHER THAN ANY SHARES ISSUABLE UPON THE EXERCISE OF THE WARRANT AND OTHER THAN 1 THE RIGHTS (AS DEFINED IN THE OFFER TO PURCHASE))) (THE "MINIMUM CONDITION") AND (II) THE EXPIRATION OR TERMINATION OF ALL WAITING PERIODS IMPOSED UPON CONSUMMATION OF THE OFFER BY ANY APPLICABLE FOREIGN COMPETITION AND ANTITRUST STATUTES AND REGULATIONS, AS WELL AS THE OTHER CONDITIONS DESCRIBED IN SECTION 14 OF THE OFFER TO PURCHASE WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. On February 3, 1995, Purchaser was informed by the Federal Trade Commission that early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), relating to the purchase of Shares pursuant to the Offer had been granted. Accordingly, the condition to the Offer requiring the expiration or termination of any applicable waiting period under the HSR Act prior to expiration of the Offer has been satisfied. The Offer remains subject to the other conditions set forth in Section 14 of the Offer to Purchase. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of January 20, 1995 (the "Merger Agreement") among SNI AG, Purchaser and the Company. The Merger Agreement provides that, among other things, as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware ("Delaware Law"), Purchaser will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and will become an indirect wholly owned subsidiary of SNI AG. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company or owned by Purchaser, SNI AG or any direct or indirect wholly owned subsidiary of SNI AG or the Company, and other than Shares held by stockholders who shall have demanded and perfected appraisal rights, if any, under Delaware Law) will be cancelled and converted automatically into the right to receive $16.00 in cash, or any higher price that may be paid per Share in the Offer, without interest (the "Merger Consideration"). The Merger Agreement is more fully described in Section 10 of the Offer to Purchase. The Company has advised Purchaser that as of January 31, 1995, 15,644,971 Shares were issued and outstanding and that the Shares were held by approximately 751 record holders. The Company has advised Purchaser that as of January 31, 1995, the Company had reserved a total of 3,344,996 Shares for future issuance pursuant to outstanding employee stock options or stock incentive rights, 339,697 Shares were reserved for future issuance pursuant to future grants of employee stock options or stock incentive rights and a total of 1,330,000 Shares were reserved for issuance upon exercise of the Warrant (as defined below). SNI AG currently owns 2,717,743 Shares, which it acquired in a series of transactions. In 1985, the Company entered into a Convertible Subordinated and Preferred Stock Purchase Agreement (the "Nixdorf Stock Agreement") with Nixdorf Computer AG ("Nixdorf"). Under the Nixdorf Stock Agreement, Nixdorf purchased approximately 5% of the Company's Shares. The Nixdorf Stock Agreement also gave Nixdorf the right to purchase its pro rata share of certain equity financings of the Company as long as Nixdorf held a minimum 5% stock interest. In March 1990, Nixdorf exercised its right to purchase approximately 140,000 Shares as part of the Company's secondary public offering of the Shares, to maintain Nixdorf's pro rata equity ownership at approximately 5% of the Company's Shares. In 1990, Nixdorf became majority- owned by Siemens AG, which renamed Nixdorf as Siemens Nixdorf Informationssysteme AG ("SNI AG" herein). Subsequently, on August 21, 1994, the Company and SNI U.S. entered into the Common Stock and Warrant Purchase Agreement (the "Purchase Agreement") pursuant to which, on September 13, 1994, SNI U.S. purchased (i) 2,000,000 Shares and (ii) a warrant (the "Warrant") to purchase up to 1,330,000 Shares, for an aggregate purchase price of $17,250,000. Subsequently, SNI U.S. transferred to SNI AG the 2,000,000 Shares and the Warrant. In connection with such transfer, SNI AG assumed all of SNI U.S.'s rights and obligations under the Purchase Agreement and the Registration Rights Agreement, dated 2 as of September 13, 1994, between the Company and SNI U.S. The Shares beneficially owned by SNI AG on the date hereof (excluding any Shares issuable upon exercise of the Warrant) constitute 17.37% of the issued and outstanding Shares as of January 31, 1995. SNI AG intends to transfer the 2,717,743 Shares it owns on the date hereof to Purchaser immediately following the purchase of Shares by Purchaser pursuant to the Offer. SNI AG does not currently intend to exercise the Warrant in connection with the Offer and the Merger. Consequently, as of the date hereof, the Minimum Condition would be satisfied if Purchaser acquired 6,947,090 Shares. Pyramid and SNI AG have entered into equipment sales and technology licensing transactions during fiscal years 1993, 1994 and the first quarter of fiscal 1995. Revenues attributable to SNI AG and the associated percentage of Pyramid's total revenues were $14,983,000 in fiscal year 1993 (6.4% of Pyramid's total revenues), $11,312,000 in fiscal year 1994 (5.2%), and $6,587,000 in the first quarter of fiscal year 1995 (10.6%). PROCEDURES FOR TENDERING SHARES ARE SET FORTH IN SECTION 3 OF THE OFFER TO PURCHASE. THIS SUPPLEMENT AND THE OFFER TO PURCHASE CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. SPECIAL FACTORS 1. RECOMMENDATION OF THE BOARD; POSITION OF THE COMPANY REGARDING THE FAIRNESS OF THE OFFER AND THE MERGER In the spring of 1994, the Company began to consider alternative means of raising additional working capital to support its operations. Because the Company's financial performance at that time did not permit the Company access to the public capital markets on terms acceptable to the Company, the Company evaluated the possibility of establishing financing or strategic relationships with other companies in its industry. In this context, management of the Company contacted and had talks with representatives of two companies about the possibility of a variety of arrangements, including product licensing arrangements, a minority equity investment in the Company and an acquisition of or other corporate combination with the Company. The discussions with these companies ended in each case without any agreement as to any possible arrangement. In the summer of 1994, another company in the Company's industry contacted management of the Company concerning a possible acquisition while the Company was in the process of negotiating a strategic equity investment with SNI U.S. (which culminated in the Purchase Agreement). However, because of the Company's belief in the favorable benefits that could be expected from a closer relationship with SNI U.S., this contact never proceeded beyond preliminary discussions. The Company has not received any other inquiries or expressions of interest concerning a potential transaction with the Company from other potential buyers following the joint public announcement by the Company and SNI AG on January 9, 1995 of their entering into discussions concerning a potential negotiated merger transaction. The Board at a special meeting held on January 20, 1995 determined that the Offer and the transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company's stockholders (other than SNI AG and its affiliates), approved and adopted the Merger Agreement and the transactions contemplated thereby and recommended that stockholders accept the Offer and (if a shareholder vote is required under Delaware Law) approve the Merger Agreement and the Merger. The January 20 meeting of the Board was attended by all directors other than Dr. Rudolph Bodo, SNI AG's designee on the Company's Board, who is also Vice President and General Manager of SNI AG's Mid-Range Systems Unit. Dr. Bodo recused himself from all deliberations of the Board concerning, and has not acted on behalf of SNI AG in connection with, the Offer and the Merger. Subject to Dr. Bodo's absence as a participating Board member, the approval and recommendation of the Board concerning the Offer and the Merger were unanimous. A copy of the Company's letter to 3 stockholders dated January 27, 1995 was filed as Exhibit 20.2 to the Schedule 14D-9 and is incorporated herein by reference. Reference is made to the Offer to Purchase for a summary of SNI AG's contacts with the Company leading to the execution of the Merger Agreement. In reaching the determination described above, the Board considered a number of factors, including, without limitation, the following: (i) The historical financial condition and results of operations of the Company, and the projected financial condition and results of operations of the Company on both a long-term and short-term basis; (ii) The business and strategic objectives of the Company, and the attendant risks involved in achieving those objectives; (iii) A review of the possible alternatives to the Offer and the Merger (including the possibility of continuing to operate the Company as an independent entity and the sale of the Company through a merger or by any other means to other potential buyers), the range of possible values to the Company's stockholders of such alternatives and the timing and the likelihood of actually accomplishing those alternatives; (iv) The detailed financial and valuation analyses presented to the Board by Smith Barney, including market prices and financial data relating to other companies engaged in businesses considered comparable to the Company and the prices and premiums paid in recent selected acquisitions of companies engaged in businesses considered comparable to those of the Company; (v) The relationship of the Offer price to current and historical market prices of the Shares and to other relevant valuation measures; (vi) The presentation of Smith Barney at the January 20, 1995 Board meeting and the written opinion of Smith Barney as of that date, that the consideration to be received by the stockholders of the Company, pursuant to the Offer and the Merger, is fair, from a financial point of view; (vii) A review of discussions between the Company and representatives of other companies in the Company's industry concerning strategic, financing and other relationships which had taken place prior to the Company's discussions and negotiations with SNI AG with respect to the Offer and the Merger; (viii) The absence of any inquiries or expressions of interest concerning a potential transaction with the Company from other potential buyers following the joint public announcement by the Company and SNI AG on January 9, 1995 of their entering into discussions concerning a potential negotiated merger transaction, and the fact that the Merger Agreement does not preclude the Company from discussing with third parties unsolicited competing offers or, subject to payment of a "break-up" fee and expenses, from accepting a competing offer which the Board determines, in the exercise of its fiduciary duties, to be more favorable to the Company's stockholders than the Offer and the Merger; (ix) The likelihood that the proposed acquisition would be consummated, including the experience, reputation and financial condition of SNI AG and its ultimate parent, Siemens AG, and the risks to the Company that the acquisition would not be consummated; and (x) The effect of the transaction on the Company's relationship with its employees and the communities in which it operates. In view of the wide variety of factors considered in connection with its evaluation of the Offer and the Merger, the Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its respective determinations. 4 The Board recognized that the Offer and the Merger are not structured to require the approval of a majority of the stockholders of the Company other than SNI AG, and that Purchaser, if it purchases a sufficient number of Shares to satisfy the Minimum Condition, would have sufficient voting power to approve the Merger without the affirmative vote of any other stockholder of the Company. While consummation of the Offer would result in the stockholders of the Company receiving a premium for their Shares over the trading prices of the Shares prior to the announcement of the Offer and the Merger, it would eliminate any opportunity for stockholders of the Company other than SNI AG to participate in the potential future growth prospects of the Company. The Board, however, believed that this was reflected in the Offer price to be paid. The Board determined that it was not necessary to appoint a committee of independent directors or an unaffiliated representative to act solely on behalf of the unaffiliated stockholders of the Company for the purpose of negotiating the terms of the Merger Agreement. In making such determination, the Board noted that of the seven directors who participated in the deliberations concerning the Offer and the Merger, five are not employed by the Company and will have no financial interest in the Company following consummation of the Merger. Dr. Bodo, SNI AG's designee on the Board, did not participate in any Board deliberations concerning, or act on behalf of Purchaser in connection with, the Offer and the Merger. As noted above, the Board unanimously (with Dr. Bodo recusing himself) has determined that each of the Offer and the Merger is fair to, and in the best interests of, the stockholders of the Company. The Company has advised Purchaser that, to the Company's knowledge after reasonable inquiry, each of the Company's executive officers, directors and affiliates, with the exception of SNI AG and any subsidiary of SNI AG, including Purchaser, presently intends to tender all Shares held of record or beneficially owned by such person pursuant to the Offer, other than Shares, if any, held by any such person which when tendered, could subject such person to liability under the provisions of Section 16(b) of the Exchange Act. See Item 6 of the Schedule 14D-9. Except for the recommendation of the Board contained in this Supplement and in the Schedule 14D-9, to the Company's knowledge after reasonable inquiry, no executive officer, director or affiliate of the Company has made a recommendation in support of or opposed to the Offer or the Merger. 2. OPINION OF SMITH BARNEY AS FINANCIAL ADVISOR TO THE COMPANY Smith Barney was retained by the Company to act as its financial advisor in connection with the Board's consideration of the Offer and the Merger. In connection with such engagement, the Company requested that Smith Barney evaluate the fairness, from a financial point of view, to the stockholders of the Company of the consideration to be received by such stockholders pursuant to the Offer and Merger. On January 20, 1995, Smith Barney rendered to the Board its written opinion to the effect that, as of such date and based upon and subject to certain considerations and assumptions, the consideration to be received by the stockholders of the Company pursuant to the Offer and Merger was fair, from a financial point of view. In arriving at its opinion, Smith Barney reviewed the Merger Agreement and held discussions with certain senior officers, directors and other representatives of the Company concerning the business, operations and prospects of the Company. Smith Barney examined certain publicly available business and financial information relating to the Company and SNI AG, as well as certain financial forecasts and other data for the Company which were provided to Smith Barney by senior management of the Company. Smith Barney reviewed the financial terms of the Merger as set forth in the Merger Agreement in relation to, among other things, the Company's historical and projected earnings and the capitalization and financial condition of the Company. Smith Barney considered, to the extent publicly available, the financial terms of certain other similar transactions which Smith Barney considered comparable to the Merger and analyzed certain financial and other publicly available 5 information relating to the businesses of other public companies whose operations Smith Barney considered comparable to those of the Company. In addition to the foregoing, Smith Barney conducted such other analyses and examinations and considered such other financial, economic and market criteria as Smith Barney deemed necessary to arrive at its opinion. Smith Barney noted that its opinion was necessarily based upon financial, stock market and other conditions and circumstances existing and disclosed to Smith Barney as of the date of its opinion. In rendering its opinion, Smith Barney assumed and relied, without independent verification, upon the accuracy and completeness of the financial and other information publicly available or furnished to or otherwise discussed with Smith Barney. With respect to financial forecasts and other information provided to or otherwise discussed with Smith Barney, Smith Barney assumed that such forecasts and other information were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to the expected future financial performance of the Company. Smith Barney assumed the correctness of, and relied upon, the representations of the Company and SNI AG, pursuant to the Merger Agreement, and did not attempt to independently verify any such information. In addition, Smith Barney did not make or obtain an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company nor did Smith Barney make any physical inspection of the properties or assets of the Company. Although Smith Barney evaluated the financial terms of the Merger, Smith Barney was not asked to and did not recommend the specific consideration to be paid by Purchaser in the Merger. No other limitations were imposed by the Company on Smith Barney with respect to the investigations made or procedures followed by Smith Barney in rendering its opinion. THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED JANUARY 20, 1995, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THE SCHEDULE 14D-9, WHICH WAS MAILED TO THE COMPANY'S STOCKHOLDERS ON JANUARY 27, 1995. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY FROM A FINANCIAL POINT OF VIEW AND HAS BEEN PROVIDED SOLELY FOR THE USE OF THE COMPANY'S BOARD OF DIRECTORS IN ITS EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO WHETHER SUCH STOCKHOLDER SHOULD ACCEPT THE OFFER. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. In preparing its opinion to the Board of Directors of the Company, Smith Barney performed a variety of financial and comparative analyses, including those described below, and provided the Board of Directors with a written presentation with respect to such analyses. A copy of Smith Barney's written presentation to the Board of Directors has been included as Exhibit (b)(2) to the Statement on Schedule 13E-3 filed by Purchaser, SNI AG, Siemens AG and the Company with the Commission and will be available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested stockholder of the Company or such stockholder's representative duly designated in writing. The summary of such analyses set forth herein does not purport to be a complete description of the analyses underlying Smith Barney's opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. In arriving at its opinion, Smith Barney did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Smith Barney believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors, without considering all analyses and factors, could create a misleading or incomplete view of the processes underlying such analyses and 6 its opinion. In its analyses, Smith Barney made numerous assumptions with respect to the Company, industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. The estimates contained in such analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by such analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, such analyses and estimates are inherently subject to substantial uncertainty. Comparable Company Analysis. Using publicly available information, Smith Barney analyzed, among other things, the market values and trading multiples of computer hardware/systems companies, including Amdahl Corporation, Auspex Systems, Convex Computer, Data General, Digital Equipment Corp., Hewlett- Packard, NetFrame, Parallan Computer, Sequent Computer Systems, Silicon Graphics, Stratus Computer, Sun Microsystems, Tandem Computers and Tricord Systems (collectively, the "Comparable Companies"). Smith Barney compared market values per share as multiples of, among other things, latest 12 months net earnings per share and earnings per share for calendar 1994 and projected calendar 1995. The multiples of latest 12 months net earnings per share and earnings per share for calendar 1994 and projected calendar 1995 of the Comparable Companies were between the following ranges: (i) latest 12 months: 10.7x to 50.3x (with a mean of 21.7x and a median of 17.7x); (ii) calendar 1994: 8.8x to 34.9x (with a mean of 19.1x and a median of 17.6x); and (iii) projected calendar 1995: 7.7x to 47.1x (with a mean of 19.0x and a median of 14.8x). Purchaser's offer of $16 per Share represents a multiple of projected calendar 1995 net income per Share of 26.6x. The Company's net earnings per Share for the latest 12 months and for calendar 1994 were negative; therefore, the latest 12 months multiple and the calendar 1994 multiple were not meaningful. Smith Barney compared adjusted market values (equity market value, plus the book value of debt and preferred stock, less cash and cash equivalents) to latest 12 months net revenues and operating income. The multiples of latest 12 months net revenues and operating income of the Comparable Companies were between the following ranges: (i) latest 12 months net revenues: 0.32x to 3.06x (with a mean of 1.12x and a median of 1.05x); and (ii) latest 12 months operating income: 8.5x to 22.6x (with a mean of 14.7x and a median of 13.6x). Purchaser's offer of $16 per Share represents a multiple of the Company's net revenues for the latest 12 months of 0.95x. The Company's latest 12 months operating income was negative; therefore, the operating income multiple was not meaningful. Smith Barney also considered the profit margins, debt to capitalization ratios, historic revenue growth and projected earnings per share growth of the Comparable Companies with those of the Company. All projected earnings per share figures for the Comparable Companies were based on the consensus estimates as provided by the Institutional Brokers Estimate System. All multiples for Comparable Companies were based on closing stock prices as of January 18, 1995. Selected Merger and Acquisition Transactions Analysis. Using publicly available information, Smith Barney analyzed the purchase prices and implied transaction multiples in the following selected merger and acquisition transactions in the computer hardware/systems industry: MIPS Computer Systems/Silicon Graphics; Teradata/AT&T; NCR/AT&T; Prime Computer/JH Whitney & Company; Apollo Computer/Hewlett-Packard; and Convergent/Unisys (the "Selected Acquisitions"). In this analysis, Smith Barney compared transaction values as multiples of latest 12 months revenues of the Selected Acquisitions and compared these multiples to the multiple of the Company's revenue as set forth in the Comparable Companies analysis. The multiples of revenue of the Selected Acquisitions were between the range of 0.8x to 1.7x (with a mean of 1.1x). Purchaser's offer of $16 per Share represents a multiple of the Company's net revenues for the last 12 months of 0.95x. Also, Smith Barney compared the latest 12 months earnings before interest, taxes, depreciation and amortization ("EBITDA") margins of the targets in the Selected Acquisitions with the latest 12 months EBITDA margin of the Company. The EBITDA margins of the targets in the Selected Acquisitions were between the range of 6.8% to 21.5% (with a mean of 12.4%). The latest twelve months EBITDA margin for the Company was 4.2%. 7 No company, transaction or business used in the Comparable Companies and Selected Acquisitions analyses as a comparison is identical to the Company. Accordingly, an analysis of the results of the foregoing is not entirely mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or public trading value of the Comparable Companies or the business segment or company to which they are being compared. Smith Barney also analyzed the purchase price paid in selected technology- related merger and acquisition transactions since 1988 to determine, among other things, the percentage by which the price paid in each such transaction exceeded the market value of the target company's stock one month and two months prior to the announcement of such transaction. The mean value of the calculation of the premium paid versus the market price of the stock in all such transactions one month and two months prior to the announcement thereof was 57.6% and 65.0%, respectively, and the median was 53.7% and 61.6%, respectively. Discounted Cash Flow Analysis. Smith Barney performed a discounted cash flow analysis of the projected free cash flow of the Company for the fiscal years ending September 30, 1995 through 1999, assuming, among other things, discount rates of 15.0%, 17.5%, 20.0% and 22.5% and terminal multiples of net income of 15.0x to 19.0x. Smith Barney performed this analysis based on internal operating projections prepared by the Company's management. This analysis resulted in ranges of values per Share of $11.59 to $19.79. Other Factors and Comparative Analyses. In rendering its opinion, Smith Barney considered certain other factors and conducted certain other comparative analyses, including, among other things, a review of the Company's historical and projected financial results; the history of trading prices for the Shares and the relationship between movements of such Shares, movements of the common stock of Comparable Companies and selected companies and the stock market in general. On June 7, 1994, the Company entered into a letter agreement with Smith Barney pursuant to which Smith Barney was engaged to act as exclusive financial advisor to the Company and to furnish financial advisory and investment banking services in connection with a variety of potential transactions between the Company and a list of specific companies provided by the Company. This letter agreement was amended on January 9, 1995 to include SNI AG as one of the companies identified by the Company. Under the letter agreement, the Company agreed to pay Smith Barney a fee based on the value of a transaction. Assuming the Offer and the Merger are consummated, Smith Barney will receive a total fee of approximately $2.2 million. Of such amount, $250,000 shall be paid for the delivery by Smith Barney of the opinion described above. In addition to the foregoing compensation, the Company has agreed to reimburse Smith Barney for its reasonable out-of-pocket expenses and to indemnify Smith Barney against certain liabilities arising out of or in connection with this engagement. Smith Barney has in the past two years provided financial advisory and investment banking services to the Company and has received fees of approximately $350,000 for rendering such services. Smith Barney is a nationally recognized investment banking firm and was selected by the Company based on Smith Barney's experience and expertise. Smith Barney regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. 3. POSITION OF SNI AG REGARDING THE FAIRNESS OF THE OFFER AND THE MERGER SNI AG believes that the consideration to be received by the Company's stockholders, other than SNI AG, pursuant to the Offer and the Merger is fair to the Company's stockholders. SNI AG bases its belief solely on (i) the fact that the Company's Board concluded that the Offer and the Merger are fair to and in the best interests of the Company's stockholders, (ii) the report of Goldman Sachs to SNI 8 AG described below, (iii) the fact that, in order to avoid any possibility of conflict of interest, Dr. Bodo, SNI AG's representative on the Board, did not participate in any Board deliberations concerning, or act on behalf of SNI AG in connection with, the Offer or the Merger, (iv) the fact that SNI AG did not and does not have the ability to control the Company and that the parties consequently negotiated the terms of the Offer and the Merger and the Merger Agreement with the Company on an arm's-length basis, (v) the fact that the consideration to be paid in the Offer and the Merger represents a premium of approximately 50% over the weighted average closing price for the Shares both for the preceding calendar quarter and calendar year 1994, and (vi) the historical financial performance of the Company and its financial results. SNI AG has reviewed the factors considered by the Board in support of their decision, as described in the Schedule 14D-9 and above, and had no basis to question their consideration of or reliance on those factors. In reaching its conclusions, SNI AG also considered generally the current and historical market prices for the Shares. SNI AG did not find it practicable to assign, nor did it assign, relative weights to the individual factors considered in reaching its conclusion as to fairness. 4. ANALYSIS OF GOLDMAN SACHS AS FINANCIAL ADVISORS TO SNI AG SNI AG retained Goldman Sachs as its exclusive financial advisors in connection with the Offer and the Merger. Goldman Sachs were requested to review data relating to the Company which was supplied by SNI AG, as well as published financial and market information, and to advise SNI AG with respect to certain means of valuation of the Company. Goldman Sachs were not requested to provide any opinion as to the fairness of the Offer to SNI AG or the stockholders of the Company or to perform any independent examination or investigation of the Company's businesses or assets. Accordingly, Goldman Sachs did not attempt to verify the accuracy or completeness of any of the information supplied by SNI AG or obtained through other sources, nor did Goldman Sachs, prior to the delivery of the Goldman Sachs Report (as defined below), conduct any discussion with, or obtain any information from, any officers or employees of the Company in connection with their advice to SNI AG. At a meeting between representatives of Goldman Sachs, SNI AG and its counsel on January 3, 1995 (the "January 3 Meeting"), Goldman Sachs delivered their evaluation of the Company (the "Goldman Sachs Report"), a summary of which is set forth below. Based on such evaluation, Goldman Sachs advised SNI AG that assuming the accuracy and completeness of the information supplied by SNI AG and publicly available information concerning the Company, it was the view of Goldman Sachs that the value of the Company in the acquisition market was approximately $13.00 to $15.00 per Share. The range of value for the Company was derived by applying methodologies and assumptions which Goldman Sachs believed measured the value of the Company under then current market conditions. In arriving at their evaluation, Goldman Sachs reviewed, among other things: Annual Reports to Shareholders and Annual Reports on Form 10-K of the Company for the five years ended September 30, 1994; certain interim reports to shareholders and Quarterly Reports on Form 10-Q; certain other communications from the Company to its shareholders; and certain financial analyses and forecasts for the Company separately prepared by the management of each of SNI AG and the Company. SNI AG provided Goldman Sachs with information describing the synergies that SNI AG believed to be attainable upon consummation of the Offer and the Merger. Goldman Sachs also collected and summarized reports published during 1994 by various analysts who followed the Company and made recommendations with respect to holding its Shares. In addition, Goldman Sachs reviewed the reported price and trading activity for the Shares, compared certain financial and market information for the Company with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations and performed such other studies and analyses as Goldman Sachs considered appropriate. The financial and comparative analyses Goldman Sachs performed in connection with their evaluation of the Company and the preparation of the Goldman Sachs Report included: (i) analyses of selected comparable publicly- traded companies; (ii) comparable transaction analyses; and (iii) a future value analysis. 