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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(AMENDMENT NO. 1)
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 13E-3 ((S)240.13E-3) THEREUNDER))
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PYRAMID TECHNOLOGY CORPORATION
(NAME OF THE ISSUER)
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PYRAMID TECHNOLOGY CORPORATION
SIEMENS NIXDORF MID-RANGE ACQUISITION CORP.
SIEMENS NIXDORF INFORMATIONSSYSTEME AG
SIEMENS AKTIENGESELLSCHAFT
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
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747236107
(CUSIP NUMBER OF CLASS OF SECURITIES)
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E. ROBERT LUPONE, ESQ. RICHARD H. LUSSIER
SIEMENS CORPORATION CHIEF EXECUTIVE OFFICER
1301 AVENUE OF THE AMERICAS PYRAMID TECHNOLOGY CORPORATION
NEW YORK, NEW YORK 10019-6022 3860 N. FIRST STREET
(212) 258-4000 SAN JOSE, CALIFORNIA 95134
(408) 428-9000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON(S) AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
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COPIES TO:
PETER D. LYONS, ESQ. LARRY W. SONSINI, ESQ.
SHEARMAN & STERLING DOUGLAS H. COLLOM, ESQ.
599 LEXINGTON AVENUE AARON J. ALTER, ESQ.
NEW YORK, NEW YORK 10022 WILSON, SONSINI, GOODRICH & ROSATI
(212) 848-4000 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300
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This statement is filed in connection with (check the appropriate box):
a. [_] The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation
14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [(S)240.13e-
3(c)] under the Securities Exchange Act of 1934.
b. [_] The filing of a registration statement under the Securities Act of
1933.
c. [X] A tender offer.
d. [_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [_]
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CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE
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$261,772,336.00* $52,354.46**
</TABLE>
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* Note: The Transaction Value is calculated by multiplying $16.00, the per
share tender offer price, by 16,360,771, the sum of the number of shares of
Common Stock outstanding not already owned by Siemens Informationssysteme AG
and the 3,449,923 shares of Common Stock subject to options outstanding.
** 1/50 of 1% of Transaction Value.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: $52,354.46 Filing Party: Siemens Nixdorf Mid-
Range Acquisition Corp.,
Form or Registration No: Schedule Siemens Nixdorf
14D-1/Schedule 13D Informationssysteme AG,
(Amendment No. 5) Siemens Aktiengesellschaft
Date Filed: January 27, 1995
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<PAGE>
INTRODUCTION
This Amendment No. 1 to the Rule 13e-3 Transaction Statement on Schedule 13E-
3 filed with the Commission on February 13, 1995 (as amended the "Schedule 13E-
3") is being filed by (i) Siemens Nixdorf Mid-Range Acquisition Corp., a
Delaware corporation ("Purchaser") and an indirect wholly owned subsidiary of
Siemens Nixdorf Informationssysteme AG ("SNI AG"), a corporation organized
under the laws of the Federal Republic of Germany and a direct wholly owned
subsidiary of Siemens Aktiengesellschaft ("Siemens AG"), a corporation
organized under the laws of the Federal Republic of Germany, (ii) SNI AG, (iii)
Siemens AG, and (iv) Pyramid Technology Corporation, a Delaware corporation
(the "Company"), pursuant to Section 13(e) of the Securities Exchange Act of
1934, as amended, and Rule 13e-3 thereunder, in connection with the tender
offer by Purchaser for all the outstanding shares of common stock, par value
$.01 per share (the "Shares"), of the Company, upon the terms and subject to
the conditions set forth in the Offer to Purchase dated January 27, 1995 (the
"Offer to Purchase"), the related Letter of Transmittal, and the Supplement to
the Offer to Purchase dated February 13, 1995, a copy of which is filed as
Exhibit (d)(2) to the Schedule 13E-3 (the "Supplement") (together, the Offer to
Purchase, the Supplement and the Letter of Transmittal constitute the "Offer").
Forms of the Offer to Purchase and the Letter of Transmittal were filed as
Exhibits (a)(1) and (a)(2) to the Tender Offer Statement on Schedule 14D-1 and
Amendment No. 5 to the Schedule 13D filed by Purchaser, SNI AG and Siemens AG
on January 27, 1995 (the "Statement").
