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