9 Valuation Summary of Selected Publicly-Traded Companies. Goldman Sachs reviewed certain financial and stock market information of the Company and selected publicly traded companies engaged in the computer hardware industry. Such companies included: Auspex Systems, Concurrent Computer, Data General and Encore Computer (the "RISC Companies"); and Sequent Computer Systems, Stratus Computer and Tandem Computers (the "OLTP Companies", and together with the RISC Companies, the "Selected Companies"). Although the Selected Companies were comparable to the Company based on certain characteristics of their businesses, none of these companies possessed characteristics identical to those of the Company. Goldman Sachs examined and compared various valuation methods and calculated various financial multiples and ratios for the Company and the Selected Companies based on publicly available information. The multiples and ratios for the Company were calculated using a price of $13.00 per Share, which was the closing price of the Shares on December 30, 1994, the last trading day prior to the January 3 Meeting. The multiples and ratios for each of the Selected Companies were based on the most recent publicly available information as of December 30, 1994. The multiples were as follows: (i) the ratio of price to 1995 earnings estimates (which ratio was based on analysts' estimates)--20.6x for the Company, which compared to a median of 12.2x for the RISC Companies and a median of 11.7x for the OLTP Companies; (ii) market capitalization as a percentage of latest quarter annualized sales--.79x for the Company, which compared to a median of .93x for the RISC Companies and 1.18x for the OLTP Companies; and (iii) the ratio of market capitalization to latest quarter annualized EBITDA--10.0x for the Company, which compared to a median of 6.5x for the RISC Companies and 5.1x for the OLTP Companies. Comparable Transaction Analyses. Goldman Sachs reviewed and compared the prices paid in selected merger and acquisition transactions in the computer hardware industry (the "Selected Transactions") and a range of possible prices which might be paid by SNI AG. Goldman Sachs calculated the aggregate consideration and various financial multiples from available actual and estimated information for each such Selected Transaction. The aggregate consideration for the Selected Transactions ranged from $92 million to $7,277 million. The financial multiples, in each case (other than the market premium multiple) based on the sum of the consideration paid for the equity of the acquired company plus the amount of net debt assumed in the transaction ("Aggregate Consideration"), were as follows: (i) the ratio of Aggregate Consideration to sales for the latest twelve months prior to the announcement of each of the Selected Transactions which ranged from a high of 2.84x to a low of .16x, with a median of .98x; (ii) the ratio of Aggregate Consideration to EBITDA for the latest twelve months for Selected Transactions ranged from a high of 23.7x to a low of 3.6x with a median of 7.8x; (iii) the ratio of Aggregate Consideration to the latest 12 months net income for the Selected Transactions which ranged from a high of 58.2x to a low of 6.7x with a median of 24.4x; and (iv) the market premium for the Selected Transactions ranged from a high of 129% to a low of 5.7% with a median of 42%. Future Value Analysis. Goldman Sachs performed a future value analysis based upon (a) estimates of financial performance provided to Goldman Sachs by SNI AG based upon certain financial projections of the Company which, using discount rates that ranged from 10% to 16% with terminal values of the Company's fiscal 1997 net income that ranged from 10x to 16x, resulted in implied per Share values ranging from $12.70 to $21.38 and (b) certain independent research analysts' estimates of future financial performance which were publicly available which, using discount rates that ranged from 10% to 16% with terminal values of the Company's fiscal 1997 net income that ranged from 10x to 16x, resulted in implied per share values ranging from $8.71 to $15.17. Other Analyses. Goldman Sachs prepared a financial analysis of the proposed acquisition of the Company by SNI AG and Purchaser and calculated the aggregate consideration and various financial multiples based upon cash consideration per Share prices ranging from $10.00 to $26.00. Goldman Sachs reviewed the financial and operational fit between the Company and certain other potential strategic purchasers and merger partners. 10 Goldman Sachs are acting as Dealer Managers in connection with the Offer and have provided certain financial advisory services in connection with the acquisition of the Company. Siemens Corporation ("Siemens"), a Delaware corporation and an indirect wholly owned subsidiary of Siemens AG, has paid Goldman Sachs a fee of $250,000, has agreed to pay an additional fee of $250,000 upon the signing of the Merger Agreement and has agreed to pay an additional transaction fee of $1,250,000 when the Offer and the Merger are consummated. Siemens has also agreed to reimburse Goldman Sachs for all reasonable out-of-pocket expenses incurred by Goldman Sachs, including the reasonable fees and expenses of legal counsel, and to indemnify Goldman Sachs against certain liabilities and expenses in connection with their engagement, including certain liabilities under the federal securities laws. Goldman Sachs is an internationally recognized investment banking firm engaged in the evaluation of businesses and their securities in connection with mergers and acquisitions, negotiated primary and secondary underwritings, private placements and valuations for corporate and other purposes. SNI AG selected Goldman Sachs as its financial advisor based upon Goldman Sachs' familiarity with the industry in which the Company operates and its experience, ability and reputation with respect to mergers and acquisitions. A copy of the Goldman Sachs Report has been filed as Exhibit (b)(3) to the Statement on Schedule 13E-3 filed by SNI AG, Purchaser, Siemens AG and the Company and is incorporated herein by reference. Copies of the Goldman Sachs Report are available for inspection and copying at the principal executive offices of SNI AG during regular business hours by any stockholder of the Company, or a stockholder's representative who has been so designated in writing. 5. PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONSOF SNI AG FOR THE OFFER AND THE MERGER The purpose of the Offer and the Merger is for Siemens AG indirectly to acquire control of, and the entire equity interest in, the Company. The purpose of the Merger is for Siemens AG indirectly to acquire all Shares not purchased pursuant to the Offer. Upon consummation of the Merger the Company will become an indirect wholly owned subsidiary of Siemens AG. The acquisition of the entire equity interest in the Company has been structured as a cash tender offer followed by a cash merger in order to provide a prompt and orderly transfer of ownership of the Company from the public stockholders to Purchaser and to provide stockholders with cash for all their Shares. SNI AG and the Company believe that the businesses of the Company are complementary to SNI AG's businesses and that a number of benefits can be achieved by aligning or integrating certain of the Company's operations with those of SNI AG. SNI AG and the Company considered attempting to achieve such an alignment or integration through an expansion of the parties' commercial relationship without increasing SNI AG's ownership of Shares and through such an expansion of the commercial relationship coupled with some increase in SNI AG's ownership of Shares. SNI AG and the Company concluded, however, that these approaches would not enable SNI AG and the Company to take full advantage of market opportunities and to achieve the desired operating benefits. Consequently, following joint studies and discussions, SNI AG and the Company concluded that an acquisition by SNI AG of the entire equity interest in the Company constituted the only feasible means to achieve such operating benefits. SNI AG and the Company chose to undertake the transaction at this time because the businesses in which SNI AG and the Company operate are subject to rapid change and SNI AG and the Company wished to seize commercial opportunities that might no longer be available at a later time. 6. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER;CERTAIN EFFECTS OF THE OFFER AND THE MERGER Pursuant to the Merger Agreement, upon completion of the Offer, SNI AG intends to effect the Merger in accordance with the terms of the Merger Agreement. See Section 10 of the Offer to Purchase. 11 The management of SNI AG has begun, and intends to continue, a review of the Company and its assets, corporate structure, capitalization, operations, properties, policies, management and personnel to determine what changes, if any, would be desirable in order best to organize and integrate the activities of the Company into those of SNI AG. As more fully described in Item 3 of the Schedule 14D-9, at the request of SNI AG, John S. Chen, President and Chief Operating Officer of the Company, has entered into a Management Retention Agreement (the "Chen Agreement") with the Company, commencing upon the effectiveness of the Merger and terminating five years later. Terms of the Chen Agreement include Mr. Chen serving as Chief Executive Officer of the Company and as a member of the Board. In addition, as more fully described in Item 3 of the Schedule 14D-9, discussions have taken place regarding a senior management position for Mr. Lussier, Chief Executive Officer and Chairman of the Board of the Company, within the Siemens group of companies. Except as noted above, following the Offer and the Merger, SNI AG intends that the Company's current management, under the direction of the Company's Board of Directors as it will be constituted following the Merger, will continue to manage the Company as an ongoing business in the same general manner as it is now being conducted. However, SNI AG expressly reserves the right to make any changes that it deems necessary or appropriate in light of its review or in light of future developments or that would be desirable to permit SNI AG more effectively to manage the Company and function more efficiently as an integrated worldwide enterprise. Except as otherwise disclosed in this Supplement or the Offer to Purchase, SNI AG has no present plans or proposals that would result in an extraordinary corporate transaction involving the Company or any of its subsidiaries, such as a merger, reorganization, liquidation, sale or transfer of a material amount of assets, or any material changes in the Company's present dividend policy, corporate structure or business, the composition of its management or personnel or its indebtedness or capitalization. At September 30, 1994, Pyramid's book value per Share was $8.74. At December 31, 1994, Pyramid's book value per Share was $8.80. If the Merger is consummated, the interest of SNI AG in the Company's net book value and net income will become 100% and SNI AG and its subsidiaries will be entitled to all benefits resulting from that interest, including all income generated by the Company's operations and any future increase in the Company's value. Similarly, SNI AG will also bear the risk of any decrease in the value of the Company after the Merger. Upon consummation of the Merger, the Surviving Corporation will become a privately held corporation. Accordingly, stockholders will not have the opportunity to participate in the earnings and growth of the Surviving Corporation after the Merger and will not have any right to vote on corporate matters. Similarly, stockholders will not face the risk of decline in the value of the Company after the Merger. Purchaser intends, and is required under the Merger Agreement, to vote all of its Shares, whether currently owned by SNI AG and transferred to Purchaser immediately after consummation of the Offer or acquired pursuant to the Offer, in favor of the Merger. 7. RIGHTS OF STOCKHOLDERS IN THE MERGER Holders of Shares will not have appraisal rights as a result of the Offer. If the Merger is consummated, however, holders of Shares at that time would have the right to appraisal of their Shares in accordance with Section 262 of Delaware Law ("Section 262"), the provisions of which are set forth in Annex A hereto. Such appraisal rights, if the statutory procedures are complied with, would result in a judicial determination of the "fair value" of the Shares owned by such holders. Any such judicial determination of the fair value of the Shares could be based upon considerations other than or in addition to the price paid in the Offer and the Merger and the market value of the Shares, including asset values, the investment value of the Shares and any other valuation considerations generally accepted in the investment community. The value so determined for Shares could be more or less than the value of the consideration per Share to be paid pursuant to the Offer or the Merger, and payment of such consideration would take place subsequent to payment pursuant to the Offer. 12 In addition, several recent decisions by the Delaware courts have held that a controlling stockholder of a corporation involved in a merger has a fiduciary duty to the other stockholders to ensure that the merger is fair to such other stockholders. In determining whether a merger is fair to minority stockholders, the Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court indicated in Weinberger v. UOP, Inc. that ordinarily the remedy available to stockholders in a merger that is found not to be "fair" to minority stockholders is the right to appraisal described above. SNI AG believes that it does not have the ability to control the Company. 8. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER In considering the recommendation of the Company's Board with respect to the Offer and the Merger and the fairness of the consideration to be paid pursuant to the Offer and the Merger, stockholders should be aware that certain officers and directors of the Company have interests in the Offer and the Merger which are described below and in the recommendation of the Board contained in this Supplement and in the Schedule 14D-9 which may present them with certain potential conflicts of interest. Employment Arrangements. As more fully described in Item 3 of the Schedule 14D-9, at the request of SNI AG, John S. Chen, President and Chief Operating Officer of the Company, has entered into a Management Retention Agreement (the "Chen Agreement") with the Company, commencing upon the effectiveness of the Merger and terminating five years later. Terms of the Chen Agreement include Mr. Chen serving as Chief Executive Officer of the Company and as a member of the Board. In addition, as more fully described in Item 3 of the Schedule 14D- 9, discussions have taken place regarding a senior management position for Mr. Lussier, Chief Executive Officer and Chairman of the Board of the Company, within the Siemens group of companies. Stock and Stock Option Ownership. SNI AG currently owns 2,717,743 Shares, representing approximately 17.37% of the Shares. As more fully described in Section 8 of the Offer to Purchase, SNI AG also owns a warrant (the "Warrant") to purchase up to 1,330,000 Shares. However, SNI AG does not currently intend to exercise the Warrant in connection with the Offer or the Merger. Richard H. Lussier, Chairman and Chief Executive Officer of the Company, holds currently exercisable options to acquire 205,552 Shares. John S. Chen, President and Chief Operating Officer and a director of the Company, holds currently exercisable options to acquire 142,857 Shares. Paul J. Chiapparone, a director of the Company, holds currently exercisable options to acquire 5,000 Shares. Donald E. Guinn, a director of the Company, holds currently exercisable options to acquire 42,750 Shares. Jack L. Hancock, a director of the Company, holds currently exercisable options to acquire 5,000 Shares. Clarence W. Spangle, a director of the Company, holds currently exercisable options to acquire 23,750 Shares. George D. Wells, a director of the Company, holds currently exercisable options to acquire 17,250 Shares. Mitchell Mandich, a Senior Vice President of the Company, holds currently exercisable options to acquire 40,464 Shares. Edward W. Scott, Jr., an Executive Vice President of the Company, holds currently exercisable options to acquire 43,100 Shares. Allan D. Smirni, Vice President and General Counsel of the Company, holds currently exercisable options to acquire 37,033 Shares. Dr. Rudolf Bodo, a director of the Company and SNI AG's designee on the Board, does not own any Shares and holds no options to acquire Shares. As of January 27, 1995, the members of the Company's Board beneficially owned an aggregate of 634,947 Shares, representing approximately 4.06% of the outstanding Shares, assuming the full exercise of the options held by such persons. Mr. Lussier is the beneficial owner of 1.33% of the Shares. No other individual director or executive officer owns more than 1% of the Shares. 13 CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS Pursuant to the Merger Agreement, the Company has agreed that, between the date of the Merger Agreement and the Effective Time, unless SNI AG shall otherwise agree in writing, neither the Company nor any subsidiary of the Company will declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock. Moreover, pursuant to a Revolving Credit Loan Agreement with Comerica Bank - California effective as of October 1, 1994, the Company is not permitted to pay cash dividends. This Credit Agreement expires on December 31, 1995. On February 3, 1995, Purchaser was informed by the Federal Trade Commission that early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), relating to the purchase of Shares pursuant to the Offer had been granted. Accordingly, the condition to the Offer requiring the expiration or termination of any applicable waiting period under the HSR Act prior to expiration of the Offer has been satisfied. The Offer remains subject to the other conditions set forth in Section 14 of the Offer to Purchase. FEES AND EXPENSES The following is an estimate of expenses to be incurred in connection with the Offer and the Merger. The Merger Agreement provides that all costs and expenses incurred in connection with the Offer and the Merger will be paid by the party incurring such costs and expenses, whether or not the Offer or the Merger is consummated. EXPENSES TO BE PAID BY PURCHASER AND ITS AFFILIATES: Financial Advisory and Dealer Manager Fees.................... $1,750,000 Legal Fees.................................................... 350,000 Printing and Mailing.......................................... 150,000 Advertising................................................... 70,000 Filing Fee.................................................... 53,000 Depositary Fees............................................... 10,000 Information Agent Fees........................................ 10,000 ---------- Total....................................................... $2,393,000 ==========
EXPENSES TO BE PAID BY THE COMPANY: Investment Banking Fees and Expenses.......................... $2,200,000 Legal Fees and Expenses....................................... 350,000 Printing and Mailing.......................................... 85,000 Accounting Fees............................................... 10,000 Miscellaneous................................................. 55,000 ---------- Total....................................................... $2,700,000 ==========
14 MISCELLANEOUS Pursuant to Rule 14d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Siemens AG, SNI AG and Purchaser have filed with the Commission the Schedule 14D-1 with respect to the Offer and certain amendments thereto, and may file further amendments thereto. Pursuant to Rule 14d-9 promulgated under the Exchange Act, the Company has filed with the Commission the Schedule 14D-9 with respect to the Offer, and may file amendments thereto. Siemens AG, SNI AG, Purchaser and the Company have filed a statement on Schedule 13E-3 with respect to the Offer (although they expressly disclaim any obligation to do so) and may file amendments to the Schedule 13E-3. Such statements, including exhibits and any amendments thereto, which furnish certain additional information with respect to the Offer, may be inspected at, and copies may be obtained from, the same places and in the same manner as set forth in Section 7 of the Offer to Purchase (except that they will not be available at the regional offices of the Commission). SIEMENS NIXDORF MID-RANGE ACQUISITION CORP. February 13, 1995 15 ANNEX A SUMMARY OF STOCKHOLDER APPRAISAL RIGHTS AND TEXT OF SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE Summary of Stockholder Appraisal Rights. No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, stockholders will have certain rights under Delaware Law to dissent and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. Such rights, to dissent, if the statutory procedures were complied with, could lead to a judicial determination of the fair value of the Shares, as of the day prior to the date on which the stockholders' vote was taken approving the Merger or similar business combination (excluding any element of value arising from the accomplishment or expectation of the Merger), required to be paid in cash to such dissenting holders for their Shares. In addition, such dissenting stockholders would be entitled to receive payment of a fair rate of interest from the date of consummation of the Merger on the amount determined to be the fair value of their Shares. In determining the fair value of the Shares, the court is required to take into account all relevent factors. Accordingly, such determination could be based upon considerations other than, or in addition to, the market value of the Shares, including, among other things, asset values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Therefore, the value so determined in any appraisal proceeding could be the same, more or less than the purchase price per Share in the Offer or the Merger Consideration (as defined in the Offer to Purchase). GENERAL CORPORATION LAW OF THE STATE OF DELAWARE (S)262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to (S)228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of his shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of a stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to (S)251, 252, 254, 257, 258, 263 or 264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an A-1 interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the holders of the surviving corporation as provided in subsection (f) of (S)251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to (S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under (S)253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of his shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or A-2 (2) If the merger or consolidation was approved pursuant to (S)228 or 253 of this title, the surviving or resulting corporation, either before the effective date of the merger or consolidation or within 10 days thereafter, shall notify each of the stockholders entitled to appraisal rights of the effective date of the merger or consolidation and that appraisal rights are available for any or all of the shares of the constituent corporation, and shall include in such notice a copy of this section. The notice shall be sent by certified or registered mail, return receipt requested, addressed to the stockholder at his address as it appears on the records of the corporation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of the notice, demand in writing from the surviving or resulting corporation the appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw his demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after his written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing of such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into A-3 account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted his certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that he is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded his appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of his demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. (Last amended by Ch. 262, L. '94, effective 7-1-94.) A-4 ANNEX B DOCUMENT: PAGE: - --------- ----- Audited Consolidated Financial Statements (and Related Notes) for Pyramid Technology Corporation for the Fiscal Years ended September 30, 1993 and September 30, 1994...................................................... B-2 Unaudited Consolidated Financial Statements (and Related Notes) for Pyramid Technology Corporation for the First Quarter of the Fiscal Year ending September 30, 1995............................................... B-18 B-1 AUDITED FINANCIAL STATEMENTS FOR PYRAMID TECHNOLOGY CORPORATION FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1993 AND SEPTEMBER 30, 1994 PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1994 1993 1992 ------------- ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Product revenues................ $ 152,590 $ 174,364 $ 138,916 Service revenues................ 65,925 59,334 53,310 ------------- ------------- ------------- 218,515 233,698 192,226 Cost of Sales: Cost of products sold........... 87,708 86,828 78,743 Cost of services................ 50,875 45,293 44,786 ------------- ------------- ------------- 138,583 132,121 123,529 Gross profit...................... 79,932 101,577 68,697 Operating expenses: Research and development........ 25,488 27,831 28,371 Sales, marketing, general and administrative................. 73,744 64,411 64,741 Restructuring................... -- -- 41,180 Legal settlement................ -- -- 900 ------------- ------------- ------------- Total operating expenses...... 99,232 92,242 135,192 ------------- ------------- ------------- Operating income (loss)........... (19,300) 9,335 (66,495) Interest income................... 655 781 826 Interest expense.................. (704) (523) (967) Loss on investment in joint ven- ture............................. (129) -- -- ------------- ------------- ------------- Income (loss) before income taxes. (19,478) 9,593 (66,636) Provision (benefit) for income taxes............................ 2,935 959 (6,929) ------------- ------------- ------------- Net income (loss)................. $ (22,413) $ 8,634 $ (59,707) ============= ============= ============= Net income (loss) per share....... $ (1.66) $ 0.67 $ (4.99) ============= ============= ============= Shares used in computing net in- come (loss) per share............ 13,467 12,890 11,962 ============= ============= =============
The accompanying notes are an integral part of these financial statements. B-2 AUDITED FINANCIAL STATEMENTS FOR PYRAMID TECHNOLOGY CORPORATION FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1993 AND SEPTEMBER 30, 1994 PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1994 1993 1992 ------------- ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Product revenues................ $ 152,590 $ 174,364 $ 138,916 Service revenues................ 65,925 59,334 53,310 ------------- ------------- ------------- 218,515 233,698 192,226 Cost of Sales: Cost of products sold........... 87,708 86,828 78,743 Cost of services................ 50,875 45,293 44,786 ------------- ------------- ------------- 138,583 132,121 123,529 Gross profit...................... 79,932 101,577 68,697 Operating expenses: Research and development........ 25,488 27,831 28,371 Sales, marketing, general and administrative................. 73,744 64,411 64,741 Restructuring................... -- -- 41,180 Legal settlement................ -- -- 900 ------------- ------------- ------------- Total operating expenses...... 99,232 92,242 135,192 ------------- ------------- ------------- Operating income (loss)........... (19,300) 9,335 (66,495) Interest income................... 655 781 826 Interest expense.................. (704) (523) (967) Loss on investment in joint ven- ture............................. (129) -- -- ------------- ------------- ------------- Income (loss) before income taxes. (19,478) 9,593 (66,636) Provision (benefit) for income taxes............................ 2,935 959 (6,929) ------------- ------------- ------------- Net income (loss)................. $ (22,413) $ 8,634 $ (59,707) ============= ============= ============= Net income (loss) per share....... $ (1.66) $ 0.67 $ (4.99) ============= ============= ============= Shares used in computing net in- come (loss) per share............ 13,467 12,890 11,962 ============= ============= =============