2
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ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
Item 5 is hereby amended and supplemented to read in its entirety as follows:
(a)-(e) The information set forth in the Introduction, Section 10
("Background of the Offer; Contacts with the Company; the Merger
Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company
After the Offer and the Merger") of the Offer to Purchase is incorporated
herein by reference. The information set forth in Item 3 of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, filed on January
27, 1995 (the "Schedule 14D-9"), under "Additional Agreements, Arrangements
and Understandings" and in the Information Statement, filed as Exhibit 20.1
to the Schedule 14D-9, under "BOARD OF DIRECTORS--Buyer Designees" and
"CERTAIN RELATIONSHIPS, TRANSACTIONS AND ARRANGEMENTS" is incorporated
herein by reference. The information set forth in the Supplement under
"SPECIAL FACTORS--7 Plans for the Company After the Offer and the Merger;
Reasons for SNI AG for the Offer and the Merger" and "SPECIAL FACTORS--9
Interests of Certain Persons in the Offer and the Merger" is incorporated
herein by reference.
(f)-(g) The information set forth in Section 13 ("Effect of the Offer on
the Market for Shares, Exchange Listing and Exchange Act Registration") of
the Offer to Purchase is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
Item 6 is hereby amended and supplemented to read in its entirety as follows:
(a) The information set forth in Section 9 ("Financing of the Offer and
the Merger") of the Offer to Purchase is incorporated herein by reference.
(b) The information set forth in the Supplement under "FEES AND EXPENSES"
is incorporated herein by reference.
(c) Not applicable.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
Item 7 is hereby amended and supplemented to read in its entirety as follows:
(a) The information set forth in the Introduction, Section 10
("Background of the Offer; Contacts with the Company; the Merger
Agreement"), Section 11 ("Purpose of the Offer; Plans for the Company After
the Offer and the Merger") and Section 13 ("Effect of the Offer on the
Market for Shares, Exchange Listing and Exchange Act Registration") of the
Offer to Purchase is incorporated herein by reference. The information set
forth in the Supplement under "SPECIAL FACTORS--6 Purpose and Structure of
the Offer and the Merger; Reasons of SNI AG for the Offer and the Merger"
is incorporated herein by reference.
(b)-(d) The information set forth in the Supplement under "SPECIAL
FACTORS--1. Recommendation of the Board; Position of the Company Regarding
the Fairness of the Offer and the Merger", "SPECIAL FACTORS--6. Purpose and
Structure of the Offer and the Merger; Reasons of SNI AG for the Offer and
the Merger" and "SPECIAL FACTORS--7. Plans for the Company After the Offer
and the Merger; Certain Effects of the Offer and the Merger" and in Section
5 "Certain Federal Income Tax Consequences" of the Offer to Purchase is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
Item 8 is hereby amended and supplemented to read in its entirety as follows:
(a)-(e) The information set forth in the Supplement under "SPECIAL
FACTORS--1. Recommendation of the Board; Position of the Company Regarding
the Fairness of the Offer and the Merger" and
3
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"SPECIAL FACTORS--4. Position of SNI AG Regarding the Fairness of the Offer
and the Merger" is incorporated herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
Item 9 is hereby amended and supplemented to read in its entirety as
follows:
(a)-(e) The information set forth in the Supplement under "SPECIAL
FACTORS--2. Opinion of Smith Barney on Financial Advisor to the Company"
and "SPECIAL FACTORS--5. Analysis of Goldman Sachs as Financial Advisors to
SNI AG" is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD
TO THE OFFER AND THE MERGER.
Item 12 is hereby amended and supplemented to read in its entirety as
follows:
(a) The information set forth in the Supplement under "SPECIAL FACTORS--
1. Recommendation of the Board; Position of the Company Regarding the
Fairness of the Offer and the Merger" and "SPECIAL FACTORS--9. Interests of
Certain Persons in the Offer and the Merger" is incorporated herein by
reference.
(b) The information set forth in the Supplement under "SPECIAL FACTORS--
1. Recommendation of the Board; Position of the Company Regarding the
Fairness of the Offer and the Merger" is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE OFFER AND THE MERGER.
Item 13 is hereby amended and supplemented to read in its entirety as
follows:
(a) The information set forth in Section 11 ("Purpose of the Offer: Plans
for the Company after the Offer and the Merger") of the Offer to Purchase,
in the Supplement under "SPECIAL FACTORS--8. Rights of Stockholders in the
Merger", and in Annex A to the Supplement is incorporated herein by
reference.
(b) Not applicable.
(c) Not applicable.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit (d)(2) is hereby amended and supplemented in its entirety.
Attached hereto as Exhibit (d)(2) is a complete copy of the Supplement as
so amended and supplemented.
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SIGNATURE
AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT
THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT.
February 15, 1995
Siemens Nixdorf Mid-Range Acquisition
Corp.
/s/ Gerhard Schulmeyer
By:_____________________________________
Name: Gerhard Schulmeyer
Title: President
Siemens Nixdorf Informationssysteme AG
/s/ Gerhard Schulmeyer
By:_____________________________________
Name: Gerhard Schulmeyer
Title: President
Siemens Aktiengesellschaft
/s/ Adrienne Whitehead
By:_____________________________________
Name: Adrienne Whitehead
Title: Attorney-in-Fact
5
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EXHIBIT INDEX
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SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
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(d)(2) --Supplement to the Offer to Purchase, as amended
and supplemented, dated February 15, 1995.
</TABLE>
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EXHIBIT 99(D)(2)
SUPPLEMENT TO THE OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
PYRAMID TECHNOLOGY CORPORATION
AT
$16.00 NET PER SHARE
BY
SIEMENS NIXDORF MID-RANGE ACQUISITION CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
SIEMENS NIXDORF INFORMATIONSSYSTEME AG
A DIRECT WHOLLY OWNED SUBSIDIARY OF
SIEMENS AKTIENGESELLSCHAFT
THE OFFER HAS BEEN EXTENDED. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MARCH 1, 1995, UNLESS THE
OFFER IS FURTHER EXTENDED.
THE OFFER IS CONDITIONED UPON (I) THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES
THAT, WHEN ADDED TO THE SHARES OWNED OF RECORD BY SIEMENS NIXDORF
INFORMATIONSSYSTEME AG OR ANY OF ITS SUBSIDIARIES ON THE DATE HEREOF (OTHER
THAN SHARES ISSUABLE UPON EXERCISE OF THE WARRANT (AS DEFINED BELOW)), SHALL
CONSTITUTE A MAJORITY OF THE THEN OUTSTANDING SHARES ON A FULLY DILUTED BASIS
(OTHER THAN ANY SHARES ISSUABLE UPON THE EXERCISE OF THE WARRANT AND OTHER
THAN THE RIGHTS (AS DEFINED IN THE OFFER TO PURCHASE)) AND (II) THE EXPIRATION
OR TERMINATION OF ALL WAITING PERIODS IMPOSED UPON CONSUMMATION OF THE OFFER
BY ANY APPLICABLE FOREIGN COMPETITION STATUTES AND REGULATIONS, AS WELL AS THE
OTHER CONDITIONS DESCRIBED IN THE OFFER TO PURCHASE. SEE SECTION 14 OF THE
OFFER TO PURCHASE, WHICH SETS FORTH IN FULL THE CONDITIONS OF THE OFFER, AS
WELL AS SECTION 15 OF THE OFFER TO PURCHASE AND THE SECTION OF THIS SUPPLEMENT
ENTITLED "CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS", WHICH DISCUSS
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
THE BOARD OF DIRECTORS OF PYRAMID TECHNOLOGY CORPORATION HAS DETERMINED THAT
EACH OF THE OFFER AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE
STOCKHOLDERS OF PYRAMID TECHNOLOGY CORPORATION, AND RECOMMENDS THAT
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
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IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
shares of common stock, par value $.01 per share (the "Shares"), of Pyramid
Technology Corporation should either (1) complete and sign the Letter of
Transmittal which was mailed together with the Offer to Purchase (or a
facsimile thereof) in accordance with the instructions in such Letter of
Transmittal and mail or deliver it together with the certificate(s) evidencing
tendered Shares, and any other required documents, to the Depositary or tender
such Shares pursuant to the procedure for book-entry transfer set forth in
Section 3 of the Offer to Purchase or (2) request such stockholder's broker,
dealer, commercial bank, trust company or other nominee to effect the
transaction for such stockholder. Any stockholder whose Shares are registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee must contact such broker, dealer, commercial bank, trust company or
other nominee if such stockholder desires to tender such Shares.