The accompanying notes are an integral part of these financial statements. B-2 PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, ---------------------------- 1994 1993 ------------- ------------- (IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES) ASSETS CURRENT ASSETS: Cash and cash equivalents...................... $ 21,558 $ 31,358 Short-term investments......................... 20,651 -- Accounts receivable, net of allowance for doubtful accounts of $1,660 in 1994 and $2,020 in 1993....................................... 49,310 51,392 Inventories.................................... 25,840 35,712 Prepaid expenses and deposits.................. 15,270 11,873 ------------- ------------- Total current assets......................... 132,629 130,335 Property and equipment, at cost: Machinery and equipment........................ 85,825 79,675 Furniture and fixtures......................... 6,546 5,674 Leasehold improvements......................... 9,627 9,924 ------------- ------------- 101,998 95,273 Less accumulated depreciation and amortization... 74,386 60,686 ------------- ------------- 27,612 34,587 Capitalized software development costs........... 18,381 15,959 Service spare parts and other assets............. 12,091 10,777 ------------- ------------- $ 190,713 $ 191,658 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................... $ 16,398 $ 20,312 Accrued payroll and related liabilities........ 4,493 7,043 Accrued commissions............................ 2,424 2,419 Deferred revenue............................... 8,272 7,197 Other accrued liabilities...................... 10,932 8,764 Restructuring accruals......................... 3,075 4,464 Income taxes payable........................... 3,678 1,561 Current portion of long-term debt.............. 1,440 1,795 ------------- ------------- Total current liabilities.................... 50,712 53,555 Noncurrent portion of long-term debt............. 1,563 487 Deferred income taxes payable.................... 2,400 -- Commitments SHAREHOLDERS' EQUITY: Common stock--$.01 par value; 30,000,000 shares authorized, 15,567,000 issued and outstanding in 1994 and 13,177,000 in 1993................ 156 132 Additional paid-in capital..................... 174,652 155,078 Accumulated deficit............................ (37,927) (15,514) Accumulated translation adjustment............. (843) (2,080) ------------- ------------- Total shareholders equity.................... 136,038 137,616 ------------- ------------- $ 190,713 $ 191,658 ============= =============
The accompanying notes are an integral part of these financial statements. B-3 PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL RETAINED ACCUMULATED TOTAL ------------- PAID-IN EARNINGS TRANSLATION SHAREHOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT EQUITY ------ ------ ---------- --------- ----------- ------------- (IN THOUSANDS) Balance at September 30, 1991................... 11,807 $118 $138,149 $ 35,559 $ 993 $174,819 Stock options exercised. 119 1 972 -- -- 973 Sales under employee stock purchase plan.... 221 2 2,051 -- -- 2,053 Compensation related to stock option grants.... -- -- 45 -- -- 45 Net loss................ -- -- -- (59,707) -- (59,707) Foreign currency translation adjustment. -- -- -- -- (641) (641) Tax benefit of stock options exercised...... -- -- 187 -- -- 187 ------ ---- -------- -------- ------- -------- Balance at September 30, 1992................... 12,147 121 141,404 (24,148) 352 117,729 Stock options exercised. 837 9 9,794 -- -- 9,803 Sales under employee stock purchase plan.... 193 2 1,922 -- -- 1,924 Compensation related to stock option grants.... -- -- 45 -- -- 45 Net income.............. -- -- -- 8,634 -- 8,634 Foreign currency translation adjustment. -- -- -- -- (2,432) (2,432) Tax benefit of stock options exercised...... -- -- 1,913 -- -- 1,913 ------ ---- -------- -------- ------- -------- Balance at September 30, 1993................... 13,177 132 155,078 (15,514) (2,080) 137,616 Stock options exercised. 90 1 745 -- -- 746 Sales under employee stock purchase plan.... 300 3 2,079 -- -- 2,082 Issuance of common shares to Siemens Nixdorf, net of issuance costs......... 2,000 20 16,735 -- -- 16,755 Compensation related to stock option grants.... -- -- 15 -- -- 15 Net loss................ -- -- -- (22,413) -- (22,413) Foreign currency translation adjustment. -- -- -- -- 1,237 1,237 ------ ---- -------- -------- ------- -------- Balance at September 30, 1994................... 15,567 $156 $174,652 $(37,927) $ (843) $136,038 ====== ==== ======== ======== ======= ========
The accompanying notes are an integral part of these financial statements. B-4 PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, --------------------------- 1994 1993 1992 -------- ------- -------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................... $(22,413) $ 8,634 $(59,707) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization................. 28,455 29,961 31,118 Non-cash portion of restructuring charges..... -- -- 18,826 Compensation related to option grants......... 15 45 45 Changes in: Accounts receivable, net.................... 2,082 (14,729) 16,605 Inventories................................. 9,872 (5,143) 743 Prepaid expenses and deposits and income tax receivable................................. (3,397) 500 (2,497) Accounts payable, accrued liabilities, and other...................................... 1,085 (2,839) 10,945 -------- ------- -------- Net cash provided by operating activities....... 15,699 16,429 16,078 -------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments.............. (20,651) -- -- Investment in property and equipment............ (11,970) 13,722) (16,848) Increase in capitalized software development costs.......................................... (9,223) (8,695) (6,051) Decrease (increase) in other assets............. (3,885) 870 354 -------- ------- -------- Net cash used for investing activities.......... (45,729) (21,547) (22,545) -------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt............ (2,503) (1,709) (1,690) Borrowings under loan agreement................. 3,150 -- -- Issuance of common stock........................ 19,583 11,727 3,026 -------- ------- -------- Net cash provided by financing activities....... 20,230 10,018 1,336 -------- ------- -------- Increase (decrease) in cash and cash equivalents.. (9,800) 4,900 (5,131) Cash and cash equivalents, at beginning of year... 31,358 26,458 31,589 -------- ------- -------- Cash and cash equivalents, at end of year......... $ 21,558 $31,358 $ 26,458 ======== ======= ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Tax benefit from exercise of stock options...... $ -- $ 1,913 $ 187 Acquisition of equipment under capital lease ob- ligations...................................... 73 246 1,360 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest.......................... 704 523 967 Cash paid (received) for income taxes........... $ 374 $(4,967) $ 907 -------- ------- --------
The accompanying notes are an integral part of these financial statements. B-5 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Principles of Consolidation The consolidated financial statements include the accounts of Pyramid Technology Corporation (the "Company") and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain prior year information has been reclassified to conform to the current year presentation. Revenue Recognition The Company generally recognizes revenue at the time of shipment and provides for the estimated cost to repair or replace products under warranty provisions in effect at the time of sale. Deferred revenue on maintenance contracts is recognized ratably over the contract period. Income Taxes Effective for the fiscal year ended September 30, 1994, the Company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes." In accordance with this statement, deferred income taxes are provided for temporary differences between financial statement income and income for tax purposes using enacted tax laws and rates for the years in which the taxes are expected to be paid. Adoption of this statement did not have a material effect on the Company's consolidated financial statements. During fiscal 1993 and 1992, the Company accounted for income taxes pursuant to Statement of Financial Accounting Standard No. 96, "Accounting for Income Taxes." Net Income (Loss) Per Share Net income (loss) per share is computed based on the weighted average number of common and common equivalent shares outstanding during the period. Equivalent shares are calculated using the treasury stock method or the modified treasury stock method (whichever applies) and consist of outstanding stock options that have a dilutive effect on income per share. During fiscal 1994 and 1992, no common stock equivalents were included in the computation of loss per share as their effect would have been antidilutive. Cash and Cash Equivalents The Company classifies certain investments as cash equivalents if the original maturity from the date of acquisition of such investments is three months or less. These investments are carried in the balance sheet at cost, which approximates fair value. The effect of foreign currency exchange rate fluctuations on cash flows has not been material. Short-Term Investments Short-term investments consist of commercial paper with original maturities from the date of acquisition greater than three months and less than twelve months. These investments are carried at cost which approximates fair value due to the short period of time to maturity. Accounting for Certain Investments in Debt and Equity Securities Effective September 30, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement addresses the accounting and reporting for investments in marketable equity securities that have readily determinable fair values and for all investments in debt securities. These securities are required to be classified at the time of purchase and re-evaluated at each reporting date as either (1) held-to-maturity, (2) trading, or (3) available- for-sale. The Company classifies its investment in commercial paper and money market funds ($15,889,000 in cash equivalents and $20,651,000 in short-term investments) as held-to-maturity given the Company's positive intent and ability to hold the securities to maturity. In accordance with the statement, held-to-maturity securities are carried at amortized cost, therefore, there was no impact of adopting the statement on current period operations or shareholders equity. B-6 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
YEAR ENDED SEPTEMBER 30, --------------- 1994 1993 ------- ------- (IN THOUSANDS) Raw materials............................................. $10,617 $12,236 Work in process........................................... 8,320 14,517 Finished goods............................................ 6,903 8,959 ------- ------- $25,840 $35,712 ======= =======
Property and Equipment Property and equipment, including assets held under capital leases, are stated at cost. Depreciation and amortization are computed using the straight-line method. Useful lives of three to five years are used for machinery and equipment and furniture and fixtures; leasehold improvements are amortized over the shorter of their useful lives or the term of the lease. Maintenance and repairs are expensed as incurred. Capitalized Software Development Costs The Company capitalizes software development costs as the resulting products become "technologically feasible." Amortization of capitalized software development costs begins when the products are available for general release to customers, and is computed on a product- by-product basis as the greater of: (a) the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for the product; or (b) the straight-line method over a period not to exceed three years. Amortization expense for fiscal 1994, 1993, and 1992 was $6,802,000, $7,323,000, and $6,069,000, respectively. Service Spare Parts and Other Assets Net service spare parts at September 30, 1994 and 1993 were $10,677,000 and $8,821,000, respectively (with related accumulated amortization of $11,032,000 and $10,122,000, respectively). Amortization for service spare parts is provided using the straight-line method over five years. Purchased technology and the excess of the cost over the fair value of the net assets of acquired businesses, which are included in other assets, are amortized on a straight-line basis over a period of seven years. Amortization expense of $635,000, $635,000, and $724,000 was recorded in fiscal 1994, 1993, and 1992, respectively. Prepaid Royalties The Company has entered into several agreements for the purpose of further enhancing the Company's competitive position in offering relational database management and other applications software. Under these agreements, the Company has made commitments, some of which were prepaid, to provide minimum amounts of license royalties to the licensor. As software packages are sold with the Company's systems or into the Company's existing customer base, the Company will receive credit towards the minimum license royalty commitments. Amortization of prepaid royalties is computed as the greater of (a) the royalty per unit as the products are shipped; or (b) on a straight-line basis over the lesser of the term of the agreement or three years starting when the products are available for general release to customers. Net prepaid royalties at September 30, 1994 and 1993 were $1,915,000 and $1,377,000, respectively. As of September 30, 1994, the remaining minimum license royalty payment commitments amounted to $150,000. Joint Venture During the third quarter of fiscal 1994, a partnership agreement between Pyramid Technology Australia PTY, Ltd., a wholly owned subsidiary of the Company, and Fujitsu Australia Limited was signed. Pyramid Data Centre Systems, the new joint venture created by the agreement, began operations on July 2, 1994. The new venture will market Pyramid's Nile Series of scalable B-7 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) enterprise servers along with complementary Fujitsu and ICL hardware and mainframe connectivity software. Pyramid Data Centre Systems' focus will be the high-end commercial data center computing market, with emphasis on major Australian corporations that are downsizing their mainframe operations. Pyramid's share of the joint venture is 49% and is being accounted for using the equity method. Restructuring During fiscal 1992, the Company recorded restructuring costs totaling $41,180,000 in connection with two restructuring programs designed to reduce costs and improve operating efficiencies. These restructuring plans reflect a realignment of corporate infrastructure, downsizing or discounting less profitable business units, and a more focused research and development effort. The cost reductions included a consolidation of facilities, a write-off of nonproductive assets, and a reduction in workforce. At September 30, 1994, $3,075,000 remained accrued for excess facilities in Mountain View, California and the United Kingdom which will be used to offset excess facility costs over the next two to four years. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company sells its products to customers in diversified industries primarily in North America, Europe, and Asia-Pacific. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses were not material during the three years reported. The Company invests its excess cash in deposits with major banks, in money market funds, and in commercial paper of companies with strong credit ratings and in diversified industries. Generally, the investments mature within 120 days and, therefore, are subject to little risk. The Company has not experienced losses related to these investments. Foreign Exchange Contracts In order to reduce the impact of currency fluctuations on intercompany balances, the Company enters into foreign currency forward exchange contracts, which require the Company to exchange foreign currencies for U.S. dollars at rates agreed to at the inception of the contracts. The contracts generally have maturities that do not exceed one month. The objective of these contracts is to neutralize the impact of foreign currency exchange rate movements on the Company's operating results. These contracts do not subject the Company to significant market risk from exchange rate movements because the contracts offset gains and losses on the balances being hedged. At September 30, 1994, the Company had foreign exchange contracts outstanding to sell the equivalent of $1,779,000, which approximates fair value, in Japanese and Swedish currencies, and to buy the equivalent of $6,883,000, which approximates fair value, in Australian, British, and German currencies. Foreign Currency Translation Substantially all assets and liabilities of the Companys foreign operations are translated into United States dollars at exchange rates prevailing at the fiscal year-end. The resulting translation adjustments are recorded as cumulative translation adjustments to shareholders equity. Revenues and expenses for the year are translated at the average exchange rates in effect during the year. Foreign currency exchange gains or losses were not material during the three years reported. Related Party Transactions During the second quarter of fiscal 1994, a senior executive of a major customer and vendor of the Company was elected to the Company's Board of Directors. The related party accounted for approximately 4%, 2%, and 1% of the Company's revenue during fiscal 1994, 1993, B-8 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) and 1992, respectively. Additionally, the Company has contracted with the related party to perform consulting services ranging from a minimum of $6,000,000 to $7,000,000 per year over the next eight years. During the third quarter of fiscal 1994, the Company made a sale to a customer which accounted for less than 1% of the Company's fiscal 1994 revenues, and also purchased $900,000 of prepaid software licenses from the customer. The Company's chairman of the board is a member of the customers board of directors. During the fourth quarter of fiscal 1994, Pyramid and Siemens Nixdorf announced an expansion of their cooperative agreement for high-end UNIX systems by entering into a new software and hardware licensing agreement and amending its existing OEM agreement. Siemens Nixdorf licensed Pyramid's enhancement of the UNIX operating system for massively parallel processing (MPP) and received the right to purchase the related MPP hardware product, internally known as MESHine, under the OEM agreement. In addition, Siemens Nixdorf paid $17,250,000 for 2,000,000 shares of Common Stock and a warrant to purchase an additional 1,330,000 shares at $10.00 per share. The warrant expires on September 30, 1995. Siemens Nixdorf's ownership in Pyramid increased to approximately 18% with the initial purchase of shares and would increase to approximately 24% if the warrant is exercised. A senior executive of Siemens Nixdorf was also elected to the Company's Board of Directors. Siemens Nixdorf accounted for approximately 5%, 6%, and 8% of the Company's revenue during fiscal 1994, 1993, and 1992, respectively. At September 30, 1994, Siemens Nixdorf owed the Company approximately $6,000,000 for the purchase of products. COMMITMENTS Leasing Arrangements The Company leases its corporate headquarters, manufacturing facilities, and sales offices under noncancelable operating lease agreements which expire at various dates through 2014. Rental expense under operating leases, including month to month facilities and equipment rentals was approximately $11,763,000, $12,501,000, and $12,112,000 in 1994, 1993, and 1992, respectively. In connection with the fiscal 1992 restructurings, which included a consolidation of facilities, the Company subleases certain of its facilities under noncancelable subleases. The minimum future rentals to be received under these subleases are $951,000, $949,000, and $647,000 in fiscal 1995, 1996, and 1997, respectively. The Company has entered into capital lease agreements for certain machinery and equipment which are accounted for as the acquisition of an asset and incurrence of a liability. Assets held under capital leases included in property and equipment are as follows:
YEAR ENDED SEPTEMBER 30, --------------- 1994 1993 ------- ------- (IN THOUSANDS) Machinery and equipment.................................. $ 3,252 $ 2,972 Furniture and fixtures................................... 4,880 4,359 ------- ------- 8,132 7,331 Less accumulated amortization............................ 4,418 4,091 ------- ------- $ 3,714 $ 3,240 ======= =======
B-9 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Minimum future payments under all capital and operating lease agreements as of September 30, 1994 are as follows:
OPERATING CAPITAL YEAR ENDING SEPTEMBER 30, LEASES LEASES ------------------------- --------- ------- (IN THOUSANDS) 1995................................................. $ 9,510 $ 446 1996................................................... 8,654 131 1997................................................... 7,183 14 1998................................................... 6,281 -- 1999................................................... 6,072 -- Thereafter............................................. 26,319 -- ------- ----- Total minimum lease payments........................... $64,019 591 ======= ===== Amount representing interest........................... (37) ----- Present value of minimum lease payments................ 554 Current obligations under capital leases............... (415) ----- Noncurrent obligations under capital leases............ $ 139 =====
Dismissal of Shareholder Class Action Complaints During the first quarter of fiscal 1994, two shareholder class action complaints were filed naming as defendants the Company and certain of its officers and directors, and alleging violations of federal securities laws as well as a state law fraud claim. The complaints alleged that the Company made false and misleading statements in press releases and other public statements and that some of the individual defendants traded the Company's Common Stock on inside information. The complaints sought an award of an unspecified amount of damages. The cases were consolidated by order of the District Court on July 14, 1994. After review of initial disclosures made by the Company and discussions with the Company's attorneys, counsel for the plaintiffs agreed to dismiss the actions. On July 26, 1994, pursuant to a stipulation of the parties, the District Court entered an order for dismissal without prejudice of the consolidated actions. COMMON STOCK Common Shares Rights Agreement The Company has a plan to protect shareholders rights in the event of a proposed takeover of the Company. Under the plan, the Board of Directors declared a dividend of one common share purchase right (a right) for each share of the Company's Common Stock. Each right entitles the shareholder to purchase one share of the Company's Common Stock at an exercise price of $64. The rights become exercisable following the tenth day after a person or group (a) acquires beneficial ownership of 20% or more of the Company's Common Stock or (b) announces a tender or exchange offer which would result in ownership by a person or group of 30% or more of the Company's Common Stock. If any person or group acquires 20% of the Company's Common Stock, each right not held by the acquiring person will entitle the holder to purchase $128 worth of the Company's Common Stock for $64. If the Company is acquired in a merger or other business combination transaction, each right not held by the acquiring person will entitle its holder to purchase $128 worth of the common stock of the acquiring company for $64. The rights are redeemable at the Company's option for $0.01 per right. Additionally, the exercise price and number and kind of shares covered by each right are subject to adjustment for stock splits, stock dividends, and certain other events. The rights expire on December 12, 1998. B-10 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In the fourth quarter of fiscal 1994, all necessary corporate action required under the Rights Agreement to amend the Rights Agreement was authorized and taken so that the potential exercise of a warrant to purchase 1,330,000 shares of Common Stock or any other purchase of Common Stock by Siemens Nixdorf would not make Siemens Nixdorf an acquiring person. Incentive Stock Option Plan The Company has an Incentive Stock Option Plan (the "Plan") under which officers, consultants and key employees may be granted options to purchase the Company's Common Stock. Options are granted at a price not less than fair market value on the date of grant, as determined by the Board of Directors. At September 30, 1994, 6,116,666 shares of Common Stock had been reserved for issuance under the Plan. The options are generally exercisable at the rate of 25% commencing one year after the date of grant and in monthly increments of 1/36 of the remaining balance thereafter. Expiration dates are determined by the Board of Directors, but in no event will they exceed ten years from the date of grant. Unexercised options are cancelable three months after the date of termination of employment. Plan transactions for the years ended September 30, 1993 and 1994 were as follows:
PRICE ---------------------------------- NUMBER OF SHARES PER SHARE TOTAL ----------------------------------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Options outstanding at September 30, 1992..... 2,528,042 $1.31-$29.00 $37,089 Grants.................. 1,192,500 $7.75-$20.25 12,854 Exercises............... (834,314) $1.31-$18.50 (9,773) Cancellations........... (432,326) $6.50-$29.00 (6,243) ---------- ------------ ------- Options outstanding at September 30, 1993..... 2,453,902 $1.31-$29.00 33,927 Grants.................. 1,117,500 $6.63-$20.50 14,358 Exercises............... (89,927) $1.31-$18.00 (738) Cancellations........... (526,823) $1.31-$29.00 (7,653) ----------- ------------ ------- Options outstanding at September 30, 1994..... 2,954,652 $1.31-$29.00 $39,894 ========== ============ =======
At September 30, 1994, there w ere 1,722,581 shares exercisable under this Plan at $1.31 to $29.00 per shar-----e, and options for 781,043 shares of Common Stock were available for grant. At September 30, 1993, there were 1,178,800 shares exercisable under this plan at $1.31 to $29.00 per share. Executive Officers' Nonstatutory Stock Option Plan The Company has an Executive Officer's Nonstatutory Stock Option Plan (the "Plan") under which 400,000 shares of Common Stock were reserved for issuance to executive officers of the Company. Under the Plan, the Board of Directors determines the number of shares, option price, and exercisability of options. Options expire ten years after the date of grant. There were no option grants, exercises, or cancellations under the Plan during fiscal 1994 and 1993. At September 30, 1994, there were 20,313 shares outstanding and exercisable under this Plan at $17.00 per share and options for 7,000 shares of Common Stock were available for grant. At September 30, 1993, there were 20,313 shares outstanding and 12,500 shares exercisable under the Plan at $17.00 per share. Directors' Option Plan The Company has a Directors' Option Plan (the "Plan") under which 160,000 shares of Common Stock were reserved for issuance to nonemployee directors as of September 30, 1994. The Plan provides for the automatic grant of an option to purchase 12,000 shares B-11 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of Common Stock to nonemployee directors on the date on which such person first becomes a director, and the annual grant of an option to purchase 6,000 shares on each January 31 thereafter. The per share exercise price of the Common Stock subject to an option shall be 100% of the fair market value per share on the date of the option grant. As of September 30, 1994, options for 58,000 shares were available for grant. At September 30, 1994, there were 61,500 shares exercisable under this plan at $13.50 to $18.25 per share. At September 30, 1993, there were 30,000 shares exercisable under this plan.
PRICE ------------------------------------ NUMBER OF SHARES PER SHARE TOTAL ------------------------------------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Options outstanding at September 30, 1992..... 42,000 $ 14.75-$18.25 $ 693 Grants.................. 18,000 $14.75 266 Exercises............... (2,500) $14.75 (37) -------------- --------------------- -------------- Options outstanding at September 30, 1993..... 57,500 $ 14.75-$18.25 922 Grants.................. 42,000 $ 13.50-$14.50 585 -------------- --------------------- -------------- Options outstanding at September 30, 1994..... 99,500 $ 13.50-$18.25 $ 1,507 ============== ===================== ==============
EMPLOYEE BENEFIT PROGRAMS Employee Stock Purchase Plan In September 1987, the Company adopted the 1987 Employee Stock Purchase Plan (the "Plan"). As of September 30, 1994, 1,150,000 shares of Common Stock have been reserved for issuance under the Plan. The Plan permits eligible employees to purchase Common Stock through payroll deductions of up to a maximum of 10% of their eligible compensation at 85% of the fair market value. During fiscal 1994, 300,074 shares were purchased at prices of $6.69 to $7.23 per share. At September 30, 1994, 31,626 shares were available for future issuance. 410(K) Plan The Company has adopted a tax deferred savings plan ("401(k) Plan" or the "Plan") in which virtually all domestic employees are eligible to participate. Participating employees may contribute up to 15% of qualified earnings. The Company matches employee contributions at a 50% rate up to the first 5% of each employees salary deferral contribution. Employee contributions are fully vested, whereas vesting in matching Company contributions occurs at a rate of 33 1/3% per year of employment. All contributions to the Plan are transferred to a trustee and are invested at the employee's discretion in six separate funds. During fiscal 1994, 1993, and 1992, the Company's contribution amounted to approximately $1,122,000, $887,000, and $946,000, respectively. BORROWING ARRANGEMENTS For the purposes of hedging its foreign currency exposures, the Company had available a bank facility which provides for up to $70,000,000 of foreign exchange contracts. At September 30, 1994, $61,338,000 was available under the foreign exchange line of credit as $8,662,000 was utilized for foreign currency hedging contract positions. This credit facility expired on October 31, 1994. During October 1994, the Company entered into a new revolving line of credit agreement with a bank which provides it with the ability to borrow up to $10,000,000. Amounts borrowed under the line of credit are secured by the Company's accounts receivable and inventory. The interest rate on borrowings under the line of credit is at the bank's prime rate. The agreement also provides for up to $50,000,000 of foreign exchange contract availability in addition to the $10,000,000 revolving line of credit. This line of credit expires on December 31, 1995. The above facilities do not permit the Company to pay cash dividends and they set limitations on the Company in regard to other indebtedness, pledging assets, B-12 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) guarantees, mergers and acquisitions, and annual capital expenditure levels as well as requiring the Company to maintain certain financial requirements. During fiscal 1994, the Company financed $3,150,000 of equipment under a capital equipment financing agreement with a lending company. The loans, which have an average interest rate of approximately 8%, are repaid on a monthly basis over a three-year period. INCOME TAXES The provision (benefit) for income taxes consists of the following:
YEAR ENDED SEPTEMBER 30, -------------------------- 1994 1993 1992 -------- ---------------- (IN THOUSANDS) CURRENT: Federal....................................... $ (1,039) $ 912 $ (4,046) State......................................... 144 298 -- Foreign....................................... 1,307 231 21 -------- ------ -------- 412 1,441 (4,025) -------- ------ -------- DEFERRED: Federal....................................... 2,523 (482) (2,596) State......................................... -- -- (308) -------- ------ -------- 2,523 (482) (2,904) -------- ------ -------- $ 2,935 $ 959 $ (6,929) ======== ====== ========
Pretax income (loss) from foreign operations amounted to $3,214,000, $1,262,000, and $(10,098,000) for fiscal 1994, 1993, and 1992, respectively. The total provision (benefit) for income taxes differs from the amount computed by applying the statutory federal rate of 34% to income (loss) before taxes as follows:
YEAR ENDED SEPTEMBER 30, -------------------------- 1994 1993 1992 ------- ------- -------- (IN THOUSANDS) Computed expected tax provision (benefit).......... $(6,623) $ 3,262 $(22,656) State tax, net of federal benefit.................. 144 197 (203) Losses not benefited and income taxed at other than U.S. rates........................................ 10,084 -- 14,200 Utilization of operating loss carryforward......... (670) (1,185) -- Utilization of general business credits............ -- (923) 1,947 Other.............................................. -- (392) (217) ------- ------- -------- $ 2,935 $ 959 $ (6,929) ======= ======= ========
Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." As permitted by SFAS 109, the Company has elected not to restate the financial statements of any prior years. The effect of adoption of this standard was not material to the Company's financial position or results of operations for the year ended September 30, 1994. B-13 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes reflect tax credit and loss carryforwards and the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of September 30, 1994 are as follows:
YEAR ENDED SEPTEMBER 30, 1994 ------------------ (IN THOUSANDS) Deferred tax liabilities: Capitalized software development costs and other........ $ (7,181) -------- Total deferred tax liabilities........................ (7,181) -------- Deferred tax assets: Tax credits............................................. 4,274 Depreciation............................................ 1,998 Special charge and other reserves....................... 13,193 Loss carryforwards and other............................ 10,034 -------- Total deferred tax assets............................. 29,499 -------- Valuation allowance for deferred tax assets............... (22,318) -------- Net deferred taxes........................................ $ 0 ========
The valuation allowance increased $9,426,000 in the year ended September 30, 1994. Approximately $3,279,000 of the valuation reserve is related to benefits of stock option deductions which will be allocated directly to additional paid- in capital when realized. For federal income tax purposes at September 30, 1994, the Company had $29,100,000 of net operating loss carryforwards which expire in the year 2009. The Company had research and development credit carryforwards of approximately $3,500,000 which expire through the year 2006. The Company had alternative minimum tax credit carryforwards of approximately $800,000 which do not expire. The Company had foreign net operating losses of approximately $2,900,000. Significant components of the deferred income tax in the provision for income taxes for the years ended September 30, 1993 and September 30, 1992 are as follows:
YEAR ENDED SEPTEMBER 30, --------------- 1993 1992 ------ ------- (IN THOUSANDS) Depreciation............................................... $ (754) $ (10) Inventory valuation differences............................ (241) (589) Capitalized software development........................... 309 (383) Allowance for doubtful accounts............................ (4) (62) Unrealized profits on intercompany transactions............ (90) 28 Restructuring costs........................................ 1,061 (1,704) Deferred revenue........................................... (645) 12 Other, net................................................. (118) (196) ------ ------- Total deferred taxes....................................... $ (482) $(2,904) ====== =======
B-14 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INDUSTRY SEGMENT, SIGNIFICANT CUSTOMER, AND GEOGRAPHIC INFORMATION The Company operates in one principal industry segment: the design, manufacture, marketing, and service of high-performance open system servers and related software that combine the advantages of the UNIX multi-user operating system with a system architecture based on the principles of reduced instruction set computing (RISC). During fiscal 1994, 1993, and 1992, the Company had export sales of approximately 15%, 18%, and 19% of total revenues, respectively. Export sales by geographic areas were 11%, 14%, and 17% to Europe and 4%, 4%, and 2% primarily to Asia and the Far East as a percentage of total revenues for fiscal 1994, 1993, and 1992, respectively. During fiscal 1994, AT&T accounted for 18% ($38,372,000) of the Company's total revenues. Sales to AT&T in fiscal 1993 and 1992 were 17% ($40,676,000) and 20% ($39,297,000), respectively. The Company's operations by geographic area are as follows:
UNITED UNITED ASIA- STATES KINGDOM PACIFIC ELIMINATIONS CONSOLIDATED -------- ------- ------- ------------ ------------ (IN THOUSANDS) 1994 Revenues: Sales to unaffiliated customers............... $169,535 $25,411 $23,569 $ -- $218,515 Intercompany sales....... 10,986 -- -- (10,986) -- -------- ------- ------- -------- -------- Total revenues........... 180,521 25,411 23,569 (10,986) 218,515 -------- ------- ------- -------- -------- Operating income (loss).. (27,742) 1,261 1,602 5,579 (19,300) -------- ------- ------- -------- -------- Identifiable assets...... 210,492 14,823 7,026 (41,628) 190,713 -------- ------- ------- -------- -------- 1993 Revenues: Sales to unaffiliated customers............... 186,883 26,328 20,487 -- 233,698 Intercompany sales....... 31,691 -- -- (31,691) -- -------- ------- ------- -------- -------- Total revenues........... 218,574 26,328 20,487 (31,691) 233,698 -------- ------- ------- -------- -------- Operating income (loss).. 9,481 1,197 (130) (1,213) 9,335 -------- ------- ------- -------- -------- Identifiable assets...... 216,694 16,928 12,837 (54,801) 191,658 -------- ------- ------- -------- -------- 1992 Revenues: Sales to unaffiliated customers............... 146,302 24,263 21,661 -- 192,226 Intercompany sales....... 25,808 -- -- (25,808) -- -------- ------- ------- -------- -------- Total revenues........... 172,110 24,263 21,661 (25,808) 192,226 -------- ------- ------- -------- -------- Operating income (loss).. (55,010) (4,233) (5,987) (1,265) (66,495) -------- ------- ------- -------- -------- Identifiable assets...... $193,751 $15,739 $12,631 $(45,930) $176,191 ======== ======= ======= ======== ========
Intercompany sales are accounted for at prices which approximate arm's length transactions and include systems and spare parts. B-15 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------------------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 Revenues............................ $ 60,018 $ 46,548 $ 53,812 $ 58,137 Gross profit........................ 24,969 12,599 18,838 23,526 Net income (loss)................... 635 (15,973) (5,940) (1,135) Net income (loss) per share......... 0.05 (1.19) (0.44) (0.08) 1993 Revenues............................ $ 55,103 $ 58,024 $ 60,022 $ 60,549 Gross profit........................ 22,700 24,842 27,175 26,860 Net income.......................... 468 1,440 3,334 3,392 Net income per share................ 0.04 0.12 0.25 0.25
B-16 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Directors and Shareholders Pyramid Technology Corporation We have audited the accompanying consolidated balance sheet of Pyramid Technology Corporation as of September 30, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pyramid Technology Corporation at September 30, 1994 and 1993 and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1994 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Palo Alto, California October 25, 1994 B-17 UNAUDITED FINANCIAL STATEMENTS FOR PYRAMID TECHNOLOGY CORPORATION FOR THE FIRST QUARTER OF THE FISCAL YEAR ENDING SEPTEMBER 30, 1995 PYRAMID TECHNOLOGY CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED -------------------- DEC. 30 DEC. 31 1994 1993 --------- --------- Revenues: Product revenues....................................... $ 44,223 $ 43,978 Service revenues....................................... 17,896 16,040 --------- --------- 62,119 60,018 Cost of sales: Cost of products sold.................................. 21,765 23,167 Cost of services....................................... 13,126 11,882 --------- --------- 34,891 35,049 Gross profit............................................. 27,228 24,969 Operating expenses: Research and development............................... 6,007 6,643 Sales, marketing, general and administrative........... 20,001 17,441 --------- --------- Total operating expenses............................... 26,008 24,084 --------- --------- Operating income......................................... 1,220 885 Interest income.......................................... 518 121 Interest expense......................................... (97) (159) Loss on investment in joint venture...................... (112) -- --------- --------- Income before income taxes............................... 1,529 847 Provision for income taxes............................... 229 212 --------- --------- Net income............................................... $ 1,300 $ 635 ========= ========= Net income per common and common equivalent share........ $ 0.08 $ 0.05 ========= ========= Shares used in computing net income per common and common equivalent share........................................ 15,644 13,584 ========= =========
See accompanying notes B-18 PYRAMID TECHNOLOGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) (UNAUDITED)
DEC. 30 SEPT. 30 1994 1994 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 17,747 $ 21,558 Short-term investments.................................... 36,334 20,651 Accounts receivable, net.................................. 46,982 49,310 Inventories............................................... 30,432 25,840 Prepaid expenses and deposits............................. 13,868 15,270 -------- -------- Total current assets.................................... 145,363 132,629 Property and equipment, at cost............................. 105,110 101,998 Less accumulated depreciation and amortization.............. 77,961 74,386 -------- -------- 27,149 27,612 Capitalized software development costs...................... 18,016 18,381 Service spare parts and other assets........................ 12,468 12,091 -------- -------- $202,996 $190,713 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 22,468 $ 16,398 Accrued payroll and related liabilities................... 6,309 4,493 Accrued commissions....................................... 2,823 2,424 Deferred revenue.......................................... 11,517 8,272 Other accrued liabilities................................. 10,478 10,932 Restructuring accruals.................................... 2,882 3,075 Income taxes payable...................................... 3,891 3,678 Current portion of long-term debt......................... 1,320 1,440 -------- -------- Total current liabilities............................... 61,688 50,712 Noncurrent portion of long-term debt........................ 1,233 1,563 Deferred income taxes payable............................... 2,400 2,400 Shareholders' equity: Common stock.............................................. 156 156 Additional paid-in capital................................ 174,899 174,652 Accumulated deficit....................................... (36,628) (37,927) Accumulated translation adjustment........................ (752) (843) -------- -------- Total shareholders' equity.............................. 137,675 136,038 -------- -------- $202,996 $190,713 ======== ========
See accompanying notes B-19 PYRAMID TECHNOLOGY CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED -------------------- DEC. 30 DEC. 31 1994 1993 --------- --------- Cash flows from operating activities: Net income.............................................. $ 1,300 $ 635 Adjustments to reconcile net income to net cash from op- erating activities: Depreciation and amortization......................... 6,947 7,597 Changes in: Accounts receivable, net............................ 2,328 (6,011) Inventories......................................... (4,592) (1,788) Prepaid expenses and deposits and income tax receiv- able............................................... 1,402 855 Accounts payable, accrued liabilities, and other.... 11,212 (1,943) --------- -------- Net cash provided by (used for) operating activities.... 18,597 (655) --------- -------- Cash flows from investing activities: Purchase of short-term investments...................... (15,683) -- Investment in property and equipment.................... (3,535) (3,337) Increase in capitalized software development costs...... (1,596) (2,403) Increase in other assets................................ (1,391) (1,169) --------- -------- Net cash used for investing activities.................. (22,205) (6,909) Cash flows from financing activities: Principal payments on capital lease obligations......... (450) (546) Net borrowings under loan agreement..................... -- 2,364 Issuance of common stock, net of repurchases............ 247 262 --------- -------- Net cash provided by (used for) financing activities.... (203) 2,080 --------- -------- Decrease in cash and cash equivalents..................... (3,811) (5,484) Cash and cash equivalents, at the beginning of the period. 21,558 31,358 --------- -------- Cash and cash equivalents, at the end of the period....... $ 17,747 $ 25,874 ========= ======== Supplemental disclosures of cash flow information: Cash paid for interest.................................. $ 97 $ 159 Cash paid (received) for income taxes................... $ (2,199) $ 531
See accompanying notes B-20 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all significant intercompany transactions. While the financial information furnished is unaudited, the statements in this report reflect all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results of operations for the interim periods covered and of the financial condition of the Company at the dates of the balance sheets. The operating results for the interim periods presented are not necessarily indicative of the results to be expected for the entire year. Certain footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the fiscal year ended September 30, 1994. ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES Effective September 30, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". This statement addresses the accounting and reporting for investments in marketable equity securities that have readily determinable fair values and for all investments in debt securities. These securities are required to be classified at the time of purchase and re-evaluated at each reporting date as either (1) held-to-maturity, (2) trading, or (3) available- for-sale. The Company classifies its investment in commercial paper and money market funds ($7,819,000 in cash equivalents and $36,334,000 in short-term investments) as held-to-maturity given the Company's positive intent and ability to hold the securities to maturity. In accordance with the statement, held-to-maturity securities are carried at amortized cost which approximates fair value. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following (in thousands):
DEC. 30 SEPT. 30 1994 1994 ------- -------- Raw materials............................................ $11,582 $10,617 Work-in-process.......................................... 11,589 8,320 Finished goods........................................... 7,261 6,903 ------- ------- $30,432 $25,840 ======= =======
RELATED PARTY TRANSACTIONS Siemens Nixdorf Informationssyteme AG (Siemens Nixdorf), which owns approximately 17% of the Company's Common Stock, accounted for $6,587,000, or 11% of the Company's revenue during the first quarter of fiscal 1995 and $1,707,000, or 3% of the Company's revenue during the first quarter of fiscal 1994. Siemens Nixdorf also holds a warrant to purchase 1,330,000 shares of the Company's Common Stock at $10.00 per share. The warrant expires on September 30, 1995. B-21 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (UNAUDITED) A senior executive of a major customer and vendor of the Company is a member of the Company's board of directors. The related party accounted for $1,136,000, or 2% of the Company's revenue during the first quarter of fiscal 1995 and $2,539,000, or 4% of the Company's revenue during the first quarter of fiscal 1994. The Company purchased services from the vendor totaling $2,323,000 during the first quarter of fiscal 1995 and $1,532,000 during the first quarter of fiscal 1994. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Net income per common and common equivalent share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the dilutive shares issuable upon the exercise of stock options using the treasury stock or modified treasury stock method (whichever applies). For the three month period ended December 30, 1994, no common equivalent shares were included in the computation as the modified treasury stock method applied and the effect would be anti-dilutive. For the three month period ended December 31, 1993, common equivalent shares were computed using the treasury stock method.
THREE MONTHS ENDED --------------------- DEC. 30 DEC. 31 1994 1993 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Average shares outstanding............................... 15,644 13,240 Net effect of dilutive stock options..................... -- 344 ---------- ---------- Shares used in computing net income per common and common equivalent share........................................ 15,644 13,584 Net income............................................... $ 1,300 $ 635 Net income per common and common equivalent share........ $ 0.08 $ 0.05
SUBSEQUENT EVENT On January 23, 1995, Pyramid and Siemens Nixdorf jointly announced that they had entered into an agreement pursuant to which a wholly-owned subsidiary of Siemens Nixdorf will acquire all of the outstanding Common Stock of Pyramid not currently owned by Siemens Nixdorf for an aggregate purchase price of approximately $207 million. Under the agreement, Siemens Nixdorf's subsidiary will commence a tender offer for all outstanding Common Stock of Pyramid for $16.00 per share in cash. The tender offer will be followed by a merger in which any shares not acquired by Siemens Nixdorf's subsidiary in the tender offer will be acquired for the same amount of cash. Siemens Nixdorf currently owns over 17% of the outstanding Common Stock of Pyramid. The tender offer, which was approved by Pyramid's board of directors, commenced January 27, 1995 and is conditioned on a majority of the outstanding shares of Pyramid being tendered as well as other customary conditions, including regulatory approvals. B-22 Facsimiles of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates evidencing Shares and any other required documents should be sent or delivered by each stockholder or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below. The Depositary for the Offer is: CHEMICAL BANK By Mail: By Facsimile: By Hand: or Overnight (for Eligible Institutions only) Courier: Chemical Bank Reorganization Dept. (212) 629-8015 or Chemical Bank P.O. Box 3085 (212) 629-8016 55 Water Street G.P.O. Station Second Floor-Room 234 New York, NY 10116-3085 New York, NY 10041 Attention: Reorganization Department Confirm by Telephone: (212) 946-7137 Questions or requests for assistance may be directed to the Information Agent at its address and telephone numbers listed below or to the Dealer Managers at their address listed below. Additional copies of this Supplement, the Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. A stockholder may also contact brokers, dealers, commercial banks or trust companies for assistance concerning the Offer. The Information Agent for the Offer is: GEORGESON & COMPANY INC. Wall Street Plaza New York, New York 10005 (212) 509-6240 (COLLECT) BANKS AND BROKERS CALL COLLECT (212) 440-9800 CALL TOLL FREE: 1-800-223-2064 The Dealer Managers for the Offer are: GOLDMAN, SACHS & CO. 85 Broad Street New York, New York 10004 EX-99.A.13 3 AMENDMENT #1 TO 13E-3 Exhibit 99(A)(13) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (AMENDMENT NO. 1) (PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 13E-3 ((S)240.13E-3) THEREUNDER)) ---------------- PYRAMID TECHNOLOGY CORPORATION (NAME OF THE ISSUER) ---------------- PYRAMID TECHNOLOGY CORPORATION SIEMENS NIXDORF MID-RANGE ACQUISITION CORP. SIEMENS NIXDORF INFORMATIONSSYSTEME AG SIEMENS AKTIENGESELLSCHAFT (NAME OF PERSON(S) FILING STATEMENT) ---------------- COMMON STOCK, $.01 PAR VALUE (TITLE OF CLASS OF SECURITIES) ---------------- 747236107 (CUSIP NUMBER OF CLASS OF SECURITIES) ---------------- E. ROBERT LUPONE, ESQ. RICHARD H. LUSSIER SIEMENS CORPORATION CHIEF EXECUTIVE OFFICER 1301 AVENUE OF THE AMERICAS PYRAMID TECHNOLOGY CORPORATION NEW YORK, NEW YORK 10019-6022 3860 N. FIRST STREET (212) 258-4000 SAN JOSE, CALIFORNIA 95134 (408) 428-9000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON(S) AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT) ---------------- COPIES TO: PETER D. LYONS, ESQ. LARRY W. SONSINI, ESQ. SHEARMAN & STERLING DOUGLAS H. COLLOM, ESQ. 599 LEXINGTON AVENUE AARON J. ALTER, ESQ. NEW YORK, NEW YORK 10022 WILSON, SONSINI, GOODRICH & ROSATI (212) 848-4000 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (415) 493-9300 ---------------- This statement is filed in connection with (check the appropriate box): a. [_] The filing of solicitation materials or an information statement subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation 14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [(S)240.13e- 3(c)] under the Securities Exchange Act of 1934. b. [_] The filing of a registration statement under the Securities Act of 1933. c. [X] A tender offer. d. [_] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [_] ---------------- CALCULATION OF FILING FEE - --------------------------------------------------------------------------------
TRANSACTION VALUATION AMOUNT OF FILING FEE - ------------------------------------------------------------------------------ $261,772,336.00* $52,354.46**
- -------------------------------------------------------------------------------- * Note: The Transaction Value is calculated by multiplying $16.00, the per share tender offer price, by 16,360,771, the sum of the number of shares of Common Stock outstanding not already owned by Siemens Informationssysteme AG and the 3,449,923 shares of Common Stock subject to options outstanding. ** 1/50 of 1% of Transaction Value. [X] Check box if any part of the fee is offset as provided by Rule 0-11(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: $52,354.46 Filing Party: Siemens Nixdorf Mid- Range Acquisition Corp., Form or Registration No: Schedule Siemens Nixdorf 14D-1/Schedule 13D Informationssysteme AG, (Amendment No. 5) Siemens Aktiengesellschaft Date Filed: January 27, 1995 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTRODUCTION This Amendment No. 1 to the Rule 13e-3 Transaction Statement on Schedule 13E- 3 filed with the Commission on February 13, 1995 (as amended the "Schedule 13E- 3") is being filed by (i) Siemens Nixdorf Mid-Range Acquisition Corp., a Delaware corporation ("Purchaser") and an indirect wholly owned subsidiary of Siemens Nixdorf Informationssysteme AG ("SNI AG"), a corporation organized under the laws of the Federal Republic of Germany and a direct wholly owned subsidiary of Siemens Aktiengesellschaft ("Siemens AG"), a corporation organized under the laws of the Federal Republic of Germany, (ii) SNI AG, (iii) Siemens AG, and (iv) Pyramid Technology Corporation, a Delaware corporation (the "Company"), pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended, and Rule 13e-3 thereunder, in connection with the tender offer by Purchaser for all the outstanding shares of common stock, par value $.01 per share (the "Shares"), of the Company, upon the terms and subject to the conditions set forth in the Offer to Purchase dated January 27, 1995 (the "Offer to Purchase"), the related Letter of Transmittal, and the Supplement to the Offer to Purchase dated February 13, 1995, a copy of which is filed as Exhibit (d)(2) to the Schedule 13E-3 (the "Supplement") (together, the Offer to Purchase, the Supplement and the Letter of Transmittal constitute the "Offer"). Forms of the Offer to Purchase and the Letter of Transmittal were filed as Exhibits (a)(1) and (a)(2) to the Tender Offer Statement on Schedule 14D-1 and Amendment No. 5 to the Schedule 13D filed by Purchaser, SNI AG and Siemens AG on January 27, 1995 (the "Statement"). 2 ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. Item 5 is hereby amended and supplemented to read in its entirety as follows: (a)-(e) The information set forth in the Introduction, Section 10 ("Background of the Offer; Contacts with the Company; the Merger Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the Merger") of the Offer to Purchase is incorporated herein by reference. The information set forth in Item 3 of the Company's Solicitation/Recommendation Statement on Schedule 14D-9, filed on January 27, 1995 (the "Schedule 14D-9"), under "Additional Agreements, Arrangements and Understandings" and in the Information Statement, filed as Exhibit 20.1 to the Schedule 14D-9, under "BOARD OF DIRECTORS--Buyer Designees" and "CERTAIN RELATIONSHIPS, TRANSACTIONS AND ARRANGEMENTS" is incorporated herein by reference. The information set forth in the Supplement under "SPECIAL FACTORS--7 Plans for the Company After the Offer and the Merger; Reasons for SNI AG for the Offer and the Merger" and "SPECIAL FACTORS--9 Interests of Certain Persons in the Offer and the Merger" is incorporated herein by reference. (f)-(g) The information set forth in Section 13 ("Effect of the Offer on the Market for Shares, Exchange Listing and Exchange Act Registration") of the Offer to Purchase is incorporated herein by reference. ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION. Item 6 is hereby amended and supplemented to read in its entirety as follows: (a) The information set forth in Section 9 ("Financing of the Offer and the Merger") of the Offer to Purchase is incorporated herein by reference. (b) The information set forth in the Supplement under "FEES AND EXPENSES" is incorporated herein by reference. (c) Not applicable. (d) Not applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. Item 7 is hereby amended and supplemented to read in its entirety as follows: (a) The information set forth in the Introduction, Section 10 ("Background of the Offer; Contacts with the Company; the Merger Agreement"), Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the Merger") and Section 13 ("Effect of the Offer on the Market for Shares, Exchange Listing and Exchange Act Registration") of the Offer to Purchase is incorporated herein by reference. The information set forth in the Supplement under "SPECIAL FACTORS--6 Purpose and Structure of the Offer and the Merger; Reasons of SNI AG for the Offer and the Merger" is incorporated herein by reference. (b)-(d) The information set forth in the Supplement under "SPECIAL FACTORS--1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger", "SPECIAL FACTORS--6. Purpose and Structure of the Offer and the Merger; Reasons of SNI AG for the Offer and the Merger" and "SPECIAL FACTORS--7. Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger" and in Section 5 "Certain Federal Income Tax Consequences" of the Offer to Purchase is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. Item 8 is hereby amended and supplemented to read in its entirety as follows: (a)-(e) The information set forth in the Supplement under "SPECIAL FACTORS--1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger" and 3 "SPECIAL FACTORS--4. Position of SNI AG Regarding the Fairness of the Offer and the Merger" is incorporated herein by reference. (f) Not applicable. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. Item 9 is hereby amended and supplemented to read in its entirety as follows: (a)-(e) The information set forth in the Supplement under "SPECIAL FACTORS--2. Opinion of Smith Barney on Financial Advisor to the Company" and "SPECIAL FACTORS--5. Analysis of Goldman Sachs as Financial Advisors to SNI AG" is incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE OFFER AND THE MERGER. Item 12 is hereby amended and supplemented to read in its entirety as follows: (a) The information set forth in the Supplement under "SPECIAL FACTORS-- 1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger" and "SPECIAL FACTORS--9. Interests of Certain Persons in the Offer and the Merger" is incorporated herein by reference. (b) The information set forth in the Supplement under "SPECIAL FACTORS-- 1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger" is incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE OFFER AND THE MERGER. Item 13 is hereby amended and supplemented to read in its entirety as follows: (a) The information set forth in Section 11 ("Purpose of the Offer: Plans for the Company after the Offer and the Merger") of the Offer to Purchase, in the Supplement under "SPECIAL FACTORS--8. Rights of Stockholders in the Merger", and in Annex A to the Supplement is incorporated herein by reference. (b) Not applicable. (c) Not applicable. ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. Exhibit (d)(2) is hereby amended and supplemented in its entirety. Attached hereto as Exhibit (d)(2) is a complete copy of the Supplement as so amended and supplemented. 4 SIGNATURE AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. February 15, 1995 Siemens Nixdorf Mid-Range Acquisition Corp. /s/ Gerhard Schulmeyer By:_____________________________________ Name: Gerhard Schulmeyer Title: President Siemens Nixdorf Informationssysteme AG /s/ Gerhard Schulmeyer By:_____________________________________ Name: Gerhard Schulmeyer Title: President Siemens Aktiengesellschaft /s/ Adrienne Whitehead By:_____________________________________ Name: Adrienne Whitehead Title: Attorney-in-Fact 5 EXHIBIT INDEX
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ------------ (d)(2) --Supplement to the Offer to Purchase, as amended and supplemented, dated February 15, 1995.