A stockholder who desires to tender Shares and whose certificates evidencing
such Shares are not immediately available, or who cannot comply with the
procedure for book-entry transfer on a timely basis, may tender such Shares by
following the procedure for guaranteed delivery set forth in Section 3 of the
Offer to Purchase.
Questions or requests for assistance may be directed to the Information
Agent at its address and telephone numbers set forth on the back cover of this
Supplement. Questions or requests for assistance may also be directed to the
Dealer Managers at their address on the back cover of this Supplement.
Additional copies of this Supplement, the Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may also be obtained from
the Information Agent or from brokers, dealers, commercial banks or trust
companies.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
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The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
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TABLE OF CONTENTS
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PAGE
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INTRODUCTION.............................................................. 1
SPECIAL FACTORS........................................................... 3
1. Recommendation of the Board; Position of the Company Regarding the
Fairness of the Offer and the Merger................................. 3
2. Opinion of Smith Barney as Financial Advisor to the Company.......... 7
3. Company Financial Projections........................................ 11
4. Position of SNI AG Regarding the Fairness of the Offer and the
Merger............................................................... 12
5. Analysis of Goldman Sachs as Financial Advisors to SNI AG............ 12
6. Purpose and Structure of the Offer and the Merger; Reasons of SNI AG
for the Offer and the Merger......................................... 15
7. Plans for the Company After the Offer and the Merger; Certain
Effects of the Offer and the Merger.................................. 16
8. Rights of Stockholders in the Merger................................. 17
9. Interests of Certain Persons in the Offer and the Merger............. 17
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS............................ 18
FEES AND EXPENSES......................................................... 19
MISCELLANEOUS............................................................. 19
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Annex A --Summary of Stockholder Appraisal Rights and Text of Section 262 of
the Delaware General Corporation Law
Annex B --Audited Consolidated Financial Statements (and Related Notes) for
the Company for the Fiscal Years ended September 30, 1993 and
September 30, 1994 and Unaudited Consolidated Financial Statements
(and Related Notes) for the Company for the First Quarter of the
Fiscal Year ending September 30, 1995
<PAGE>
To the Holders of Common Stock of Pyramid Technology Corporation:
INTRODUCTION
The information contained in this Supplement (the "Supplement") amends and
supplements the Offer to Purchase dated January 27, 1995 (the "Offer to
Purchase") of Siemens Nixdorf Mid-Range Acquisition Corp. ("Purchaser"), a
Delaware corporation and an indirect wholly owned subsidiary of Siemens
Nixdorf Informationssysteme AG ("SNI AG"), a company organized under the laws
of the Federal Republic of Germany and a direct wholly owned subsidiary of
Siemens Aktiengesellschaft ("Siemens AG"), a company organized under the laws
of the Federal Republic of Germany. Pursuant to the Offer to Purchase and this
Supplement, Purchaser hereby offers to purchase all outstanding shares of
common stock, par value $.01 per share (the "Shares"), of Pyramid Technology
Corporation, a Delaware corporation (the "Company"), at a price of $16.00 per
Share, net to the seller in cash, upon the terms and subject to the conditions
set forth in this Supplement, the Offer to Purchase and in the related Letter
of Transmittal (which together constitute the "Offer"). Purchaser is a direct
wholly owned subsidiary of Siemens Nixdorf Information Systems, Inc., a
Massachusetts corporation ("SNI U.S."), which is itself a direct wholly owned
subsidiary of SNI AG.
This Supplement is being provided to the Company's stockholders pursuant to
Rule 13e-3 ("Rule 13e-3") promulgated under the Securities Exchange Act of
1934, as amended, which requires that certain information be provided to
stockholders in certain transactions between a corporation and an "affiliate"
of such corporation. Although neither SNI AG nor the Company believes that SNI
AG controls the Company and therefore is an "affiliate" of the Company for
purposes of Rule 13e-3, SNI AG and the Company are nevertheless providing this
Supplement to the Company's stockholders in order to supplement the
information already provided to them in the Offer to Purchase which was mailed
to the Company's stockholders on January 27, 1995.
The expiration date of the Offer has been extended from 12:00 midnight, New
York City time, on Friday, February 24, 1995 until 12:00 midnight, New York
City time, on Wednesday, March 1, 1995 (as so extended, the "Expiration
Date"), unless the offer is further extended.
Except as otherwise set forth in this Supplement, the terms and conditions
previously set forth in the Offer to Purchase remain applicable in all
respects to the Offer, and this Supplement should be read in conjunction with
the Offer to Purchase. Unless the context requires otherwise, terms not
defined herein have the meanings ascribed to them in the Offer to Purchase.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") UNANIMOUSLY (WITH ONE
DIRECTOR RECUSING HIMSELF) HAS DETERMINED THAT EACH OF THE OFFER AND THE
MERGER (AS DEFINED BELOW) IS FAIR TO, AND IN THE BEST INTERESTS OF, THE
STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER
AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
Smith Barney Inc. ("Smith Barney"), the Company's financial advisor, has
delivered to the Company's Board of Directors its written opinion to the
effect that, as of the date of such opinion, the consideration to be received
by the stockholders of the Company pursuant to each of the Offer and the
Merger is fair from a financial point of view. A copy of the opinion of Smith
Barney is attached as Annex B to the Company's Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9"), which was mailed to the
Company's stockholders on January 27, 1995.
THE OFFER IS CONDITIONED UPON (I) THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES
THAT, WHEN ADDED TO THE SHARES OWNED OF RECORD BY SNI AG OR ANY OF ITS
SUBSIDIARIES ON THE DATE HEREOF (OTHER THAN SHARES ISSUABLE UPON EXERCISE OF
THE WARRANT (AS DEFINED BELOW)), SHALL CONSTITUTE A MAJORITY OF THE THEN
OUTSTANDING SHARES ON A FULLY DILUTED BASIS (INCLUDING, WITHOUT LIMITATION,
ALL SHARES ISSUABLE UPON THE EXERCISE OF ANY OPTIONS, WARRANTS OR RIGHTS
(OTHER THAN ANY SHARES ISSUABLE UPON THE EXERCISE OF THE WARRANT AND OTHER
THAN
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THE RIGHTS (AS DEFINED IN THE OFFER TO PURCHASE))) (THE "MINIMUM CONDITION")
AND (II) THE EXPIRATION OR TERMINATION OF ALL WAITING PERIODS IMPOSED UPON
CONSUMMATION OF THE OFFER BY ANY APPLICABLE FOREIGN COMPETITION AND ANTITRUST
STATUTES AND REGULATIONS, AS WELL AS THE OTHER CONDITIONS DESCRIBED IN SECTION
14 OF THE OFFER TO PURCHASE WHICH SETS FORTH IN FULL THE CONDITIONS TO THE
OFFER.
On February 3, 1995, Purchaser was informed by the Federal Trade Commission
that early termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), relating to
the purchase of Shares pursuant to the Offer had been granted. Accordingly,
the condition to the Offer requiring the expiration or termination of any
applicable waiting period under the HSR Act prior to expiration of the Offer
has been satisfied. In addition, on February 13, 1995, the Company received a
letter from the New Jersey Department of Environmental Protection stating that
the Industrial Site Recovery Act ("ISRA") is not applicable to the Company's
New Jersey facilities. Accordingly, the condition to Purchaser's obligation to
purchase any Shares tendered in the Offer relating to ISRA set forth in the
second paragraph of Annex A of the Merger Agreement has been satisfied. The
Offer remains subject to the other conditions set forth in Section 14 of the
Offer to Purchase.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of January 20, 1995 (the "Merger Agreement") among SNI AG, Purchaser and the
Company. The Merger Agreement provides that, among other things, as soon as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement and in
accordance with the relevant provisions of the General Corporation Law of the
State of Delaware ("Delaware Law"), Purchaser will be merged with and into the
Company (the "Merger"). Following consummation of the Merger, the Company will
continue as the surviving corporation (the "Surviving Corporation") and will
become an indirect wholly owned subsidiary of SNI AG. At the effective time of
the Merger (the "Effective Time"), each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held in the
treasury of the Company or owned by Purchaser, SNI AG or any direct or
indirect wholly owned subsidiary of SNI AG or the Company, and other than
Shares held by stockholders who shall have demanded and perfected appraisal
rights, if any, under Delaware Law) will be cancelled and converted
automatically into the right to receive $16.00 in cash, or any higher price
that may be paid per Share in the Offer, without interest (the "Merger
Consideration"). The Merger Agreement is more fully described in Section 10 of
the Offer to Purchase.