EXHIBIT 99(D)(2) SUPPLEMENT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF PYRAMID TECHNOLOGY CORPORATION AT $16.00 NET PER SHARE BY SIEMENS NIXDORF MID-RANGE ACQUISITION CORP. AN INDIRECT WHOLLY OWNED SUBSIDIARY OF SIEMENS NIXDORF INFORMATIONSSYSTEME AG A DIRECT WHOLLY OWNED SUBSIDIARY OF SIEMENS AKTIENGESELLSCHAFT THE OFFER HAS BEEN EXTENDED. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 1, 1995, UNLESS THE OFFER IS FURTHER EXTENDED. THE OFFER IS CONDITIONED UPON (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED OF RECORD BY SIEMENS NIXDORF INFORMATIONSSYSTEME AG OR ANY OF ITS SUBSIDIARIES ON THE DATE HEREOF (OTHER THAN SHARES ISSUABLE UPON EXERCISE OF THE WARRANT (AS DEFINED BELOW)), SHALL CONSTITUTE A MAJORITY OF THE THEN OUTSTANDING SHARES ON A FULLY DILUTED BASIS (OTHER THAN ANY SHARES ISSUABLE UPON THE EXERCISE OF THE WARRANT AND OTHER THAN THE RIGHTS (AS DEFINED IN THE OFFER TO PURCHASE)) AND (II) THE EXPIRATION OR TERMINATION OF ALL WAITING PERIODS IMPOSED UPON CONSUMMATION OF THE OFFER BY ANY APPLICABLE FOREIGN COMPETITION STATUTES AND REGULATIONS, AS WELL AS THE OTHER CONDITIONS DESCRIBED IN THE OFFER TO PURCHASE. SEE SECTION 14 OF THE OFFER TO PURCHASE, WHICH SETS FORTH IN FULL THE CONDITIONS OF THE OFFER, AS WELL AS SECTION 15 OF THE OFFER TO PURCHASE AND THE SECTION OF THIS SUPPLEMENT ENTITLED "CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS", WHICH DISCUSS CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. THE BOARD OF DIRECTORS OF PYRAMID TECHNOLOGY CORPORATION HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF PYRAMID TECHNOLOGY CORPORATION, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. -------------- IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's shares of common stock, par value $.01 per share (the "Shares"), of Pyramid Technology Corporation should either (1) complete and sign the Letter of Transmittal which was mailed together with the Offer to Purchase (or a facsimile thereof) in accordance with the instructions in such Letter of Transmittal and mail or deliver it together with the certificate(s) evidencing tendered Shares, and any other required documents, to the Depositary or tender such Shares pursuant to the procedure for book-entry transfer set forth in Section 3 of the Offer to Purchase or (2) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Any stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such stockholder desires to tender such Shares. A stockholder who desires to tender Shares and whose certificates evidencing such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedure for guaranteed delivery set forth in Section 3 of the Offer to Purchase. Questions or requests for assistance may be directed to the Information Agent at its address and telephone numbers set forth on the back cover of this Supplement. Questions or requests for assistance may also be directed to the Dealer Managers at their address on the back cover of this Supplement. Additional copies of this Supplement, the Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. -------------- The Dealer Managers for the Offer are: GOLDMAN, SACHS & CO. -------------- TABLE OF CONTENTS
PAGE ---- INTRODUCTION.............................................................. 1 SPECIAL FACTORS........................................................... 3 1. Recommendation of the Board; Position of the Company Regarding the Fairness of the Offer and the Merger................................. 3 2. Opinion of Smith Barney as Financial Advisor to the Company.......... 7 3. Company Financial Projections........................................ 11 4. Position of SNI AG Regarding the Fairness of the Offer and the Merg- er................................................................... 12 5. Analysis of Goldman Sachs as Financial Advisors to SNI AG............ 13 6. Purpose and Structure of the Offer and the Merger; Reasons of SNI AG for the Offer and the Merger......................................... 15 7. Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger.................................. 16 8. Rights of Stockholders in the Merger................................. 17 9. Interests of Certain Persons in the Offer and the Merger............. 17 CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS............................ 18 FEES AND EXPENSES......................................................... 19 MISCELLANEOUS............................................................. 19
Annex A --Summary of Stockholder Appraisal Rights and Text of Section 262 of the Delaware General Corporation Law Annex B --Audited Consolidated Financial Statements (and Related Notes) for the Company for the Fiscal Years ended September 30, 1993 and September 30, 1994 and Unaudited Consolidated Financial Statements (and Related Notes) for the Company for the First Quarter of the Fiscal Year ending September 30, 1995
To the Holders of Common Stock of Pyramid Technology Corporation: INTRODUCTION The information contained in this Supplement (the "Supplement") amends and supplements the Offer to Purchase dated January 27, 1995 (the "Offer to Purchase") of Siemens Nixdorf Mid-Range Acquisition Corp. ("Purchaser"), a Delaware corporation and an indirect wholly owned subsidiary of Siemens Nixdorf Informationssysteme AG ("SNI AG"), a company organized under the laws of the Federal Republic of Germany and a direct wholly owned subsidiary of Siemens Aktiengesellschaft ("Siemens AG"), a company organized under the laws of the Federal Republic of Germany. Pursuant to the Offer to Purchase and this Supplement, Purchaser hereby offers to purchase all outstanding shares of common stock, par value $.01 per share (the "Shares"), of Pyramid Technology Corporation, a Delaware corporation (the "Company"), at a price of $16.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Supplement, the Offer to Purchase and in the related Letter of Transmittal (which together constitute the "Offer"). Purchaser is a direct wholly owned subsidiary of Siemens Nixdorf Information Systems, Inc., a Massachusetts corporation ("SNI U.S."), which is itself a direct wholly owned subsidiary of SNI AG. This Supplement is being provided to the Company's stockholders pursuant to Rule 13e-3 ("Rule 13e-3") promulgated under the Securities Exchange Act of 1934, as amended, which requires that certain information be provided to stockholders in certain transactions between a corporation and an "affiliate" of such corporation. Although neither SNI AG nor the Company believes that SNI AG controls the Company and therefore is an "affiliate" of the Company for purposes of Rule 13e-3, SNI AG and the Company are nevertheless providing this Supplement to the Company's stockholders in order to supplement the information already provided to them in the Offer to Purchase which was mailed to the Company's stockholders on January 27, 1995. The expiration date of the Offer has been extended from 12:00 midnight, New York City time, on Friday, February 24, 1995 until 12:00 midnight, New York City time, on Wednesday, March 1, 1995 (as so extended, the "Expiration Date"), unless the offer is further extended. Except as otherwise set forth in this Supplement, the terms and conditions previously set forth in the Offer to Purchase remain applicable in all respects to the Offer, and this Supplement should be read in conjunction with the Offer to Purchase. Unless the context requires otherwise, terms not defined herein have the meanings ascribed to them in the Offer to Purchase. THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") UNANIMOUSLY (WITH ONE DIRECTOR RECUSING HIMSELF) HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED BELOW) IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. Smith Barney Inc. ("Smith Barney"), the Company's financial advisor, has delivered to the Company's Board of Directors its written opinion to the effect that, as of the date of such opinion, the consideration to be received by the stockholders of the Company pursuant to each of the Offer and the Merger is fair from a financial point of view. A copy of the opinion of Smith Barney is attached as Annex B to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which was mailed to the Company's stockholders on January 27, 1995. THE OFFER IS CONDITIONED UPON (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED OF RECORD BY SNI AG OR ANY OF ITS SUBSIDIARIES ON THE DATE HEREOF (OTHER THAN SHARES ISSUABLE UPON EXERCISE OF THE WARRANT (AS DEFINED BELOW)), SHALL CONSTITUTE A MAJORITY OF THE THEN OUTSTANDING SHARES ON A FULLY DILUTED BASIS (INCLUDING, WITHOUT LIMITATION, ALL SHARES ISSUABLE UPON THE EXERCISE OF ANY OPTIONS, WARRANTS OR RIGHTS (OTHER THAN ANY SHARES ISSUABLE UPON THE EXERCISE OF THE WARRANT AND OTHER THAN 1 THE RIGHTS (AS DEFINED IN THE OFFER TO PURCHASE))) (THE "MINIMUM CONDITION") AND (II) THE EXPIRATION OR TERMINATION OF ALL WAITING PERIODS IMPOSED UPON CONSUMMATION OF THE OFFER BY ANY APPLICABLE FOREIGN COMPETITION AND ANTITRUST STATUTES AND REGULATIONS, AS WELL AS THE OTHER CONDITIONS DESCRIBED IN SECTION 14 OF THE OFFER TO PURCHASE WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. On February 3, 1995, Purchaser was informed by the Federal Trade Commission that early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), relating to the purchase of Shares pursuant to the Offer had been granted. Accordingly, the condition to the Offer requiring the expiration or termination of any applicable waiting period under the HSR Act prior to expiration of the Offer has been satisfied. In addition, on February 13, 1995, the Company received a letter from the New Jersey Department of Environmental Protection stating that the Industrial Site Recovery Act ("ISRA") is not applicable to the Company's New Jersey facilities. Accordingly, the condition to Purchaser's obligation to purchase any Shares tendered in the Offer relating to ISRA set forth in the second paragraph of Annex A of the Merger Agreement has been satisfied. The Offer remains subject to the other conditions set forth in Section 14 of the Offer to Purchase. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of January 20, 1995 (the "Merger Agreement") among SNI AG, Purchaser and the Company. The Merger Agreement provides that, among other things, as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware ("Delaware Law"), Purchaser will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and will become an indirect wholly owned subsidiary of SNI AG. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company or owned by Purchaser, SNI AG or any direct or indirect wholly owned subsidiary of SNI AG or the Company, and other than Shares held by stockholders who shall have demanded and perfected appraisal rights, if any, under Delaware Law) will be cancelled and converted automatically into the right to receive $16.00 in cash, or any higher price that may be paid per Share in the Offer, without interest (the "Merger Consideration"). The Merger Agreement is more fully described in Section 10 of the Offer to Purchase. The Company has advised Purchaser that as of January 31, 1995, 15,644,971 Shares were issued and outstanding and that the Shares were held by approximately 751 record holders. The Company has advised Purchaser that as of January 31, 1995, the Company had reserved a total of 3,344,996 Shares for future issuance pursuant to outstanding employee stock options or stock incentive rights, 339,697 Shares were reserved for future issuance pursuant to future grants of employee stock options or stock incentive rights and a total of 1,330,000 Shares were reserved for issuance upon exercise of the Warrant (as defined below). SNI AG currently owns 2,717,743 Shares, which it acquired in a series of transactions. In 1985, the Company entered into a Convertible Subordinated and Preferred Stock Purchase Agreement (the "Nixdorf Stock Agreement") with Nixdorf Computer AG ("Nixdorf"). Under the Nixdorf Stock Agreement, Nixdorf purchased approximately 5% of the Company's Shares. The Nixdorf Stock Agreement also gave Nixdorf the right to purchase its pro rata share of certain equity financings of the Company as long as Nixdorf held a minimum 5% stock interest. In March 1990, Nixdorf exercised its right to purchase approximately 140,000 Shares as part of the Company's secondary public offering of the Shares, to maintain Nixdorf's pro rata equity ownership at approximately 5% of the Company's Shares. In 1990, Nixdorf became majority- owned by Siemens AG, which renamed Nixdorf as Siemens Nixdorf Informationssysteme AG ("SNI AG" herein). Subsequently, on August 21, 1994, the Company and SNI U.S. entered into the Common Stock and Warrant Purchase 2 Agreement (the "Purchase Agreement") pursuant to which, on September 13, 1994, SNI U.S. purchased (i) 2,000,000 Shares and (ii) a warrant (the "Warrant") to purchase up to 1,330,000 Shares, for an aggregate purchase price of $17,250,000. Subsequently, SNI U.S. transferred to SNI AG the 2,000,000 Shares and the Warrant. In connection with such transfer, SNI AG assumed all of SNI U.S.'s rights and obligations under the Purchase Agreement and the Registration Rights Agreement, dated as of September 13, 1994, between the Company and SNI U.S. The Shares beneficially owned by SNI AG on the date hereof (excluding any Shares issuable upon exercise of the Warrant) constitute 17.37% of the issued and outstanding Shares as of January 31, 1995. SNI AG intends to transfer the 2,717,743 Shares it owns on the date hereof to Purchaser immediately following the purchase of Shares by Purchaser pursuant to the Offer. SNI AG does not currently intend to exercise the Warrant in connection with the Offer and the Merger. Consequently, as of the date hereof, the Minimum Condition would be satisfied if Purchaser acquired 6,947,090 Shares. Pyramid and SNI AG have entered into equipment sales and technology licensing transactions during fiscal years 1993, 1994 and the first quarter of fiscal 1995. Revenues attributable to SNI AG and the associated percentage of Pyramid's total revenues were $14,983,000 in fiscal year 1993 (6.4% of Pyramid's total revenues), $11,312,000 in fiscal year 1994 (5.2%), and $6,587,000 in the first quarter of fiscal year 1995 (10.6%). PROCEDURES FOR TENDERING SHARES ARE SET FORTH IN SECTION 3 OF THE OFFER TO PURCHASE. THIS SUPPLEMENT AND THE OFFER TO PURCHASE CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. SPECIAL FACTORS 1. RECOMMENDATION OF THE BOARD; POSITION OF THE COMPANY REGARDING THE FAIRNESS OF THE OFFER AND THE MERGER In evaluating its strategic position within the high-end client/server market, the Company began in 1992 to recognize the potential benefits that might be realized through a strategic relationship with another company, whether in the Company's or in a complementary industry. These potential benefits included expanded geographical markets, broader distribution channels, access to greater financial and technological resources to support the Company's product development activities, more efficient customer support, and greater access to third party software developed to support the Company's products. The Company's focus on a strategic relationship was motivated principally by the concern that many of the Company's competitors have significantly greater financial, technological and management resources and, therefore, potentially superior ability to compete in the Company's markets. As a result of its evaluation, the Company had discussions with a limited number of companies with respect to the possibility of a strategic partnership in the form of a technology development arrangement and/or a minority investment relationship. In the spring of 1994, the Company began to consider alternative means of raising additional working capital to support its operations. Because the Company's financial performance at that time did not permit the Company access to the public capital markets on terms acceptable to the Company, the Company evaluated the possibility of establishing financing or strategic relationships with other companies in its industry. In this context, management of the Company contacted and had talks with representatives of two companies about the possibility of a variety of arrangements, including product licensing arrangements, a minority equity investment in the Company and an acquisition of or other corporate combination with the Company. The discussions with these companies ended in each case without any agreement as to any possible arrangement. In the summer of 1994, another company in the Company's industry contacted management of the Company concerning a possible acquisition while the Company was in the process of negotiating a strategic equity investment with SNI U.S. (which culminated in the 3 Purchase Agreement). The communications which resulted from this contact did not, from the perspective of the Company, convey any serious expression of interest, and occurred when the Company was only a few days from reaching a definitive agreement with SNI U.S. which resulted in its minority equity investment in the Company under the Purchase Agreement. Because of the general nature of this contact and the significant financial and other benefits which the Company would realize through the Purchase Agreement, the Company did not consider it in the Company's interests to pursue this contact beyond preliminary discussions. In determining to pursue discussions with SNI AG which ultimately led to the execution of the Merger Agreement, the Company's Board of Directors did not seek to re-initiate contact with the companies with which it had had previous discussions concerning an acquisition or other corporate combination. The Board believed that its interest in a transaction of this nature as previously communicated to these companies had never been withdrawn, and that the joint press release of January 9, 1995 by the Company and SNI AG of their entering into discussions concerning a potential negotiated merger transaction provided public affirmation of this continuing interest on the part of the Company. The Company has not received any inquiries or expressions of interest concerning a potential transaction with the Company from other potential buyers following the joint public announcement by the Company and SNI AG on January 9, 1995 of their entering into discussions concerning a potential negotiated merger transaction. The Board at a special meeting held on January 20, 1995 determined that the Offer and the transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company's stockholders (other than SNI AG and its affiliates), approved and adopted the Merger Agreement and the transactions contemplated thereby and recommended that stockholders accept the Offer and (if a shareholder vote is required under Delaware Law) approve the Merger Agreement and the Merger. The January 20 meeting of the Board was attended by all directors other than Dr. Rudolph Bodo, SNI AG's designee on the Company's Board, who is also Vice President and General Manager of SNI AG's Mid-Range Systems Unit. Dr. Bodo recused himself from all deliberations of the Board concerning, and has not acted on behalf of SNI AG in connection with, the Offer and the Merger. Subject to Dr. Bodo's absence as a participating Board member, the approval and recommendation of the Board concerning the Offer and the Merger were unanimous. A copy of the Company's letter to stockholders dated January 27, 1995 was filed as Exhibit 20.2 to the Schedule 14D-9 and is incorporated herein by reference. Reference is made to the Offer to Purchase for a summary of SNI AG's contacts with the Company leading to the execution of the Merger Agreement. In reaching the determination described above, the Board considered a number of factors, including, without limitation, the following: (i) The historical financial condition and results of operations of the Company, and the projected financial condition and results of operations of the Company on both a long-term and short-term basis. (ii) The business and strategic objectives of the Company, and the attendant risks involved in achieving those objectives. As discussed above, these objectives included the continuing interest of the Board in seeking to improve the Company's ability to compete in its markets through a strategic or other relationship that could enhance the Company's activities principally in product development, marketing and distribution, and customer support. In evaluating these objectives, the Board considered the business, product markets and operations of SNI AG and SNI U.S., and the synergies and advantages that might be realized through a merger, and concluded that combining the companies' respective businesses in the high- end client/server markets would effectively address all of the Company's objectives. The Board also evaluated the possibility of realizing these objectives through a strategy by which the Company were to remain independent, 4 through a more integrated business relationship with SNI AG and through a strategic or merger transaction with other companies, including companies with whom the Company had had previous discussions concerning an acquisition or other corporate combination. The Board concluded that the strategy of continuing as an independent company would leave the Company too vulnerable to the long-term competitive pressures in its industry, that the strategy of a closer business relationship with SNI AG (which is discussed in more detail below) could significantly impair the Company's ability to remain independent if the relationship were to terminate for any reason at a later time, and that a corporate transaction with other companies was unlikely to occur in view of the Company's prior contacts and the absence of any expressions of interest in a corporate transaction following the joint public announcement of merger discussions between the Company and SNI AG. (iii) A review of the possible alternatives to the Offer and the Merger (including the possibility of continuing to operate the Company as an independent entity and the sale of the Company through a merger or by any other means to other potential buyers), the range of possible values to the Company's stockholders of such alternatives and the timing and the likelihood of actually accomplishing those alternatives. In this regard, in addition to reviewing the Company's efforts to establish a strategic or other relationship with other companies that might address the Company's business and strategic objectives, the Board assessed management's discussions with SNI AG concerning a more integrated business relationship between the two companies as an alternative to the Offer and the Merger. This alternative, however, would have entailed an increased equity position in the Company by SNI AG or an affiliate and additional arrangements providing SNI AG with exclusive manufacturing and marketing rights with respect to specific Company products. Such a relationship, although potentially beneficial to the Company, would have resulted in a significantly higher level of dependence by the Company on SNI AG. Accordingly, principally because of the potential threat to the Company's ability to remain independent if such a relationship were to terminate at a later time for any reason, the Board concluded that this was not an acceptable alternative. The range of values to the Company's stockholders which the Board considered in evaluating the price negotiations with representatives of SNI AG were principally those associated with the continuation of the Company on an independent basis, without modification of the Company's relationship with SNI AG under the Purchase Agreement. In this context, based on assumptions which included continuing strong trading markets and high trading multiples for technology companies, the Company's ability to exceed targeted objectives for its internal operating plan, and no adverse changes in the Company's business or markets for the Company's products, the Board considered that the Company's stock price over the following 12-month period might increase to $18 per share. However, management concluded that such a price was unlikely because it could be achieved only if all underlying assumptions were fully realized. In discounting this prospective valuation to take into account these management views and after taking into consideration an increase in such discounted valuation to reflect an appropriate premium for the change of corporate control that would result from completion of the Offer and the Merger, the Board believed that the Offer price represented the highest value available to the Company's stockholders in light of all the considered alternatives and had no reason to challenge or question the opinion of Smith Barney that the consideration to be received by the Company's stockholders pursuant to the Offer and the Merger is fair, from a financial point of view. In evaluating the optimal range of values to the Company's stockholders that were possible in the context of the alternatives under consideration by the Board, the Board did not ask Smith Barney to recommend, and Smith Barney did not recommend, the specific consideration to be paid by Purchaser in the Offer and the Merger. The Offer price ultimately agreed upon by the Company was the result of arm's- length negotiations between representatives of the Company and SNI AG. (iv) The detailed financial and valuation analyses presented to the Board by Smith Barney, including market prices and financial data relating to other companies engaged in businesses considered comparable to the Company and the prices and premiums paid in recent selected 5 acquisitions of companies engaged in businesses considered comparable to those of the Company. (v) The relationship of the Offer price to current and historical market prices of the Shares and to other relevant valuation measures. (vi) The presentation of Smith Barney at the January 20, 1995 Board meeting and the written opinion of Smith Barney as of that date, that the consideration to be received by the stockholders of the Company, pursuant to the Offer and the Merger, is fair, from a financial point of view. (vii) As discussed in greater detail above, a review of discussions between the Company and representatives of other companies in the Company's industry concerning strategic, financing and other relationships which had taken place prior to the Company's discussions and negotiations with SNI AG with respect to the Offer and the Merger. (viii) The absence of any inquiries or expressions of interest concerning a potential transaction with the Company from other potential buyers following the joint public announcement by the Company and SNI AG on January 9, 1995 of their entering into discussions concerning a potential negotiated merger transaction, and the fact that the Merger Agreement does not preclude the Company from discussing with third parties unsolicited competing offers or, subject to payment of a "break-up" fee and expenses, from accepting a competing offer which the Board determines, in the exercise of its fiduciary duties, to be more favorable to the Company's stockholders than the Offer and the Merger. (ix) The likelihood that the proposed acquisition would be consummated, including the experience, reputation and financial condition of SNI AG and its ultimate parent, Siemens AG, and the risks to the Company that the acquisition would not be consummated. In this regard, the Board evaluated the terms of the Merger Agreement, including in particular the conditions to SNI AG's and Purchaser's obligations to consummate the Offer and the Merger, which the Board considered to be customary in transactions of this nature. (x) The effect of the transaction on the Company's relationship with its employees and the communities in which it operates. As described elsewhere in this Supplement and the Schedule 14D-9, it is expected that the Company will continue to be managed in the same general manner as it is now being conducted. In addition, the Board believed that the Merger would substantially enhance the Company's financial and business image from the perspective of its customers and markets. In view of the wide variety of factors considered in connection with its evaluation of the Offer and the Merger, the Board did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its respective determinations. The Board recognized that the Offer and the Merger are not structured to require the approval of a majority of the stockholders of the Company other than SNI AG, and that Purchaser, if it purchases a sufficient number of Shares to satisfy the Minimum Condition, would have sufficient voting power to approve the Merger without the affirmative vote of any other stockholder of the Company. While consummation of the Offer would result in the stockholders of the Company receiving a premium for their Shares over the trading prices of the Shares prior to the announcement of the Offer and the Merger, it would eliminate any opportunity for stockholders of the Company other than SNI AG to participate in the potential future growth prospects of the Company. The Board, however, believed that this was reflected in the Offer price to be paid. The Board determined that it was not necessary to appoint a committee of independent directors or an unaffiliated representative to act solely on behalf of the unaffiliated stockholders of the Company for the purpose of negotiating the terms of the Merger Agreement. In making such determination, the 6 Board noted that of the seven directors who participated in the deliberations concerning the Offer and the Merger, five are not employed by the Company and will have no financial interest in the Company following consummation of the Merger. Dr. Bodo, SNI AG's designee on the Board, did not participate in any Board deliberations concerning, or act on behalf of Purchaser in connection with, the Offer and the Merger. As noted above, the Board unanimously (with Dr. Bodo recusing himself) has determined that each of the Offer and the Merger is fair to, and in the best interests of, the stockholders of the Company. In reaching its determination, the Board relied upon and concurred with the financial analyses performed by Smith Barney that resulted in their opinion that the consideration to be received by the Company's stockholders pursuant to the Offer and the Merger is fair, from a financial point of view. The Smith Barney analyses (as described more fully below), conducted at the Company's direction, show, in the Company's view, that the consideration to be paid pursuant to the Offer and the Merger as a multiple of revenues, and as a function of the Company's recent earnings history and other comparative measures, compares favorably with comparable transactions considered. Neither the Company's nor Smith Barney's valuation analyses included consideration of the liquidation value of the Company. The Board did not consider the Company's liquidation value to be a relevant measure of valuation, given that the consideration to be paid in the Offer and the Merger significantly exceeded the book value of the Company. However, there can be no assurance that liquidation value would not produce a higher valuation of the Company. The Company has advised Purchaser that, to the Company's knowledge after reasonable inquiry, each of the Company's executive officers, directors and affiliates, with the exception of SNI AG and any subsidiary of SNI AG, including Purchaser, presently intends to tender all Shares held of record or beneficially owned by such person pursuant to the Offer, other than Shares, if any, held by any such person which when tendered, could subject such person to liability under the provisions of Section 16(b) of the Exchange Act. See Item 6 of the Schedule 14D-9. Except for the recommendation of the Board contained in this Supplement and in the Schedule 14D-9, to the Company's knowledge after reasonable inquiry, no executive officer, director or affiliate of the Company has made a recommendation in support of or opposed to the Offer or the Merger. 2. OPINION OF SMITH BARNEY AS FINANCIAL ADVISOR TO THE COMPANY Smith Barney was retained by the Company to act as its financial advisor in connection with the Board's consideration of the Offer and the Merger. In connection with such engagement, the Company requested that Smith Barney evaluate the fairness, from a financial point of view, to the stockholders of the Company of the consideration to be received by such stockholders pursuant to the Offer and Merger. On January 20, 1995, Smith Barney rendered to the Board its written opinion to the effect that, as of such date and based upon and subject to certain considerations and assumptions, the consideration to be received by the stockholders of the Company pursuant to the Offer and Merger was fair, from a financial point of view. In arriving at its opinion, Smith Barney reviewed the Merger Agreement and held discussions with certain senior officers, directors and other representatives of the Company concerning the business, operations and prospects of the Company. Smith Barney examined certain publicly available business and financial information relating to the Company and SNI AG, as well as certain financial forecasts and other data for the Company which were provided to Smith Barney by senior management of the Company. Smith Barney reviewed the financial terms of the Merger as set forth in the Merger Agreement in relation to, among other things, the Company's historical and projected earnings and the capitalization and financial condition of the Company. Smith Barney considered, to the extent publicly available, the financial terms of certain other similar transactions which Smith Barney 7 considered comparable to the Merger and analyzed certain financial and other publicly available information relating to the businesses of other public companies whose operations Smith Barney considered comparable to those of the Company. In addition to the foregoing, Smith Barney conducted such other analyses and examinations and considered such other financial, economic and market criteria as Smith Barney deemed necessary to arrive at its opinion. Smith Barney noted that its opinion was necessarily based upon financial, stock market and other conditions and circumstances existing and disclosed to Smith Barney as of the date of its opinion. In rendering its opinion, Smith Barney assumed and relied, without independent verification, upon the accuracy and completeness of the financial and other information publicly available or furnished to or otherwise discussed with Smith Barney. With respect to financial forecasts and other information provided to or otherwise discussed with Smith Barney, Smith Barney assumed that such forecasts and other information were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to the expected future financial performance of the Company. Smith Barney assumed the correctness of, and relied upon, the representations of the Company and SNI AG, pursuant to the Merger Agreement, and did not attempt to independently verify any such information. In addition, Smith Barney did not make or obtain an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company nor did Smith Barney make any physical inspection of the properties or assets of the Company. Although Smith Barney evaluated the financial terms of the Merger, Smith Barney was not asked to and did not recommend the specific consideration to be paid by Purchaser in the Merger. No other limitations were imposed by the Company on Smith Barney with respect to the investigations made or procedures followed by Smith Barney in rendering its opinion. THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED JANUARY 20, 1995, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THE SCHEDULE 14D-9, WHICH WAS MAILED TO THE COMPANY'S STOCKHOLDERS ON JANUARY 27, 1995. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE COMPANY FROM A FINANCIAL POINT OF VIEW AND HAS BEEN PROVIDED SOLELY FOR THE USE OF THE COMPANY'S BOARD OF DIRECTORS IN ITS EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO WHETHER SUCH STOCKHOLDER SHOULD ACCEPT THE OFFER. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. In preparing its opinion to the Board of Directors of the Company, Smith Barney performed a variety of financial and comparative analyses, including those described below, and provided the Board of Directors with a written presentation with respect to such analyses. A copy of Smith Barney's written presentation to the Board of Directors has been included as Exhibit (b)(2) to the Statement on Schedule 13E-3 filed by Purchaser, SNI AG, Siemens AG and the Company with the Commission and will be available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested stockholder of the Company or such stockholder's representative duly designated in writing. The summary of such analyses set forth herein does not purport to be a complete description of the analyses underlying Smith Barney's opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. In arriving at its opinion, Smith Barney did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Smith Barney believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors, without considering all analyses and 8 factors, could create a misleading or incomplete view of the processes underlying such analyses and its opinion. In its analyses, Smith Barney made numerous assumptions with respect to the Company, industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. The estimates contained in such analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by such analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, such analyses and estimates are inherently subject to substantial uncertainty. Comparable Company Analysis. Using publicly available information, Smith Barney analyzed, among other things, the market values and trading multiples of computer hardware/systems companies, including Amdahl Corporation, Auspex Systems, Convex Computer, Data General, Digital Equipment Corp., Hewlett- Packard, NetFrame, Parallan Computer, Sequent Computer Systems, Silicon Graphics, Stratus Computer, Sun Microsystems, Tandem Computers and Tricord Systems (collectively, the "Comparable Companies"). Smith Barney compared market values per share as multiples of, among other things, latest 12 months net earnings per share and earnings per share for calendar 1994 and projected calendar 1995. The multiples of latest 12 months net earnings per share and earnings per share for calendar 1994 and projected calendar 1995 of the Comparable Companies were between the following ranges: (i) latest 12 months: 10.7x to 50.3x (with a mean of 21.7x and a median of 17.7x); (ii) calendar 1994: 8.8x to 34.9x (with a mean of 19.1x and a median of 17.6x); and (iii) projected calendar 1995: 7.7x to 47.1x (with a mean of 19.0x and a median of 14.8x). Purchaser's offer of $16 per Share represents a multiple of projected calendar 1995 net income per Share of 26.6x. The Company's net earnings per Share for the latest 12 months and for calendar 1994 were negative; therefore, the latest 12 months multiple and the calendar 1994 multiple were not meaningful. Smith Barney compared adjusted market values (equity market value, plus the book value of debt and preferred stock, less cash and cash equivalents) to latest 12 months net revenues and operating income. The multiples of latest 12 months net revenues and operating income of the Comparable Companies were between the following ranges: (i) latest 12 months net revenues: 0.32x to 3.06x (with a mean of 1.12x and a median of 1.05x); and (ii) latest 12 months operating income: 8.5x to 22.6x (with a mean of 14.7x and a median of 13.6x). Purchaser's offer of $16 per Share represents a multiple of the Company's net revenues for the latest 12 months of 0.95x. The Company's latest 12 months operating income was negative; therefore, the operating income multiple was not meaningful. Smith Barney also considered the profit margins, net return on average common equity and historic revenue and earnings growth of the Comparable Companies with those of the Company. The latest 12 months operating margins, net income margins and net return on average common equity percentages of the Comparable Companies were between the following ranges: (i) operating income margins: 4.5% to 13.5% (with a mean of 8.6% and a median of 7.4%); (ii) net income margins: 1.8% to 9.8% (with a mean of 7.0% and a median of 6.8%); and (iii) net return on average common equity: -56.4% to 19.2% (with a mean of 1.8% and a median of 11.3%). The Company's latest 12 months operating income and net income margins were negative and therefore not meaningful on a comparative basis to those of the Comparable Companies. The Company's latest 12 months net return on average common equity was -15.7%. The latest three fiscal years compound annual growth rate for revenues, operating income and net income for the Comparable Companies were between the following ranges: (x) compound annual revenue growth rate: -1.7% to 164.6% (with a mean of 36.8% and a median of 18.9%); (y) operating income: -0.3% to 178.8% (with a mean of 40.5% and a median of 14.0%); and (z) net income: -10.1% to 180.3% (with a mean of 48.8% and a median of 32.5%). The latest three fiscal years compound annual revenue growth rate for the Company was 6.6%. Operating income and net income growth rates for the Company for the same period were not meaningful because operating income and income growth rates were negative. 9 All projected earnings per share figures for the Comparable Companies were based on the consensus estimates as provided by the Institutional Brokers Estimate System. All multiples for Comparable Companies were based on closing stock prices as of January 18, 1995. Selected Merger and Acquisition Transactions Analysis. Using publicly available information, Smith Barney analyzed the purchase prices and implied transaction multiples in the following selected merger and acquisition transactions in the computer hardware/systems industry: MIPS Computer Systems/Silicon Graphics; Teradata/AT&T; NCR/AT&T; Prime Computer/JH Whitney & Company; Apollo Computer/Hewlett-Packard; and Convergent/Unisys (the "Selected Acquisitions"). In this analysis, Smith Barney compared transaction values as multiples of latest 12 months revenues of the Selected Acquisitions and compared these multiples to the multiple of the Company's revenue as set forth in the Comparable Companies analysis. The multiples of revenue of the Selected Acquisitions were between the range of 0.8x to 1.7x (with a mean of 1.1x). Purchaser's offer of $16 per Share represents a multiple of the Company's net revenues for the last 12 months of 0.95x. Also, Smith Barney compared the latest 12 months earnings before interest, taxes, depreciation and amortization ("EBITDA") margins of the targets in the Selected Acquisitions with the latest 12 months EBITDA margin of the Company. The EBITDA margins of the targets in the Selected Acquisitions were between the range of 6.8% to 21.5% (with a mean of 12.4%). The latest twelve months EBITDA margin for the Company was 4.2%. No company, transaction or business used in the Comparable Companies and Selected Acquisitions analyses as a comparison is identical to the Company. Accordingly, an analysis of the results of the foregoing is not entirely mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or public trading value of the Comparable Companies or the business segment or company to which they are being compared. Smith Barney also analyzed the purchase price paid in selected technology- related merger and acquisition transactions since 1988 to determine, among other things, the percentage by which the price paid in each such transaction exceeded the market value of the target company's stock one month and two months prior to the announcement of such transaction. The mean value of the calculation of the premium paid versus the market price of the stock in all such transactions one month and two months prior to the announcement thereof was 57.6% and 65.0%, respectively, and the median was 53.7% and 61.6%, respectively. The premium paid in the Offer versus the market price of the Shares one month and two months prior to the announcement on January 9, 1995 of the initial offer from Purchaser was 48.8% and 52.4%, respectively. Discounted Cash Flow Analysis. Smith Barney performed a discounted cash flow analysis of the projected free cash flow of the Company for the fiscal years ending September 30, 1995 through 1999, assuming, among other things, discount rates of 15.0%, 17.5%, 20.0% and 22.5% and terminal multiples of net income of 15.0x to 19.0x. Smith Barney performed this analysis based on internal operating projections prepared by the Company's management. This analysis resulted in ranges of values per Share of $11.59 to $19.79. Other Factors and Comparative Analyses. In rendering its opinion, Smith Barney considered certain other factors and conducted certain other comparative analyses, including, among other things, a review of the Company's historical and projected financial results; the history of trading prices for the Shares and the relationship between movements of such Shares, movements of the common stock of Comparable Companies and selected companies and the stock market in general. On June 7, 1994, the Company entered into a letter agreement with Smith Barney pursuant to which Smith Barney was engaged to act as exclusive financial advisor to the Company and to furnish financial advisory and investment banking services in connection with a variety of potential transactions between the Company and a list of specific companies provided by the Company. This letter 10 agreement was amended on January 9, 1995 to include SNI AG as one of the companies identified by the Company. Under the letter agreement, the Company agreed to pay Smith Barney a fee based on the value of a transaction. Assuming the Offer and the Merger are consummated, Smith Barney will receive a total fee of approximately $2.2 million. Of such amount, $250,000 shall be paid for the delivery by Smith Barney of the opinion described above. In addition to the foregoing compensation, the Company has agreed to reimburse Smith Barney for its reasonable out-of-pocket expenses and to indemnify Smith Barney against certain liabilities arising out of or in connection with this engagement. Smith Barney has in the past two years provided financial advisory and investment banking services to the Company and has received fees of approximately $350,000 for rendering such services. Smith Barney is a nationally recognized investment banking firm and was selected by the Company based on Smith Barney's experience and expertise. Smith Barney regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. 3. COMPANY FINANCIAL PROJECTIONS The Company does not, as a matter of course, make public forecasts or projections as to future sales, earnings or other income statement data. However, in connection with the Company's review of the transactions contemplated by the Merger Agreement, the Company furnished Smith Barney with six-year projections prepared by Company management (the "Projections"). Set forth below is a discussion of the Projections. The information described below was not prepared with a view toward compliance with published guidelines of the Commission or the American Institute of Certified Public Accountants regarding forward-looking information or generally accepted accounting principles. Ernst & Young LLP, independent auditors for the Company, have never examined nor compiled the information discussed below and accordingly do not express an opinion or any other form of assurance with respect thereto. This information necessarily makes assumptions, some (but not all) of which are set forth below and many of which are beyond the control of the Company and may not have been, or may no longer be, accurate. Additionally, this information does not reflect revised prospects for the Company's businesses, changes in general business and economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time such information was prepared. Accordingly, such information is not necessarily indicative of current values or future performance, which may be significantly more favorable or less favorable than as set forth below, and should not be regarded as a representation that they will be achieved. The fiscal 1995 portion of the Projections includes one quarter of actual results of the Company. The Projections were not prepared in contemplation of the proposed Merger. The Company does not intend to update or supplement this material. 11 The material financial data contained in the Projections furnished by the Company to Smith Barney in connection with their preparation of the opinion described above are as follows:
PROJECTED YEARS ENDING SEPTEMBER 30, ----------------------------------------------------- 1995E 1996E 1997E 1998E 1999E 2000E -------- -------- -------- -------- -------- -------- ($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA Total revenues........... $280,000 $336,755 $424,296 $509,155 $585,528 $673,358 Total cost of sales...... 158,760 190,120 242,560 292,764 339,607 393,914 Gross profit............. 121,240 146,635 181,736 216,391 245,922 279,443 Total operating expenses. 112,573 129,049 149,977 179,223 206,106 237,022 Operating income......... 8,667 17,586 31,759 37,168 39,816 42,422 Net income............... 9,966 15,349 26,687 29,786 32,058 34,341 Earnings per share....... 0.61 0.85 1.35 1.44 1.48 1.51 CASH FLOW DATA Capital expenditures..... 12,600 13,470 15,699 18,839 21,665 24,914 Capitalized software development costs....... 8,960 8,419 8,910 9,165 8,783 9,858 Depreciation & amortization............ 17,248 17,511 19,687 22,403 24,358 27,818 Change in net working capital................. 1,347 9,622 18,715 20,873 13,835 16,661
The Projections are based on the assumption that the Company will continue to operate under the same ownership structure as presently exists, including SNI AG's investment in the Company at the level contemplated by the Purchase Agreement (as well as the continuation of pre-existing business relationships between the Company and SNI AG). The Projections are also based on other revenue and operating assumptions that include: (i) forecasted increases in revenue for fiscal years 1995, 1996 and 1997 of 28%, 20% and 26%, respectively; (ii) relatively stable gross margins of approximately 43% to 44% for each of fiscal years 1995, 1996 and 1997; and (iii) declining operating expenses as a percentage of revenue for fiscal years 1995, 1996 and 1997 of approximately 40%, 38% and 35%, respectively. The forecasted operating results for fiscal years 1998, 1999 and 2000 are projected from previous years, assuming similar growth rates and margins. 4. POSITION OF SNI AG REGARDING THE FAIRNESS OF THE OFFER AND THE MERGER SNI AG believes that the consideration to be received by the Company's stockholders, other than SNI AG, pursuant to the Offer and the Merger is fair to the Company's stockholders. SNI AG bases its belief solely on (i) the fact that the Company's Board concluded that the Offer and the Merger are fair to and in the best interests of the Company's stockholders, (ii) the report of Goldman Sachs to SNI AG described below, (iii) the fact that, in order to avoid any possibility of conflict of interest, Dr. Bodo, SNI AG's representative on the Board, did not participate in any Board deliberations concerning, or act on behalf of SNI AG in connection with, the Offer or the Merger, (iv) the fact that SNI AG believes that it did not and does not have the ability to control the Company, due to, among other things, the fact that the Purchase Agreement imposes substantial restrictions on SNI AG's voting rights and ability to acquire additional Shares, the fact that SNI AG has the right to designate only one of the Company's directors, and the fact that the commercial relationship between SNI AG and the Company is small relative to the Company's business, and that the parties consequently negotiated the terms of the Offer and the Merger and the Merger Agreement with the Company on an arm's-length basis, (v) the fact that the consideration to be paid in the Offer and the Merger represents a premium of approximately 50% over the weighted average closing price for the Shares both for the preceding calendar quarter and calendar year 1994, and (vi) the historical financial performance of the Company and its financial results. SNI AG has reviewed the factors considered by the Board in support of their decision, as described in the Schedule 14D-9 and above, and had no basis to question their consideration of or reliance on those factors. In reaching its conclusions, SNI AG also considered generally the current and historical market prices for the Shares. 12 SNI AG did not find it practicable to assign, nor did it assign, relative weights to the individual factors considered in reaching its conclusion as to fairness. 5. ANALYSIS OF GOLDMAN SACHS AS FINANCIAL ADVISORS TO SNI AG SNI AG retained Goldman Sachs as its exclusive financial advisors in connection with the Offer and the Merger. Goldman Sachs were requested to review data relating to the Company which was supplied by SNI AG, as well as published financial and market information, and to advise SNI AG with respect to certain means of valuation of the Company. Goldman Sachs were not requested to provide any opinion as to the fairness of the Offer to SNI AG or the stockholders of the Company or to perform any independent examination or investigation of the Company's business or assets. Accordingly, Goldman Sachs did not attempt to verify the accuracy or completeness of any of the information supplied by SNI AG or obtained through other sources, nor did Goldman Sachs, prior to the delivery of the Goldman Sachs Report (as defined below), conduct any discussion with, or obtain any information from, any officers or employees of the Company in connection with their advice to SNI AG. At a meeting between representatives of Goldman Sachs, SNI AG and its counsel on January 3, 1995 (the "January 3 Meeting"), Goldman Sachs delivered their evaluation of the Company (the "Goldman Sachs Report"), a summary of which is set forth below. Based on such evaluation, Goldman Sachs advised SNI AG that assuming the accuracy and completeness of the information supplied by SNI AG and publicly available information concerning the Company, it was the view of Goldman Sachs that the value of the Company in the acquisition market was approximately $13.00 to $15.00 per Share. The range of value for the Company was derived by applying methodologies and assumptions which Goldman Sachs believed measured the value of the Company under then current market conditions. In arriving at their evaluation, Goldman Sachs reviewed, among other things: Annual Reports to Shareholders and Annual Reports on Form 10-K of the Company for the five years ended September 30, 1994; certain interim reports to shareholders and Quarterly Reports on Form 10-Q; certain other communications from the Company to its shareholders; and certain financial analyses and forecasts for the Company separately prepared by the management of each of SNI AG and the Company. The only difference between the financial analyses and forecasts provided by the Company which were used by Smith Barney and those used by Goldman Sachs was that those used by Smith Barney included the actual results for the first quarter of the 1995 fiscal year and those used by Goldman Sachs contained the estimated results for such quarter, because the actual results were not yet available when Goldman Sachs performed its evaluation. On January 17, 1995, the Company provided the actual results for the first quarter of the 1995 fiscal year to Goldman Sachs. The difference between the estimated and actual results for the first quarter of the 1995 fiscal year did not materially affect Goldman Sachs' evaluation of the Company presented at the January 3 Meeting. The financial analyses and forecasts prepared by the management of SNI AG were derived from those provided by the Company but reflected reduced growth rates in sales of the Company's products based on a study of growth rates for products in that category obtained by SNI AG from independent sources. SNI AG also provided Goldman Sachs with information describing the synergies that SNI AG believed to be attainable upon consummation of the Offer and the Merger. Goldman Sachs also collected and summarized reports published during 1994 by various analysts who followed the Company and made recommendations with respect to holding its Shares. In addition, Goldman Sachs reviewed the reported price and trading activity for the Shares, compared certain financial and market information for the Company with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations and performed such other studies and analyses as Goldman Sachs considered appropriate. The financial and comparative analyses Goldman Sachs performed in connection with their evaluation of the Company and the preparation of the Goldman Sachs Report included: (i) analyses of selected comparable publicly-traded companies; (ii) comparable transaction analyses; and (iii) a future 13 value analysis. Goldman Sachs did not consider or conduct a liquidation analysis of the Company. Though Goldman Sachs did not have the opportunity to perform the due diligence necessary to conduct such a liquidation analysis, it is the view of Goldman Sachs that the analyses described below provide a more accurate measure of the value of the Company in the acquisition market. Valuation Summary of Selected Publicly-Traded Companies. Goldman Sachs reviewed certain financial and stock market information of the Company and selected publicly traded companies engaged in the computer hardware industry. Such companies included: Auspex Systems, Concurrent Computer, Data General and Encore Computer (the "RISC Companies"); and Sequent Computer Systems, Stratus Computer and Tandem Computers (the "OLTP Companies", and together with the RISC Companies, the "Selected Companies"). Although the Selected Companies were comparable to the Company based on certain characteristics of their businesses, none of these companies possessed characteristics identical to those of the Company. Goldman Sachs examined and compared various valuation methods and calculated various financial multiples and ratios for the Company and the Selected Companies based on publicly available information. The multiples and ratios for the Company were calculated using a price of $13.00 per Share, which was the closing price of the Shares on December 30, 1994, the last trading day prior to the January 3 Meeting. The multiples and ratios for each of the Selected Companies were based on the most recent publicly available information as of December 30, 1994. The multiples were as follows: (i) the ratio of price to 1995 earnings estimates (which ratio was based on analysts' estimates)--20.6x for the Company, which compared to a median of 12.2x for the RISC Companies and a median of 11.7x for the OLTP Companies; (ii) market capitalization as a percentage of latest quarter annualized sales--.79x for the Company, which compared to a median of .93x for the RISC Companies and 1.18x for the OLTP Companies; and (iii) the ratio of market capitalization to latest quarter annualized EBITDA--10.0x for the Company, which compared to a median of 6.5x for the RISC Companies and 5.1x for the OLTP Companies. Comparable Transaction Analyses. Goldman Sachs reviewed and compared the prices paid in selected merger and acquisition transactions in the computer hardware industry (the "Selected Transactions") and a range of possible prices which might be paid by SNI AG. Goldman Sachs calculated the aggregate consideration and various financial multiples from available actual and estimated information for each such Selected Transaction. The aggregate consideration for the Selected Transactions ranged from $92 million to $7,277 million. The financial multiples, in each case (other than the market premium multiple) based on the sum of the consideration paid for the equity of the acquired company plus the amount of net debt assumed in the transaction ("Aggregate Consideration"), were as follows: (i) the ratio of Aggregate Consideration to sales for the latest twelve months prior to the announcement of each of the Selected Transactions which ranged from a high of 2.84x to a low of .16x, with a median of .98x, which compares to a ratio of 1.1x based on the terms of the Offer and the Merger; (ii) the ratio of Aggregate Consideration to EBITDA for the latest twelve months for Selected Transactions ranged from a high of 23.7x to a low of 3.6x with a median of 7.8x, which compares to a ratio of 26.0x based on the terms of the Offer and the Merger; (iii) the ratio of Aggregate Consideration to the latest 12 months net income for the Selected Transactions which ranged from a high of 58.2x to a low of 6.7x with a median of 24.4x, which ratio does not lend itself to comparison to a ratio based on the terms of the Offer and the Merger because net income for the Company in the 1994 fiscal year was negative; and (iv) the market premium for the Selected Transactions ranged from a high of 129% to a low of 5.7% with a median of 42%, which compares to a market premium of 23.1% based on the terms of the Offer and the Merger. Future Value Analysis. Goldman Sachs performed a future value analysis based upon (a) estimates of financial performance provided to Goldman Sachs by SNI AG based upon certain financial projections of the Company which, using discount rates that ranged from 10% to 16% with terminal values of the Company's fiscal 1997 net income that ranged from 10x to 16x, resulted in implied per 14 Share values ranging from $12.70 to $21.38 and (b) certain independent research analysts' estimates of future financial performance which were publicly available which, using discount rates that ranged from 10% to 16% with terminal values of the Company's fiscal 1997 net income that ranged from 10x to 16x, resulted in implied per share values ranging from $8.71 to $15.17. Other Analyses. Goldman Sachs prepared a financial analysis of the proposed acquisition of the Company by SNI AG and Purchaser and calculated the aggregate consideration and various financial multiples based upon cash consideration per Share prices ranging from $10.00 to $26.00. Goldman Sachs determined which companies were most likely to be potential purchasers of the Company. This determination was not based upon any indication by any such potential purchaser that it was interested in a transaction with the Company, but rather reflected Goldman Sachs' and SNI AG's view that such potential purchasers operated businesses which were similar or complementary to the Company's and had the capability to finance an acquisition of the Company. With respect to selected potential purchasers, Goldman Sachs prepared a pro forma analysis of the financial impact of an acquisition of the Company on such selected potential purchasers, assuming purchase prices of $15 and $20 a Share and assuming financing (i) entirely by debt, (ii) 50% by debt and 50% by the issuance of common stock and (iii) entirely by the issuance of common stock and assuming pooling of interests accounting treatment. Goldman Sachs are acting as Dealer Managers in connection with the Offer and have provided certain financial advisory services in connection with the acquisition of the Company. Siemens Corporation ("Siemens"), a Delaware corporation and an indirect wholly owned subsidiary of Siemens AG, has paid Goldman Sachs a fee of $250,000, has agreed to pay an additional fee of $250,000 upon the signing of the Merger Agreement and has agreed to pay an additional transaction fee of $1,250,000 when the Offer and the Merger are consummated. Siemens has also agreed to reimburse Goldman Sachs for all reasonable out-of-pocket expenses incurred by Goldman Sachs, including the reasonable fees and expenses of legal counsel, and to indemnify Goldman Sachs against certain liabilities and expenses in connection with their engagement, including certain liabilities under the federal securities laws. Goldman Sachs is an internationally recognized investment banking firm engaged in the evaluation of businesses and their securities in connection with mergers and acquisitions, negotiated primary and secondary underwritings, private placements and valuations for corporate and other purposes. SNI AG selected Goldman Sachs as its financial advisor based upon Goldman Sachs' familiarity with the industry in which the Company operates and its experience, ability and reputation with respect to mergers and acquisitions. A copy of the Goldman Sachs Report has been filed as Exhibit (b)(3) to the Statement on Schedule 13E-3 filed by SNI AG, Purchaser, Siemens AG and the Company and is incorporated herein by reference. Copies of the Goldman Sachs Report are available for inspection and copying at the principal executive offices of SNI AG during regular business hours by any stockholder of the Company, or a stockholder's representative who has been so designated in writing. 6. PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONSOF SNI AG FOR THE OFFER AND THE MERGER The purpose of the Offer and the Merger is for Siemens AG indirectly to acquire control of, and the entire equity interest in, the Company. The purpose of the Merger is for Siemens AG indirectly to acquire all Shares not purchased pursuant to the Offer. Upon consummation of the Merger the Company will become an indirect wholly owned subsidiary of Siemens AG. The acquisition of the entire equity interest in the Company has been structured as a cash tender offer followed by a cash merger in order to provide a prompt and orderly transfer of ownership of the Company from the public stockholders to Purchaser and to provide stockholders with cash for all their Shares. 15 SNI AG and the Company believe that the businesses of the Company are complementary to SNI AG's businesses and that aligning or integrating certain of the Company's operations with those of SNI AG will result in a number of benefits, including economies of scale in purchasing and manufacturing, pooling of research and development resources and expansion of the sales of each Company's products in the global markets by accessing each other's distribution channels, particularly through increased sales of the Company's products in Europe and of SNI AG's products in the United States. SNI AG and the Company considered attempting to achieve such an alignment or integration through an expansion of the parties' commercial relationship without increasing SNI AG's ownership of Shares and through such an expansion of the commercial relationship coupled with some increase in SNI AG's ownership of Shares. SNI AG and the Company concluded, however, that these approaches would not enable SNI AG and the Company to take full advantage of market opportunities and to achieve the desired operating benefits. After the Companies considered these approaches, they determined it would be extremely difficult to achieve these synergies unless the two business organizations were under common control. The companies each concluded that, without such common control, achieving such purchasing and manufacturing economies of scale and research and development and sales synergies would likely result in conflicts of interest that they would be unable to resolve. Consequently, following joint studies and discussions, SNI AG and the Company concluded that an acquisition by SNI AG of the entire equity interest in the Company constituted the only feasible means to achieve such operating benefits. SNI AG and the Company chose to undertake the transaction at this time because the businesses in which SNI AG and the Company operate are subject to rapid change and SNI AG and the Company wished to seize commercial opportunities that might no longer be available at a later time. 7. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER;CERTAIN EFFECTS OF THE OFFER AND THE MERGER Pursuant to the Merger Agreement, upon completion of the Offer, SNI AG intends to effect the Merger in accordance with the terms of the Merger Agreement. See Section 10 of the Offer to Purchase. The management of SNI AG has begun, and intends to continue, a review of the Company and its assets, corporate structure, capitalization, operations, properties, policies, management and personnel to determine what changes, if any, would be desirable in order best to organize and integrate the activities of the Company into those of SNI AG. As more fully described in Item 3 of the Schedule 14D-9, at the request of SNI AG, John S. Chen, President and Chief Operating Officer of the Company, has entered into a Management Retention Agreement (the "Chen Agreement") with the Company, commencing upon the effectiveness of the Merger and terminating five years later. Terms of the Chen Agreement include Mr. Chen serving as Chief Executive Officer of the Company and as a member of the Board. In addition, as more fully described in Item 3 of the Schedule 14D-9, discussions have taken place regarding a senior management position for Mr. Lussier, Chief Executive Officer and Chairman of the Board of the Company, within the Siemens group of companies. Except as noted above, following the Offer and the Merger, SNI AG intends that the Company's current management, under the direction of the Company's Board of Directors as it will be constituted following the Merger, will continue to manage the Company as an ongoing business in the same general manner as it is now being conducted. However, SNI AG expressly reserves the right to make any changes that it deems necessary or appropriate in light of its review or in light of future developments or that would be desirable to permit SNI AG more effectively to manage the Company and function more efficiently as an integrated worldwide enterprise. Except as otherwise disclosed in this Supplement or the Offer to Purchase, SNI AG has no present plans or proposals that would result in an extraordinary corporate transaction involving the Company or any of its subsidiaries, such as a merger, reorganization, liquidation, sale or transfer of a material amount of assets, or any material changes in the Company's present dividend policy, corporate structure or business, the composition of its management or personnel or its indebtedness or capitalization. 16 At September 30, 1994, Pyramid's book value per Share was $8.74. At December 31, 1994, Pyramid's book value per Share was $8.80. If the Merger is consummated, the interest of SNI AG in the Company's net book value and net income will become 100% and SNI AG and its subsidiaries will be entitled to all benefits resulting from that interest, including all income generated by the Company's operations and any future increase in the Company's value. Similarly, SNI AG will also bear the risk of any decrease in the value of the Company after the Merger. Upon consummation of the Merger, the Surviving Corporation will become a privately held corporation. Accordingly, stockholders will not have the opportunity to participate in the earnings and growth of the Surviving Corporation after the Merger and will not have any right to vote on corporate matters. Similarly, stockholders will not face the risk of decline in the value of the Company after the Merger. Purchaser intends, and is required under the Merger Agreement, to vote all of its Shares, whether currently owned by SNI AG and transferred to Purchaser immediately after consummation of the Offer or acquired pursuant to the Offer, in favor of the Merger. 8. RIGHTS OF STOCKHOLDERS IN THE MERGER Holders of Shares will not have appraisal rights as a result of the Offer. If the Merger is consummated, however, holders of Shares at that time would have the right to appraisal of their Shares in accordance with Section 262 of Delaware Law ("Section 262"), the provisions of which are set forth in Annex A hereto. Such appraisal rights, if the statutory procedures are complied with, would result in a judicial determination of the "fair value" of the Shares owned by such holders. Any such judicial determination of the fair value of the Shares could be based upon considerations other than or in addition to the price paid in the Offer and the Merger and the market value of the Shares, including asset values, the investment value of the Shares and any other valuation considerations generally accepted in the investment community. The value so determined for Shares could be more or less than the value of the consideration per Share to be paid pursuant to the Offer or the Merger, and payment of such consideration would take place subsequent to payment pursuant to the Offer. In addition, several recent decisions by the Delaware courts have held that a controlling stockholder of a corporation involved in a merger has a fiduciary duty to the other stockholders to ensure that the merger is fair to such other stockholders. In determining whether a merger is fair to minority stockholders, the Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court indicated in Weinberger v. UOP, Inc. that ordinarily the remedy available to stockholders in a merger that is found not to be "fair" to minority stockholders is the right to appraisal described above. SNI AG believes that it does not have the ability to control the Company. 9. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER In considering the recommendation of the Company's Board with respect to the Offer and the Merger and the fairness of the consideration to be paid pursuant to the Offer and the Merger, stockholders should be aware that certain officers and directors of the Company have interests in the Offer and the Merger which are described below and in the recommendation of the Board contained in this Supplement and in the Schedule 14D-9 which may present them with certain potential conflicts of interest. Employment Arrangements. As more fully described in Item 3 of the Schedule 14D-9, at the request of SNI AG, John S. Chen, President and Chief Operating Officer of the Company, has entered into a Management Retention Agreement (the "Chen Agreement") with the Company, commencing upon the effectiveness of the Merger and terminating five years later. Terms of the Chen Agreement include Mr. Chen serving as Chief Executive Officer of the Company and as a member of the Board. In addition, as more fully described in Item 3 of the Schedule 14D- 9, discussions have taken place 17 regarding a senior management position for Mr. Lussier, Chief Executive Officer and Chairman of the Board of the Company, within the Siemens group of companies. Stock and Stock Option Ownership. SNI AG currently owns 2,717,743 Shares, representing approximately 17.37% of the Shares. As more fully described in Section 8 of the Offer to Purchase, SNI AG also owns a warrant (the "Warrant") to purchase up to 1,330,000 Shares. However, SNI AG does not currently intend to exercise the Warrant in connection with the Offer or the Merger. Richard H. Lussier, Chairman and Chief Executive Officer of the Company, holds currently exercisable options to acquire 205,552 Shares. John S. Chen, President and Chief Operating Officer and a director of the Company, holds currently exercisable options to acquire 142,857 Shares. Paul J. Chiapparone, a director of the Company, holds currently exercisable options to acquire 5,000 Shares. Donald E. Guinn, a director of the Company, holds currently exercisable options to acquire 42,750 Shares. Jack L. Hancock, a director of the Company, holds currently exercisable options to acquire 5,000 Shares. Clarence W. Spangle, a director of the Company, holds currently exercisable options to acquire 23,750 Shares. George D. Wells, a director of the Company, holds currently exercisable options to acquire 17,250 Shares. Mitchell Mandich, a Senior Vice President of the Company, holds currently exercisable options to acquire 40,464 Shares. Edward W. Scott, Jr., an Executive Vice President of the Company, holds currently exercisable options to acquire 43,100 Shares. Allan D. Smirni, Vice President and General Counsel of the Company, holds currently exercisable options to acquire 37,033 Shares. Dr. Rudolf Bodo, a director of the Company and SNI AG's designee on the Board, does not own any Shares and holds no options to acquire Shares. As of January 27, 1995, the members of the Company's Board beneficially owned an aggregate of 634,947 Shares, representing approximately 4.06% of the outstanding Shares, assuming the full exercise of the options held by such persons. Mr. Lussier is the beneficial owner of 1.33% of the Shares. No other individual director or executive officer owns more than 1% of the Shares. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS Pursuant to the Merger Agreement, the Company has agreed that, between the date of the Merger Agreement and the Effective Time, unless SNI AG shall otherwise agree in writing, neither the Company nor any subsidiary of the Company will declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock. Moreover, pursuant to a Revolving Credit Loan Agreement with Comerica Bank - California effective as of October 1, 1994, the Company is not permitted to pay cash dividends. This Credit Agreement expires on December 31, 1995. On February 3, 1995, Purchaser was informed by the Federal Trade Commission that early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), relating to the purchase of Shares pursuant to the Offer had been granted. Accordingly, the condition to the Offer requiring the expiration or termination of any applicable waiting period under the HSR Act prior to expiration of the Offer has been satisfied. In addition, on February 13, 1995, the Company received a letter from the New Jersey Department of Environmental Protection stating that the Industrial Site Recovery Act ("ISRA") is not applicable to the Company's New Jersey facilities. Accordingly, the condition to Purchaser's obligation to purchase any Shares tendered in the Offer relating to ISRA set forth in the second paragraph of Annex A of the Merger Agreement has been satisfied. The Offer remains subject to the other conditions set forth in Section 14 of the Offer to Purchase. 18 FEES AND EXPENSES The following is an estimate of expenses to be incurred in connection with the Offer and the Merger. The Merger Agreement provides that all costs and expenses incurred in connection with the Offer and the Merger will be paid by the party incurring such costs and expenses, whether or not the Offer or the Merger is consummated. EXPENSES TO BE PAID BY PURCHASER AND ITS AFFILIATES: Financial Advisory and Dealer Manager Fees.................... $1,750,000 Legal Fees.................................................... 350,000 Printing and Mailing.......................................... 150,000 Advertising................................................... 70,000 Filing Fee.................................................... 53,000 Depositary Fees............................................... 10,000 Information Agent Fees........................................ 10,000 ---------- Total....................................................... $2,393,000 ==========