The Company has advised Purchaser that as of January 31, 1995, 15,644,971
Shares were issued and outstanding and that the Shares were held by
approximately 751 record holders. The Company has advised Purchaser that as of
January 31, 1995, the Company had reserved a total of 3,344,996 Shares for
future issuance pursuant to outstanding employee stock options or stock
incentive rights, 339,697 Shares were reserved for future issuance pursuant to
future grants of employee stock options or stock incentive rights and a total
of 1,330,000 Shares were reserved for issuance upon exercise of the Warrant
(as defined below). SNI AG currently owns 2,717,743 Shares, which it acquired
in a series of transactions. In 1985, the Company entered into a Convertible
Subordinated and Preferred Stock Purchase Agreement (the "Nixdorf Stock
Agreement") with Nixdorf Computer AG ("Nixdorf"). Under the Nixdorf Stock
Agreement, Nixdorf purchased approximately 5% of the Company's Shares. The
Nixdorf Stock Agreement also gave Nixdorf the right to purchase its pro rata
share of certain equity financings of the Company as long as Nixdorf held a
minimum 5% stock interest. In March 1990, Nixdorf exercised its right to
purchase approximately 140,000 Shares as part of the Company's secondary
public offering of the Shares, to maintain Nixdorf's pro rata equity ownership
at approximately 5% of the Company's Shares. In 1990, Nixdorf became majority-
owned by Siemens AG, which renamed Nixdorf as Siemens Nixdorf
Informationssysteme AG ("SNI AG" herein). Subsequently, on August 21, 1994,
the Company and SNI U.S. entered into the Common Stock and Warrant Purchase
2
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Agreement (the "Purchase Agreement") pursuant to which, on September 13, 1994,
SNI U.S. purchased (i) 2,000,000 Shares and (ii) a warrant (the "Warrant") to
purchase up to 1,330,000 Shares, for an aggregate purchase price of
$17,250,000. Subsequently, SNI U.S. transferred to SNI AG the 2,000,000 Shares
and the Warrant. In connection with such transfer, SNI AG assumed all of SNI
U.S.'s rights and obligations under the Purchase Agreement and the
Registration Rights Agreement, dated as of September 13, 1994, between the
Company and SNI U.S. The Shares beneficially owned by SNI AG on the date
hereof (excluding any Shares issuable upon exercise of the Warrant) constitute
17.37% of the issued and outstanding Shares as of January 31, 1995. SNI AG
intends to transfer the 2,717,743 Shares it owns on the date hereof to
Purchaser immediately following the purchase of Shares by Purchaser pursuant
to the Offer. SNI AG does not currently intend to exercise the Warrant in
connection with the Offer and the Merger. Consequently, as of the date hereof,
the Minimum Condition would be satisfied if Purchaser acquired 6,947,090
Shares.
Pyramid and SNI AG have entered into equipment sales and technology
licensing transactions during fiscal years 1993, 1994 and the first quarter of
fiscal 1995. Revenues attributable to SNI AG and the associated percentage of
Pyramid's total revenues were $14,983,000 in fiscal year 1993 (6.4% of
Pyramid's total revenues), $11,312,000 in fiscal year 1994 (5.2%), and
$6,587,000 in the first quarter of fiscal year 1995 (10.6%).
PROCEDURES FOR TENDERING SHARES ARE SET FORTH IN SECTION 3 OF THE OFFER TO
PURCHASE.
THIS SUPPLEMENT AND THE OFFER TO PURCHASE CONTAIN IMPORTANT INFORMATION
WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER.
SPECIAL FACTORS
1. RECOMMENDATION OF THE BOARD; POSITION OF THE COMPANY REGARDING THE FAIRNESS
OF THE OFFER AND THE MERGER
In evaluating its strategic position within the high-end client/server
market, the Company began in 1992 to recognize the potential benefits that
might be realized through a strategic relationship with another company,
whether in the Company's or in a complementary industry. These potential
benefits included expanded geographical markets, broader distribution
channels, access to greater financial and technological resources to support
the Company's product development activities, more efficient customer support,
and greater access to third party software developed to support the Company's
products. The Company's focus on a strategic relationship was motivated
principally by the concern that many of the Company's competitors have
significantly greater financial, technological and management resources and,
therefore, potentially superior ability to compete in the Company's markets.