EXPENSES TO BE PAID BY THE COMPANY: Investment Banking Fees and Expenses.......................... $2,200,000 Legal Fees and Expenses....................................... 350,000 Printing and Mailing.......................................... 85,000 Accounting Fees............................................... 10,000 Miscellaneous................................................. 55,000 ---------- Total....................................................... $2,700,000 ==========
MISCELLANEOUS Pursuant to Rule 14d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Siemens AG, SNI AG and Purchaser have filed with the Commission the Schedule 14D-1 with respect to the Offer and certain amendments thereto, and may file further amendments thereto. Pursuant to Rule 14d-9 promulgated under the Exchange Act, the Company has filed with the Commission the Schedule 14D-9 with respect to the Offer, and may file amendments thereto. Siemens AG, SNI AG, Purchaser and the Company have filed a statement on Schedule 13E-3 with respect to the Offer and may file amendments to the Schedule 13E-3. Such statements, including exhibits and any amendments thereto, which furnish certain additional information with respect to the Offer, may be inspected at, and copies may be obtained from, the same places and in the same manner as set forth in Section 7 of the Offer to Purchase (except that they will not be available at the regional offices of the Commission). SIEMENS NIXDORF MID-RANGE ACQUISITION CORP. February 15, 1995 19 ANNEX A SUMMARY OF STOCKHOLDER APPRAISAL RIGHTS AND TEXT OF SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE Summary of Stockholder Appraisal Rights. No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, stockholders will have certain rights under Delaware Law to dissent and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. Such rights to dissent, if the statutory procedures were complied with, could lead to a judicial determination of the fair value of the Shares, as of the day prior to the date on which the stockholders' vote was taken approving the Merger or similar business combination (excluding any element of value arising from the accomplishment or expectation of the Merger), required to be paid in cash to such dissenting holders for their Shares. In addition, such dissenting stockholders would be entitled to receive payment of a fair rate of interest from the date of consummation of the Merger on the amount determined to be the fair value of their Shares. In determining the fair value of the Shares, the court is required to take into account all relevent factors. Accordingly, such determination could be based upon considerations other than, or in addition to, the market value of the Shares, including, among other things, asset values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Therefore, the value so determined in any appraisal proceeding could be the same, more or less than the purchase price per Share in the Offer or the Merger Consideration (as defined in the Offer to Purchase). GENERAL CORPORATION LAW OF THE STATE OF DELAWARE (S)262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to (S)228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of his shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of a stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to (S)251, 252, 254, 257, 258, 263 or 264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an A-1 interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the holders of the surviving corporation as provided in subsection (f) of (S)251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to (S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under (S)253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsections (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of his shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or A-2 (2) If the merger or consolidation was approved pursuant to (S)228 or 253 of this title, the surviving or resulting corporation, either before the effective date of the merger or consolidation or within 10 days thereafter, shall notify each of the stockholders entitled to appraisal rights of the effective date of the merger or consolidation and that appraisal rights are available for any or all of the shares of the constituent corporation, and shall include in such notice a copy of this section. The notice shall be sent by certified or registered mail, return receipt requested, addressed to the stockholder at his address as it appears on the records of the corporation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of the notice, demand in writing from the surviving or resulting corporation the appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw his demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after his written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing of such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into A-3 account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted his certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that he is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded his appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of his demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. (Last amended by Ch. 262, L. '94, effective 7-1-94.) A-4 ANNEX B DOCUMENT: PAGE: - --------- ----- Audited Consolidated Financial Statements (and Related Notes) for Pyramid Technology Corporation for the Fiscal Years ended September 30, 1993 and September 30, 1994...................................................... B-2 Unaudited Consolidated Financial Statements (and Related Notes) for Pyramid Technology Corporation for the First Quarter of the Fiscal Year ending September 30, 1995............................................... B-18 B-1 AUDITED FINANCIAL STATEMENTS FOR PYRAMID TECHNOLOGY CORPORATION FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1993 AND SEPTEMBER 30, 1994 PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1994 1993 1992 ------------- ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues Product revenues................ $ 152,590 $ 174,364 $ 138,916 Service revenues................ 65,925 59,334 53,310 ------------- ------------- ------------- 218,515 233,698 192,226 Cost of Sales: Cost of products sold........... 87,708 86,828 78,743 Cost of services................ 50,875 45,293 44,786 ------------- ------------- ------------- 138,583 132,121 123,529 Gross profit...................... 79,932 101,577 68,697 Operating expenses: Research and development........ 25,488 27,831 28,371 Sales, marketing, general and administrative................. 73,744 64,411 64,741 Restructuring................... -- -- 41,180 Legal settlement................ -- -- 900 ------------- ------------- ------------- Total operating expenses...... 99,232 92,242 135,192 ------------- ------------- ------------- Operating income (loss)........... (19,300) 9,335 (66,495) Interest income................... 655 781 826 Interest expense.................. (704) (523) (967) Loss on investment in joint ven- ture............................. (129) -- -- ------------- ------------- ------------- Income (loss) before income taxes. (19,478) 9,593 (66,636) Provision (benefit) for income taxes............................ 2,935 959 (6,929) ------------- ------------- ------------- Net income (loss)................. $ (22,413) $ 8,634 $ (59,707) ============= ============= ============= Net income (loss) per share....... $ (1.66) $ 0.67 $ (4.99) ============= ============= ============= Shares used in computing net in- come (loss) per share............ 13,467 12,890 11,962 ============= ============= =============
The accompanying notes are an integral part of these financial statements. B-2 PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, ---------------------------- 1994 1993 ------------- ------------- (IN THOUSANDS, EXCEPT PAR VALUE AND NUMBER OF SHARES) ASSETS CURRENT ASSETS: Cash and cash equivalents...................... $ 21,558 $ 31,358 Short-term investments......................... 20,651 -- Accounts receivable, net of allowance for doubtful accounts of $1,660 in 1994 and $2,020 in 1993....................................... 49,310 51,392 Inventories.................................... 25,840 35,712 Prepaid expenses and deposits.................. 15,270 11,873 ------------- ------------- Total current assets......................... 132,629 130,335 Property and equipment, at cost: Machinery and equipment........................ 85,825 79,675 Furniture and fixtures......................... 6,546 5,674 Leasehold improvements......................... 9,627 9,924 ------------- ------------- 101,998 95,273 Less accumulated depreciation and amortization... 74,386 60,686 ------------- ------------- 27,612 34,587 Capitalized software development costs........... 18,381 15,959 Service spare parts and other assets............. 12,091 10,777 ------------- ------------- $ 190,713 $ 191,658 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................... $ 16,398 $ 20,312 Accrued payroll and related liabilities........ 4,493 7,043 Accrued commissions............................ 2,424 2,419 Deferred revenue............................... 8,272 7,197 Other accrued liabilities...................... 10,932 8,764 Restructuring accruals......................... 3,075 4,464 Income taxes payable........................... 3,678 1,561 Current portion of long-term debt.............. 1,440 1,795 ------------- ------------- Total current liabilities.................... 50,712 53,555 Noncurrent portion of long-term debt............. 1,563 487 Deferred income taxes payable.................... 2,400 -- Commitments SHAREHOLDERS' EQUITY: Common stock--$.01 par value; 30,000,000 shares authorized, 15,567,000 issued and outstanding in 1994 and 13,177,000 in 1993................ 156 132 Additional paid-in capital..................... 174,652 155,078 Accumulated deficit............................ (37,927) (15,514) Accumulated translation adjustment............. (843) (2,080) ------------- ------------- Total shareholders equity.................... 136,038 137,616 ------------- ------------- $ 190,713 $ 191,658 ============= =============
The accompanying notes are an integral part of these financial statements. B-3 PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL RETAINED ACCUMULATED TOTAL ------------- PAID-IN EARNINGS TRANSLATION SHAREHOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT EQUITY ------ ------ ---------- --------- ----------- ------------- (IN THOUSANDS) Balance at September 30, 1991................... 11,807 $118 $138,149 $ 35,559 $ 993 $174,819 Stock options exercised. 119 1 972 -- -- 973 Sales under employee stock purchase plan.... 221 2 2,051 -- -- 2,053 Compensation related to stock option grants.... -- -- 45 -- -- 45 Net loss................ -- -- -- (59,707) -- (59,707) Foreign currency translation adjustment. -- -- -- -- (641) (641) Tax benefit of stock options exercised...... -- -- 187 -- -- 187 ------ ---- -------- -------- ------- -------- Balance at September 30, 1992................... 12,147 121 141,404 (24,148) 352 117,729 Stock options exercised. 837 9 9,794 -- -- 9,803 Sales under employee stock purchase plan.... 193 2 1,922 -- -- 1,924 Compensation related to stock option grants.... -- -- 45 -- -- 45 Net income.............. -- -- -- 8,634 -- 8,634 Foreign currency translation adjustment. -- -- -- -- (2,432) (2,432) Tax benefit of stock options exercised...... -- -- 1,913 -- -- 1,913 ------ ---- -------- -------- ------- -------- Balance at September 30, 1993................... 13,177 132 155,078 (15,514) (2,080) 137,616 Stock options exercised. 90 1 745 -- -- 746 Sales under employee stock purchase plan.... 300 3 2,079 -- -- 2,082 Issuance of common shares to Siemens Nixdorf, net of issuance costs......... 2,000 20 16,735 -- -- 16,755 Compensation related to stock option grants.... -- -- 15 -- -- 15 Net loss................ -- -- -- (22,413) -- (22,413) Foreign currency translation adjustment. -- -- -- -- 1,237 1,237 ------ ---- -------- -------- ------- -------- Balance at September 30, 1994................... 15,567 $156 $174,652 $(37,927) $ (843) $136,038 ====== ==== ======== ======== ======= ========
The accompanying notes are an integral part of these financial statements. B-4 PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, --------------------------- 1994 1993 1992 -------- ------- -------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................... $(22,413) $ 8,634 $(59,707) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization................. 28,455 29,961 31,118 Non-cash portion of restructuring charges..... -- -- 18,826 Compensation related to option grants......... 15 45 45 Changes in: Accounts receivable, net.................... 2,082 (14,729) 16,605 Inventories................................. 9,872 (5,143) 743 Prepaid expenses and deposits and income tax receivable................................. (3,397) 500 (2,497) Accounts payable, accrued liabilities, and other...................................... 1,085 (2,839) 10,945 -------- ------- -------- Net cash provided by operating activities....... 15,699 16,429 16,078 -------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments.............. (20,651) -- -- Investment in property and equipment............ (11,970) 13,722) (16,848) Increase in capitalized software development costs.......................................... (9,223) (8,695) (6,051) Decrease (increase) in other assets............. (3,885) 870 354 -------- ------- -------- Net cash used for investing activities.......... (45,729) (21,547) (22,545) -------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt............ (2,503) (1,709) (1,690) Borrowings under loan agreement................. 3,150 -- -- Issuance of common stock........................ 19,583 11,727 3,026 -------- ------- -------- Net cash provided by financing activities....... 20,230 10,018 1,336 -------- ------- -------- Increase (decrease) in cash and cash equivalents.. (9,800) 4,900 (5,131) Cash and cash equivalents, at beginning of year... 31,358 26,458 31,589 -------- ------- -------- Cash and cash equivalents, at end of year......... $ 21,558 $31,358 $ 26,458 ======== ======= ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Tax benefit from exercise of stock options...... $ -- $ 1,913 $ 187 Acquisition of equipment under capital lease ob- ligations...................................... 73 246 1,360 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest.......................... 704 523 967 Cash paid (received) for income taxes........... $ 374 $(4,967) $ 907 -------- ------- --------
The accompanying notes are an integral part of these financial statements. B-5 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Principles of Consolidation The consolidated financial statements include the accounts of Pyramid Technology Corporation (the "Company") and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain prior year information has been reclassified to conform to the current year presentation. Revenue Recognition The Company generally recognizes revenue at the time of shipment and provides for the estimated cost to repair or replace products under warranty provisions in effect at the time of sale. Deferred revenue on maintenance contracts is recognized ratably over the contract period. Income Taxes Effective for the fiscal year ended September 30, 1994, the Company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes." In accordance with this statement, deferred income taxes are provided for temporary differences between financial statement income and income for tax purposes using enacted tax laws and rates for the years in which the taxes are expected to be paid. Adoption of this statement did not have a material effect on the Company's consolidated financial statements. During fiscal 1993 and 1992, the Company accounted for income taxes pursuant to Statement of Financial Accounting Standard No. 96, "Accounting for Income Taxes." Net Income (Loss) Per Share Net income (loss) per share is computed based on the weighted average number of common and common equivalent shares outstanding during the period. Equivalent shares are calculated using the treasury stock method or the modified treasury stock method (whichever applies) and consist of outstanding stock options that have a dilutive effect on income per share. During fiscal 1994 and 1992, no common stock equivalents were included in the computation of loss per share as their effect would have been antidilutive. Cash and Cash Equivalents The Company classifies certain investments as cash equivalents if the original maturity from the date of acquisition of such investments is three months or less. These investments are carried in the balance sheet at cost, which approximates fair value. The effect of foreign currency exchange rate fluctuations on cash flows has not been material. Short-Term Investments Short-term investments consist of commercial paper with original maturities from the date of acquisition greater than three months and less than twelve months. These investments are carried at cost which approximates fair value due to the short period of time to maturity. Accounting for Certain Investments in Debt and Equity Securities Effective September 30, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement addresses the accounting and reporting for investments in marketable equity securities that have readily determinable fair values and for all investments in debt securities. These securities are required to be classified at the time of purchase and re-evaluated at each reporting date as either (1) held-to-maturity, (2) trading, or (3) available- for-sale. The Company classifies its investment in commercial paper and money market funds ($15,889,000 in cash equivalents and $20,651,000 in short-term investments) as held-to-maturity given the Company's positive intent and ability to hold the securities to maturity. In accordance with the statement, held-to-maturity securities are carried at amortized cost, therefore, there was no impact of adopting the statement on current period operations or shareholders equity. B-6 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Inventories Inventories are stated at the lower of cost (first-in, first- out) or market and consist of the following:
YEAR ENDED SEPTEMBER 30, --------------- 1994 1993 ------- ------- (IN THOUSANDS) Raw materials............................................. $10,617 $12,236 Work in process........................................... 8,320 14,517 Finished goods............................................ 6,903 8,959 ------- ------- $25,840 $35,712 ======= =======
Property and Equipment Property and equipment, including assets held under capital leases, are stated at cost. Depreciation and amortization are computed using the straight-line method. Useful lives of three to five years are used for machinery and equipment and furniture and fixtures; leasehold improvements are amortized over the shorter of their useful lives or the term of the lease. Maintenance and repairs are expensed as incurred. Capitalized Software Development Costs The Company capitalizes software development costs as the resulting products become "technologically feasible." Amortization of capitalized software development costs begins when the products are available for general release to customers, and is computed on a product-by-product basis as the greater of: (a) the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for the product; or (b) the straight-line method over a period not to exceed three years. Amortization expense for fiscal 1994, 1993, and 1992 was $6,802,000, $7,323,000, and $6,069,000, respectively. Service Spare Parts and Other Assets Net service spare parts at September 30, 1994 and 1993 were $10,677,000 and $8,821,000, respectively (with related accumulated amortization of $11,032,000 and $10,122,000, respectively). Amortization for service spare parts is provided using the straight-line method over five years. Purchased technology and the excess of the cost over the fair value of the net assets of acquired businesses, which are included in other assets, are amortized on a straight-line basis over a period of seven years. Amortization expense of $635,000, $635,000, and $724,000 was recorded in fiscal 1994, 1993, and 1992, respectively. Prepaid Royalties The Company has entered into several agreements for the purpose of further enhancing the Company's competitive position in offering relational database management and other applications software. Under these agreements, the Company has made commitments, some of which were prepaid, to provide minimum amounts of license royalties to the licensor. As software packages are sold with the Company's systems or into the Company's existing customer base, the Company will receive credit towards the minimum license royalty commitments. Amortization of prepaid royalties is computed as the greater of (a) the royalty per unit as the products are shipped; or (b) on a straight-line basis over the lesser of the term of the agreement or three years starting when the products are available for general release to customers. Net prepaid royalties at September 30, 1994 and 1993 were $1,915,000 and $1,377,000, respectively. As of September 30, 1994, the remaining minimum license royalty payment commitments amounted to $150,000. Joint Venture During the third quarter of fiscal 1994, a partnership agreement between Pyramid Technology Australia PTY, Ltd., a wholly owned subsidiary of the Company, and Fujitsu Australia Limited was signed. Pyramid Data Centre Systems, the new joint venture created by the agreement, began operations on July 2, 1994. The new venture will market Pyramid's Nile Series of scalable B-7 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) enterprise servers along with complementary Fujitsu and ICL hardware and mainframe connectivity software. Pyramid Data Centre Systems' focus will be the high-end commercial data center computing market, with emphasis on major Australian corporations that are downsizing their mainframe operations. Pyramid's share of the joint venture is 49% and is being accounted for using the equity method. Restructuring During fiscal 1992, the Company recorded restructuring costs totaling $41,180,000 in connection with two restructuring programs designed to reduce costs and improve operating efficiencies. These restructuring plans reflect a realignment of corporate infrastructure, downsizing or discounting less profitable business units, and a more focused research and development effort. The cost reductions included a consolidation of facilities, a write- off of nonproductive assets, and a reduction in workforce. At September 30, 1994, $3,075,000 remained accrued for excess facilities in Mountain View, California and the United Kingdom which will be used to offset excess facility costs over the next two to four years. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash investments and trade receivables. The Company sells its products to customers in diversified industries primarily in North America, Europe, and Asia- Pacific. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses were not material during the three years reported. The Company invests its excess cash in deposits with major banks, in money market funds, and in commercial paper of companies with strong credit ratings and in diversified industries. Generally, the investments mature within 120 days and, therefore, are subject to little risk. The Company has not experienced losses related to these investments. Foreign Exchange Contracts In order to reduce the impact of currency fluctuations on intercompany balances, the Company enters into foreign currency forward exchange contracts, which require the Company to exchange foreign currencies for U.S. dollars at rates agreed to at the inception of the contracts. The contracts generally have maturities that do not exceed one month. The objective of these contracts is to neutralize the impact of foreign currency exchange rate movements on the Company's operating results. These contracts do not subject the Company to significant market risk from exchange rate movements because the contracts offset gains and losses on the balances being hedged. At September 30, 1994, the Company had foreign exchange contracts outstanding to sell the equivalent of $1,779,000, which approximates fair value, in Japanese and Swedish currencies, and to buy the equivalent of $6,883,000, which approximates fair value, in Australian, British, and German currencies. Foreign Currency Translation Substantially all assets and liabilities of the Companys foreign operations are translated into United States dollars at exchange rates prevailing at the fiscal year-end. The resulting translation adjustments are recorded as cumulative translation adjustments to shareholders equity. Revenues and expenses for the year are translated at the average exchange rates in effect during the year. Foreign currency exchange gains or losses were not material during the three years reported. Related Party Transactions During the second quarter of fiscal 1994, a senior executive of a major customer and vendor of the Company was elected to the Company's Board of Directors. The related party accounted for approximately 4%, 2%, and 1% of the Company's revenue during fiscal 1994, 1993, B-8 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) and 1992, respectively. Additionally, the Company has contracted with the related party to perform consulting services ranging from a minimum of $6,000,000 to $7,000,000 per year over the next eight years. During the third quarter of fiscal 1994, the Company made a sale to a customer which accounted for less than 1% of the Company's fiscal 1994 revenues, and also purchased $900,000 of prepaid software licenses from the customer. The Company's chairman of the board is a member of the customers board of directors. During the fourth quarter of fiscal 1994, Pyramid and Siemens Nixdorf announced an expansion of their cooperative agreement for high-end UNIX systems by entering into a new software and hardware licensing agreement and amending its existing OEM agreement. Siemens Nixdorf licensed Pyramid's enhancement of the UNIX operating system for massively parallel processing (MPP) and received the right to purchase the related MPP hardware product, internally known as MESHine, under the OEM agreement. In addition, Siemens Nixdorf paid $17,250,000 for 2,000,000 shares of Common Stock and a warrant to purchase an additional 1,330,000 shares at $10.00 per share. The warrant expires on September 30, 1995. Siemens Nixdorf's ownership in Pyramid increased to approximately 18% with the initial purchase of shares and would increase to approximately 24% if the warrant is exercised. A senior executive of Siemens Nixdorf was also elected to the Company's Board of Directors. Siemens Nixdorf accounted for approximately 5%, 6%, and 8% of the Company's revenue during fiscal 1994, 1993, and 1992, respectively. At September 30, 1994, Siemens Nixdorf owed the Company approximately $6,000,000 for the purchase of products. COMMITMENTS Leasing Arrangements The Company leases its corporate headquarters, manufacturing facilities, and sales offices under noncancelable operating lease agreements which expire at various dates through 2014. Rental expense under operating leases, including month to month facilities and equipment rentals was approximately $11,763,000, $12,501,000, and $12,112,000 in 1994, 1993, and 1992, respectively. In connection with the fiscal 1992 restructurings, which included a consolidation of facilities, the Company subleases certain of its facilities under noncancelable subleases. The minimum future rentals to be received under these subleases are $951,000, $949,000, and $647,000 in fiscal 1995, 1996, and 1997, respectively. The Company has entered into capital lease agreements for certain machinery and equipment which are accounted for as the acquisition of an asset and incurrence of a liability. Assets held under capital leases included in property and equipment are as follows:
YEAR ENDED SEPTEMBER 30, --------------- 1994 1993 ------- ------- (IN THOUSANDS) Machinery and equipment.................................. $ 3,252 $ 2,972 Furniture and fixtures................................... 4,880 4,359 ------- ------- 8,132 7,331 Less accumulated amortization............................ 4,418 4,091 ------- ------- $ 3,714 $ 3,240 ======= =======
B-9 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Minimum future payments under all capital and operating lease agreements as of September 30, 1994 are as follows:
OPERATING CAPITAL YEAR ENDING SEPTEMBER 30, LEASES LEASES ------------------------- --------- ------- (IN THOUSANDS) 1995................................................. $ 9,510 $ 446 1996................................................... 8,654 131 1997................................................... 7,183 14 1998................................................... 6,281 -- 1999................................................... 6,072 -- Thereafter............................................. 26,319 -- ------- ----- Total minimum lease payments........................... $64,019 591 ======= ===== Amount representing interest........................... (37) ----- Present value of minimum lease payments................ 554 Current obligations under capital leases............... (415) ----- Noncurrent obligations under capital leases............ $ 139 =====
Dismissal of Shareholder Class Action Complaints During the first quarter of fiscal 1994, two shareholder class action complaints were filed naming as defendants the Company and certain of its officers and directors, and alleging violations of federal securities laws as well as a state law fraud claim. The complaints alleged that the Company made false and misleading statements in press releases and other public statements and that some of the individual defendants traded the Company's Common Stock on inside information. The complaints sought an award of an unspecified amount of damages. The cases were consolidated by order of the District Court on July 14, 1994. After review of initial disclosures made by the Company and discussions with the Company's attorneys, counsel for the plaintiffs agreed to dismiss the actions. On July 26, 1994, pursuant to a stipulation of the parties, the District Court entered an order for dismissal without prejudice of the consolidated actions. COMMON STOCK Common Shares Rights Agreement The Company has a plan to protect shareholders rights in the event of a proposed takeover of the Company. Under the plan, the Board of Directors declared a dividend of one common share purchase right (a right) for each share of the Company's Common Stock. Each right entitles the shareholder to purchase one share of the Company's Common Stock at an exercise price of $64. The rights become exercisable following the tenth day after a person or group (a) acquires beneficial ownership of 20% or more of the Company's Common Stock or (b) announces a tender or exchange offer which would result in ownership by a person or group of 30% or more of the Company's Common Stock. If any person or group acquires 20% of the Company's Common Stock, each right not held by the acquiring person will entitle the holder to purchase $128 worth of the Company's Common Stock for $64. If the Company is acquired in a merger or other business combination transaction, each right not held by the acquiring person will entitle its holder to purchase $128 worth of the common stock of the acquiring company for $64. The rights are redeemable at the Company's option for $0.01 per right. Additionally, the exercise price and number and kind of shares covered by each right are subject to adjustment for stock splits, stock dividends, and certain other events. The rights expire on December 12, 1998. B-10 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In the fourth quarter of fiscal 1994, all necessary corporate action required under the Rights Agreement to amend the Rights Agreement was authorized and taken so that the potential exercise of a warrant to purchase 1,330,000 shares of Common Stock or any other purchase of Common Stock by Siemens Nixdorf would not make Siemens Nixdorf an acquiring person. Incentive Stock Option Plan The Company has an Incentive Stock Option Plan (the "Plan") under which officers, consultants and key employees may be granted options to purchase the Company's Common Stock. Options are granted at a price not less than fair market value on the date of grant, as determined by the Board of Directors. At September 30, 1994, 6,116,666 shares of Common Stock had been reserved for issuance under the Plan. The options are generally exercisable at the rate of 25% commencing one year after the date of grant and in monthly increments of 1/36 of the remaining balance thereafter. Expiration dates are determined by the Board of Directors, but in no event will they exceed ten years from the date of grant. Unexercised options are cancelable three months after the date of termination of employment. Plan transactions for the years ended September 30, 1993 and 1994 were as follows:
PRICE ---------------------------------- NUMBER OF SHARES PER SHARE TOTAL ----------------------------------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Options outstanding at September 30, 1992..... 2,528,042 $ 1.31-$29.00 $ 37,089 Grants.................. 1,192,500 $ 7.75-$20.25 12,854 Exercises............... (834,314) $ 1.31-$18.50 (9,773) Cancellations........... (432,326) $ 6.50-$29.00 (6,243) ---------------- ------------------- -------------- Options outstanding at September 30, 1993..... 2,453,902 $ 1.31-$29.00 33,927 Grants.................. 1,117,500 $ 6.63-$20.50 14,358 Exercises............... (89,927) $ 1.31-$18.00 (738) Cancellations........... (526,823) $ 1.31-$29.00 (7,653) ---------------- ------------------- -------------- Options outstanding at September 30, 1994..... 2,954,652 $ 1.31-$29.00 $ 39,894 ================ =================== ==============
At September 30, 1994, there were 1,722,581 shares exercisable under this Plan at $1.31 to $29.00 per share, and options for 781,043 shares of Common Stock were available for grant. At September 30, 1993, there were 1,178,800 shares exercisable under this plan at $1.31 to $29.00 per share. Executive Officers' Nonstatutory Stock Option Plan The Company has an Executive Officer's Nonstatutory Stock Option Plan (the "Plan") under which 400,000 shares of Common Stock were reserved for issuance to executive officers of the Company. Under the Plan, the Board of Directors determines the number of shares, option price, and exercisability of options. Options expire ten years after the date of grant. There were no option grants, exercises, or cancellations under the Plan during fiscal 1994 and 1993. At September 30, 1994, there were 20,313 shares outstanding and exercisable under this Plan at $17.00 per share and options for 7,000 shares of Common Stock were available for grant. At September 30, 1993, there were 20,313 shares outstanding and 12,500 shares exercisable under the Plan at $17.00 per share. Directors' Option Plan The Company has a Directors' Option Plan (the "Plan") under which 160,000 shares of Common Stock were reserved for issuance to nonemployee directors as of September 30, 1994. The Plan provides for the automatic grant of an option to purchase 12,000 shares B-11 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of Common Stock to nonemployee directors on the date on which such person first becomes a director, and the annual grant of an option to purchase 6,000 shares on each January 31 thereafter. The per share exercise price of the Common Stock subject to an option shall be 100% of the fair market value per share on the date of the option grant. As of September 30, 1994, options for 58,000 shares were available for grant. At September 30, 1994, there were 61,500 shares exercisable under this plan at $13.50 to $18.25 per share. At September 30, 1993, there were 30,000 shares exercisable under this plan.