As a result of its evaluation, the Company had discussions with a limited
number of companies with respect to the possibility of a strategic partnership
in the form of a technology development arrangement and/or a minority
investment relationship.
In the spring of 1994, the Company began to consider alternative means of
raising additional working capital to support its operations. Because the
Company's financial performance at that time did not permit the Company access
to the public capital markets on terms acceptable to the Company, the Company
evaluated the possibility of establishing financing or strategic relationships
with other companies in its industry. In this context, management of the
Company contacted and had talks with representatives of two companies about
the possibility of a variety of arrangements, including product licensing
arrangements, a minority equity investment in the Company and an acquisition
of or other corporate combination with the Company. The discussions with these
companies ended in each case without any agreement as to any possible
arrangement. In the summer of 1994, another company in the Company's industry
contacted management of the Company concerning a possible acquisition while
the Company was in the process of negotiating a strategic equity investment
with SNI U.S. (which culminated in the
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Purchase Agreement). The communications which resulted from this contact did
not, from the perspective of the Company, convey any serious expression of
interest, and occurred when the Company was only a few days from reaching a
definitive agreement with SNI U.S. which resulted in its minority equity
investment in the Company under the Purchase Agreement. Because of the general
nature of this contact and the significant financial and other benefits which
the Company would realize through the Purchase Agreement, the Company did not
consider it in the Company's interests to pursue this contact beyond
preliminary discussions.
In determining to pursue discussions with SNI AG which ultimately led to the
execution of the Merger Agreement, the Company's Board of Directors did not
seek to re-initiate contact with the companies with which it had had previous
discussions concerning an acquisition or other corporate combination. The
Board believed that its interest in a transaction of this nature as previously
communicated to these companies had never been withdrawn, and that the joint
press release of January 9, 1995 by the Company and SNI AG of their entering
into discussions concerning a potential negotiated merger transaction provided
public affirmation of this continuing interest on the part of the Company. The
Company has not received any inquiries or expressions of interest concerning a
potential transaction with the Company from other potential buyers following
the joint public announcement by the Company and SNI AG on January 9, 1995 of
their entering into discussions concerning a potential negotiated merger
transaction.
The Board at a special meeting held on January 20, 1995 determined that the
Offer and the transactions contemplated by the Merger Agreement are fair to,
and in the best interests of, the Company's stockholders (other than SNI AG
and its affiliates), approved and adopted the Merger Agreement and the
transactions contemplated thereby and recommended that stockholders accept the
Offer and (if a shareholder vote is required under Delaware Law) approve the
Merger Agreement and the Merger. The January 20 meeting of the Board was
attended by all directors other than Dr. Rudolph Bodo, SNI AG's designee on
the Company's Board, who is also Vice President and General Manager of SNI
AG's Mid-Range Systems Unit. Dr. Bodo recused himself from all deliberations
of the Board concerning, and has not acted on behalf of SNI AG in connection
with, the Offer and the Merger. Subject to Dr. Bodo's absence as a
participating Board member, the approval and recommendation of the Board
concerning the Offer and the Merger were unanimous. A copy of the Company's
letter to stockholders dated January 27, 1995 was filed as Exhibit 20.2 to the
Schedule 14D-9 and is incorporated herein by reference.
Reference is made to the Offer to Purchase for a summary of SNI AG's
contacts with the Company leading to the execution of the Merger Agreement.
In reaching the determination described above, the Board considered a number
of factors, including, without limitation, the following:
(i) The historical financial condition and results of operations of the
Company, and the projected financial condition and results of operations of
the Company on both a long-term and short-term basis.
(ii) The business and strategic objectives of the Company, and the
attendant risks involved in achieving those objectives. As discussed above,
these objectives included the continuing interest of the Board in seeking
to improve the Company's ability to compete in its markets through a
strategic or other relationship that could enhance the Company's activities
principally in product development, marketing and distribution, and
customer support. In evaluating these objectives, the Board considered the
business, product markets and operations of SNI AG and SNI U.S., and the
synergies and advantages that might be realized through a merger, and
concluded that combining the companies' respective businesses in the high-
end client/server markets would effectively address all of the Company's
objectives. The Board also evaluated the possibility of realizing these
objectives through a strategy by which the Company were to remain
independent,
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through a more integrated business relationship with SNI AG and through a
strategic or merger transaction with other companies, including companies
with whom the Company had had previous discussions concerning an
acquisition or other corporate combination. The Board concluded that the
strategy of continuing as an independent company would leave the Company
too vulnerable to the long-term competitive pressures in its industry, that
the strategy of a closer business relationship with SNI AG (which is
discussed in more detail below) could significantly impair the Company's
ability to remain independent if the relationship were to terminate for any
reason at a later time, and that a corporate transaction with other
companies was unlikely to occur in view of the Company's prior contacts and
the absence of any expressions of interest in a corporate transaction
following the joint public announcement of merger discussions between the
Company and SNI AG.