PRICE ------------------------------------ NUMBER OF SHARES PER SHARE TOTAL ------------------------------------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Options outstanding at September 30, 1992..... 42,000 $ 14.75-$18.25 $ 693 Grants.................. 18,000 $14.75 266 Exercises............... (2,500) $14.75 (37) -------------- --------------------- -------------- Options outstanding at September 30, 1993..... 57,500 $ 14.75-$18.25 922 Grants.................. 42,000 $ 13.50-$14.50 585 -------------- --------------------- -------------- Options outstanding at September 30, 1994..... 99,500 $ 13.50-$18.25 $ 1,507 ============== ===================== ==============
EMPLOYEE BENEFIT PROGRAMS Employee Stock Purchase Plan In September 1987, the Company adopted the 1987 Employee Stock Purchase Plan (the "Plan"). As of September 30, 1994, 1,150,000 shares of Common Stock have been reserved for issuance under the Plan. The Plan permits eligible employees to purchase Common Stock through payroll deductions of up to a maximum of 10% of their eligible compensation at 85% of the fair market value. During fiscal 1994, 300,074 shares were purchased at prices of $6.69 to $7.23 per share. At September 30, 1994, 31,626 shares were available for future issuance. 410(K) Plan The Company has adopted a tax deferred savings plan ("401(k) Plan" or the "Plan") in which virtually all domestic employees are eligible to participate. Participating employees may contribute up to 15% of qualified earnings. The Company matches employee contributions at a 50% rate up to the first 5% of each employees salary deferral contribution. Employee contributions are fully vested, whereas vesting in matching Company contributions occurs at a rate of 33 1/3% per year of employment. All contributions to the Plan are transferred to a trustee and are invested at the employee's discretion in six separate funds. During fiscal 1994, 1993, and 1992, the Company's contribution amounted to approximately $1,122,000, $887,000, and $946,000, respectively. BORROWING ARRANGEMENTS For the purposes of hedging its foreign currency exposures, the Company had available a bank facility which provides for up to $70,000,000 of foreign exchange contracts. At September 30, 1994, $61,338,000 was available under the foreign exchange line of credit as $8,662,000 was utilized for foreign currency hedging contract positions. This credit facility expired on October 31, 1994. During October 1994, the Company entered into a new revolving line of credit agreement with a bank which provides it with the ability to borrow up to $10,000,000. Amounts borrowed under the line of credit are secured by the Company's accounts receivable and inventory. The interest rate on borrowings under the line of credit is at the bank's prime rate. The agreement also provides for up to $50,000,000 of foreign exchange contract availability in addition to the $10,000,000 revolving line of credit. This line of credit expires on December 31, 1995. The above facilities do not permit the Company to pay cash dividends and they set limitations on the Company in regard to other indebtedness, pledging assets, B-12 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) guarantees, mergers and acquisitions, and annual capital expenditure levels as well as requiring the Company to maintain certain financial requirements. During fiscal 1994, the Company financed $3,150,000 of equipment under a capital equipment financing agreement with a lending company. The loans, which have an average interest rate of approximately 8%, are repaid on a monthly basis over a three-year period. INCOME TAXES The provision (benefit) for income taxes consists of the following:
YEAR ENDED SEPTEMBER 30, -------------------------- 1994 1993 1992 -------- ---------------- (IN THOUSANDS) CURRENT: Federal....................................... $ (1,039) $ 912 $ (4,046) State......................................... 144 298 -- Foreign....................................... 1,307 231 21 -------- ------ -------- 412 1,441 (4,025) -------- ------ -------- DEFERRED: Federal....................................... 2,523 (482) (2,596) State......................................... -- -- (308) -------- ------ -------- 2,523 (482) (2,904) -------- ------ -------- $ 2,935 $ 959 $ (6,929) ======== ====== ========
Pretax income (loss) from foreign operations amounted to $3,214,000, $1,262,000, and $(10,098,000) for fiscal 1994, 1993, and 1992, respectively. The total provision (benefit) for income taxes differs from the amount computed by applying the statutory federal rate of 34% to income (loss) before taxes as follows:
YEAR ENDED SEPTEMBER 30, -------------------------- 1994 1993 1992 ------- ------- -------- (IN THOUSANDS) Computed expected tax provision (benefit).......... $(6,623) $ 3,262 $(22,656) State tax, net of federal benefit.................. 144 197 (203) Losses not benefited and income taxed at other than U.S. rates........................................ 10,084 -- 14,200 Utilization of operating loss carryforward......... (670) (1,185) -- Utilization of general business credits............ -- (923) 1,947 Other.............................................. -- (392) (217) ------- ------- -------- $ 2,935 $ 959 $ (6,929) ======= ======= ========
Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." As permitted by SFAS 109, the Company has elected not to restate the financial statements of any prior years. The effect of adoption of this standard was not material to the Company's financial position or results of operations for the year ended September 30, 1994. B-13 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes reflect tax credit and loss carryforwards and the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of September 30, 1994 are as follows:
YEAR ENDED SEPTEMBER 30, 1994 ------------------ (IN THOUSANDS) Deferred tax liabilities: Capitalized software development costs and other........ $ (7,181) -------- Total deferred tax liabilities........................ (7,181) -------- Deferred tax assets: Tax credits............................................. 4,274 Depreciation............................................ 1,998 Special charge and other reserves....................... 13,193 Loss carryforwards and other............................ 10,034 -------- Total deferred tax assets............................. 29,499 -------- Valuation allowance for deferred tax assets............... (22,318) -------- Net deferred taxes........................................ $ 0 ========
The valuation allowance increased $9,426,000 in the year ended September 30, 1994. Approximately $3,279,000 of the valuation reserve is related to benefits of stock option deductions which will be allocated directly to additional paid-in capital when realized. For federal income tax purposes at September 30, 1994, the Company had $29,100,000 of net operating loss carryforwards which expire in the year 2009. The Company had research and development credit carryforwards of approximately $3,500,000 which expire through the year 2006. The Company had alternative minimum tax credit carryforwards of approximately $800,000 which do not expire. The Company had foreign net operating losses of approximately $2,900,000. Significant components of the deferred income tax in the provision for income taxes for the years ended September 30, 1993 and September 30, 1992 are as follows:
YEAR ENDED SEPTEMBER 30, --------------- 1993 1992 ------ ------- (IN THOUSANDS) Depreciation............................................... $ (754) $ (10) Inventory valuation differences............................ (241) (589) Capitalized software development........................... 309 (383) Allowance for doubtful accounts............................ (4) (62) Unrealized profits on intercompany transactions............ (90) 28 Restructuring costs........................................ 1,061 (1,704) Deferred revenue........................................... (645) 12 Other, net................................................. (118) (196) ------ ------- Total deferred taxes....................................... $ (482) $(2,904) ====== =======
B-14 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INDUSTRY SEGMENT, SIGNIFICANT CUSTOMER, AND GEOGRAPHIC INFORMATION The Company operates in one principal industry segment: the design, manufacture, marketing, and service of high-performance open system servers and related software that combine the advantages of the UNIX multi-user operating system with a system architecture based on the principles of reduced instruction set computing (RISC). During fiscal 1994, 1993, and 1992, the Company had export sales of approximately 15%, 18%, and 19% of total revenues, respectively. Export sales by geographic areas were 11%, 14%, and 17% to Europe and 4%, 4%, and 2% primarily to Asia and the Far East as a percentage of total revenues for fiscal 1994, 1993, and 1992, respectively. During fiscal 1994, AT&T accounted for 18% ($38,372,000) of the Company's total revenues. Sales to AT&T in fiscal 1993 and 1992 were 17% ($40,676,000) and 20% ($39,297,000), respectively. The Company's operations by geographic area are as follows:
UNITED UNITED ASIA- STATES KINGDOM PACIFIC ELIMINATIONS CONSOLIDATED -------- ------- ------- ------------ ------------ (IN THOUSANDS) 1994 Revenues: Sales to unaffiliated customers............... $169,535 $25,411 $23,569 $ -- $218,515 Intercompany sales....... 10,986 -- -- (10,986) -- -------- ------- ------- -------- -------- Total revenues........... 180,521 25,411 23,569 (10,986) 218,515 -------- ------- ------- -------- -------- Operating income (loss).. (27,742) 1,261 1,602 5,579 (19,300) -------- ------- ------- -------- -------- Identifiable assets...... 210,492 14,823 7,026 (41,628) 190,713 -------- ------- ------- -------- -------- 1993 Revenues: Sales to unaffiliated customers............... 186,883 26,328 20,487 -- 233,698 Intercompany sales....... 31,691 -- -- (31,691) -- -------- ------- ------- -------- -------- Total revenues........... 218,574 26,328 20,487 (31,691) 233,698 -------- ------- ------- -------- -------- Operating income (loss).. 9,481 1,197 (130) (1,213) 9,335 -------- ------- ------- -------- -------- Identifiable assets...... 216,694 16,928 12,837 (54,801) 191,658 -------- ------- ------- -------- -------- 1992 Revenues: Sales to unaffiliated customers............... 146,302 24,263 21,661 -- 192,226 Intercompany sales....... 25,808 -- -- (25,808) -- -------- ------- ------- -------- -------- Total revenues........... 172,110 24,263 21,661 (25,808) 192,226 -------- ------- ------- -------- -------- Operating income (loss).. (55,010) (4,233) (5,987) (1,265) (66,495) -------- ------- ------- -------- -------- Identifiable assets...... $193,751 $15,739 $12,631 $(45,930) $176,191 ======== ======= ======= ======== ========
Intercompany sales are accounted for at prices which approximate arm's length transactions and include systems and spare parts. B-15 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------------------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 Revenues............................ $ 60,018 $ 46,548 $ 53,812 $ 58,137 Gross profit........................ 24,969 12,599 18,838 23,526 Net income (loss)................... 635 (15,973) (5,940) (1,135) Net income (loss) per share......... 0.05 (1.19) (0.44) (0.08) 1993 Revenues............................ $ 55,103 $ 58,024 $ 60,022 $ 60,549 Gross profit........................ 22,700 24,842 27,175 26,860 Net income.......................... 468 1,440 3,334 3,392 Net income per share................ 0.04 0.12 0.25 0.25
B-16 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Directors and Shareholders Pyramid Technology Corporation We have audited the accompanying consolidated balance sheet of Pyramid Technology Corporation as of September 30, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pyramid Technology Corporation at September 30, 1994 and 1993 and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1994 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Palo Alto, California October 25, 1994 B-17 UNAUDITED FINANCIAL STATEMENTS FOR PYRAMID TECHNOLOGY CORPORATION FOR THE FIRST QUARTER OF THE FISCAL YEAR ENDING SEPTEMBER 30, 1995 PYRAMID TECHNOLOGY CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED -------------------- DEC. 30 DEC. 31 1994 1993 --------- --------- Revenues: Product revenues....................................... $ 44,223 $ 43,978 Service revenues....................................... 17,896 16,040 --------- --------- 62,119 60,018 Cost of sales: Cost of products sold.................................. 21,765 23,167 Cost of services....................................... 13,126 11,882 --------- --------- 34,891 35,049 Gross profit............................................. 27,228 24,969 Operating expenses: Research and development............................... 6,007 6,643 Sales, marketing, general and administrative........... 20,001 17,441 --------- --------- Total operating expenses............................... 26,008 24,084 --------- --------- Operating income......................................... 1,220 885 Interest income.......................................... 518 121 Interest expense......................................... (97) (159) Loss on investment in joint venture...................... (112) -- --------- --------- Income before income taxes............................... 1,529 847 Provision for income taxes............................... 229 212 --------- --------- Net income............................................... $ 1,300 $ 635 ========= ========= Net income per common and common equivalent share........ $ 0.08 $ 0.05 ========= ========= Shares used in computing net income per common and common equivalent share........................................ 15,644 13,584 ========= =========
See accompanying notes B-18 PYRAMID TECHNOLOGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) (UNAUDITED)
DEC. 30 SEPT. 30 1994 1994 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 17,747 $ 21,558 Short-term investments.................................... 36,334 20,651 Accounts receivable, net.................................. 46,982 49,310 Inventories............................................... 30,432 25,840 Prepaid expenses and deposits............................. 13,868 15,270 -------- -------- Total current assets.................................... 145,363 132,629 Property and equipment, at cost............................. 105,110 101,998 Less accumulated depreciation and amortization.............. 77,961 74,386 -------- -------- 27,149 27,612 Capitalized software development costs...................... 18,016 18,381 Service spare parts and other assets........................ 12,468 12,091 -------- -------- $202,996 $190,713 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 22,468 $ 16,398 Accrued payroll and related liabilities................... 6,309 4,493 Accrued commissions....................................... 2,823 2,424 Deferred revenue.......................................... 11,517 8,272 Other accrued liabilities................................. 10,478 10,932 Restructuring accruals.................................... 2,882 3,075 Income taxes payable...................................... 3,891 3,678 Current portion of long-term debt......................... 1,320 1,440 -------- -------- Total current liabilities............................... 61,688 50,712 Noncurrent portion of long-term debt........................ 1,233 1,563 Deferred income taxes payable............................... 2,400 2,400 Shareholders' equity: Common stock.............................................. 156 156 Additional paid-in capital................................ 174,899 174,652 Accumulated deficit....................................... (36,628) (37,927) Accumulated translation adjustment........................ (752) (843) -------- -------- Total shareholders' equity.............................. 137,675 136,038 -------- -------- $202,996 $190,713 ======== ========
See accompanying notes B-19 PYRAMID TECHNOLOGY CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED -------------------- DEC. 30 DEC. 31 1994 1993 --------- --------- Cash flows from operating activities: Net income.............................................. $ 1,300 $ 635 Adjustments to reconcile net income to net cash from op- erating activities: Depreciation and amortization......................... 6,947 7,597 Changes in: Accounts receivable, net............................ 2,328 (6,011) Inventories......................................... (4,592) (1,788) Prepaid expenses and deposits and income tax receiv- able............................................... 1,402 855 Accounts payable, accrued liabilities, and other.... 11,212 (1,943) --------- -------- Net cash provided by (used for) operating activities.... 18,597 (655) --------- -------- Cash flows from investing activities: Purchase of short-term investments...................... (15,683) -- Investment in property and equipment.................... (3,535) (3,337) Increase in capitalized software development costs...... (1,596) (2,403) Increase in other assets................................ (1,391) (1,169) --------- -------- Net cash used for investing activities.................. (22,205) (6,909) Cash flows from financing activities: Principal payments on capital lease obligations......... (450) (546) Net borrowings under loan agreement..................... -- 2,364 Issuance of common stock, net of repurchases............ 247 262 --------- -------- Net cash provided by (used for) financing activities.... (203) 2,080 --------- -------- Decrease in cash and cash equivalents..................... (3,811) (5,484) Cash and cash equivalents, at the beginning of the period. 21,558 31,358 --------- -------- Cash and cash equivalents, at the end of the period....... $ 17,747 $ 25,874 ========= ======== Supplemental disclosures of cash flow information: Cash paid for interest.................................. $ 97 $ 159 Cash paid (received) for income taxes................... $ (2,199) $ 531
See accompanying notes B-20 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all significant intercompany transactions. While the financial information furnished is unaudited, the statements in this report reflect all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results of operations for the interim periods covered and of the financial condition of the Company at the dates of the balance sheets. The operating results for the interim periods presented are not necessarily indicative of the results to be expected for the entire year. Certain footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the fiscal year ended September 30, 1994. ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES Effective September 30, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". This statement addresses the accounting and reporting for investments in marketable equity securities that have readily determinable fair values and for all investments in debt securities. These securities are required to be classified at the time of purchase and re-evaluated at each reporting date as either (1) held-to-maturity, (2) trading, or (3) available- for-sale. The Company classifies its investment in commercial paper and money market funds ($7,819,000 in cash equivalents and $36,334,000 in short-term investments) as held-to-maturity given the Company's positive intent and ability to hold the securities to maturity. In accordance with the statement, held-to-maturity securities are carried at amortized cost which approximates fair value. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following (in thousands):
DEC. 30 SEPT. 30 1994 1994 ------- -------- Raw materials............................................ $11,582 $10,617 Work-in-process.......................................... 11,589 8,320 Finished goods........................................... 7,261 6,903 ------- ------- $30,432 $25,840 ======= =======
RELATED PARTY TRANSACTIONS Siemens Nixdorf Informationssyteme AG (Siemens Nixdorf), which owns approximately 17% of the Company's Common Stock, accounted for $6,587,000, or 11% of the Company's revenue during the first quarter of fiscal 1995 and $1,707,000, or 3% of the Company's revenue during the first quarter of fiscal 1994. Siemens Nixdorf also holds a warrant to purchase 1,330,000 shares of the Company's Common Stock at $10.00 per share. The warrant expires on September 30, 1995. B-21 PYRAMID TECHNOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (UNAUDITED) A senior executive of a major customer and vendor of the Company is a member of the Company's board of directors. The related party accounted for $1,136,000, or 2% of the Company's revenue during the first quarter of fiscal 1995 and $2,539,000, or 4% of the Company's revenue during the first quarter of fiscal 1994. The Company purchased services from the vendor totaling $2,323,000 during the first quarter of fiscal 1995 and $1,532,000 during the first quarter of fiscal 1994. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Net income per common and common equivalent share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the dilutive shares issuable upon the exercise of stock options using the treasury stock or modified treasury stock method (whichever applies). For the three month period ended December 30, 1994, no common equivalent shares were included in the computation as the modified treasury stock method applied and the effect would be anti-dilutive. For the three month period ended December 31, 1993, common equivalent shares were computed using the treasury stock method.
THREE MONTHS ENDED --------------------- DEC. 30 DEC. 31 1994 1993 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Average shares outstanding............................... 15,644 13,240 Net effect of dilutive stock options..................... -- 344 ---------- ---------- Shares used in computing net income per common and common equivalent share........................................ 15,644 13,584 Net income............................................... $ 1,300 $ 635 Net income per common and common equivalent share........ $ 0.08 $ 0.05
SUBSEQUENT EVENT On January 23, 1995, Pyramid and Siemens Nixdorf jointly announced that they had entered into an agreement pursuant to which a wholly-owned subsidiary of Siemens Nixdorf will acquire all of the outstanding Common Stock of Pyramid not currently owned by Siemens Nixdorf for an aggregate purchase price of approximately $207 million. Under the agreement, Siemens Nixdorf's subsidiary will commence a tender offer for all outstanding Common Stock of Pyramid for $16.00 per share in cash. The tender offer will be followed by a merger in which any shares not acquired by Siemens Nixdorf's subsidiary in the tender offer will be acquired for the same amount of cash. Siemens Nixdorf currently owns over 17% of the outstanding Common Stock of Pyramid. The tender offer, which was approved by Pyramid's board of directors, commenced January 27, 1995 and is conditioned on a majority of the outstanding shares of Pyramid being tendered as well as other customary conditions, including regulatory approvals. B-22 Facsimiles of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates evidencing Shares and any other required documents should be sent or delivered by each stockholder or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below. The Depositary for the Offer is: CHEMICAL BANK By Mail: By Facsimile: By Hand: or Overnight (for Eligible Institutions only) Courier: Chemical Bank Reorganization Dept. (212) 629-8015 or Chemical Bank P.O. Box 3085 (212) 629-8016 55 Water Street G.P.O. Station Second Floor-Room 234 New York, NY 10116-3085 Confirm by Telephone: New York, NY 10041 (212) 946-7137 Attention: Reorganization Department Questions or requests for assistance may be directed to the Information Agent at its address and telephone numbers listed below or to the Dealer Managers at their address listed below. Additional copies of this Supplement, the Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. A stockholder may also contact brokers, dealers, commercial banks or trust companies for assistance concerning the Offer. The Information Agent for the Offer is: GEORGESON & COMPANY INC. Wall Street Plaza New York, New York 10005 (212) 509-6240 (COLLECT) BANKS AND BROKERS CALL COLLECT (212) 440-9800 CALL TOLL FREE: 1-800-223-2064 The Dealer Managers for the Offer are: GOLDMAN, SACHS & CO. 85 Broad Street New York, New York 10004 EX-99.A.14 4 PRESS RELEASE DATED FEB 16, 1995 Exhibit 99(A)(14) PRESS RELEASE Contact: Mr. Kevin Kimball Siemens Corporation Telephone (212) 258-4335 Ms. Stacy Welsh Pyramid Technology Corporation Telephone (408) 428-9000 For Immediate Release NEW YORK, NEW YORK and SAN JOSE, CALIFORNIA, February 16, 1995. Siemens Nixdorf Informationssysteme AG ("SNI AG"), a wholly-owned subsidiary of Siemens AG, and Pyramid Technology Corporation ("Pyramid")(NASDAQ:PYRD) jointly announced today that Siemens Nixdorf Mid-Range Acquisition Corp. ("Siemens Mid-Range"), an indirect wholly owned subsidiary of SNI AG, has extended until 12:00 Midnight, New York City time, on Wednesday, March 1, 1995, the expiration date of its tender offer to purchase all outstanding shares of common stock, par value $.01 per share, of Pyramid not currently owned by SNI AG and its subsidiaries. All other terms of Siemens Mid-Range's tender offer remain unchanged. Siemens Mid-Range is extending its tender offer to allow dissemination of information supplementing the tender offer materials previously mailed to Pyramid stockholders pursuant to Securities and Exchange Commission rules relating to transactions between companies and "affiliates" that control such companies. Although neither SNI AG nor Pyramid believes that SNI AG controls Pyramid, each decided to make the additional disclosure in order to facilitate a prompt consummation of the transaction. Siemens Mid-Range stated that as of the close of business on Wednesday, February 15, 1995, approximately 1,268,156 shares of Pyramid stock had been tendered. SNI AG already owns 2,717,743 shares of Pyramid stock. -----END PRIVACY-ENHANCED MESSAGE-----