(iii) A review of the possible alternatives to the Offer and the Merger
(including the possibility of continuing to operate the Company as an
independent entity and the sale of the Company through a merger or by any
other means to other potential buyers), the range of possible values to the
Company's stockholders of such alternatives and the timing and the
likelihood of actually accomplishing those alternatives. In this regard, in
addition to reviewing the Company's efforts to establish a strategic or
other relationship with other companies that might address the Company's
business and strategic objectives, the Board assessed management's
discussions with SNI AG concerning a more integrated business relationship
between the two companies as an alternative to the Offer and the Merger.
This alternative, however, would have entailed an increased equity position
in the Company by SNI AG or an affiliate and additional arrangements
providing SNI AG with exclusive manufacturing and marketing rights with
respect to specific Company products. Such a relationship, although
potentially beneficial to the Company, would have resulted in a
significantly higher level of dependence by the Company on SNI AG.
Accordingly, principally because of the potential threat to the Company's
ability to remain independent if such a relationship were to terminate at a
later time for any reason, the Board concluded that this was not an
acceptable alternative. The range of values to the Company's stockholders
which the Board considered in evaluating the price negotiations with
representatives of SNI AG were principally those associated with the
continuation of the Company on an independent basis, without modification
of the Company's relationship with SNI AG under the Purchase Agreement. In
this context, based on assumptions which included continuing strong trading
markets and high trading multiples for technology companies, the Company's
ability to exceed targeted objectives for its internal operating plan, and
no adverse changes in the Company's business or markets for the Company's
products, the Board considered that the Company's stock price over the
following 12-month period might increase to $18 per share. However,
management concluded that such a price was unlikely because it could be
achieved only if all underlying assumptions were fully realized. In
discounting this prospective valuation to take into account these
management views and after taking into consideration an increase in such
discounted valuation to reflect an appropriate premium for the change of
corporate control that would result from completion of the Offer and the
Merger, the Board believed that the Offer price represented the highest
value available to the Company's stockholders in light of all the
considered alternatives and had no reason to challenge or question the
opinion of Smith Barney that the consideration to be received by the
Company's stockholders pursuant to the Offer and the Merger is fair, from a
financial point of view. In evaluating the optimal range of values to the
Company's stockholders that were possible in the context of the
alternatives under consideration by the Board, the Board did not ask Smith
Barney to recommend, and Smith Barney did not recommend, the specific
consideration to be paid by Purchaser in the Offer and the Merger. The
Offer price ultimately agreed upon by the Company was the result of arm's-
length negotiations between representatives of the Company and SNI AG.
(iv) The detailed financial and valuation analyses presented to the Board
by Smith Barney, including market prices and financial data relating to
other companies engaged in businesses considered comparable to the Company
and the prices and premiums paid in recent selected
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acquisitions of companies engaged in businesses considered comparable to
those of the Company.
(v) The relationship of the Offer price to current and historical market
prices of the Shares and to other relevant valuation measures.
(vi) The presentation of Smith Barney at the January 20, 1995 Board
meeting and the written opinion of Smith Barney as of that date, that the
consideration to be received by the stockholders of the Company, pursuant
to the Offer and the Merger, is fair, from a financial point of view.
(vii) As discussed in greater detail above, a review of discussions
between the Company and representatives of other companies in the Company's
industry concerning strategic, financing and other relationships which had
taken place prior to the Company's discussions and negotiations with SNI AG
with respect to the Offer and the Merger.
(viii) The absence of any inquiries or expressions of interest concerning
a potential transaction with the Company from other potential buyers
following the joint public announcement by the Company and SNI AG on
January 9, 1995 of their entering into discussions concerning a potential
negotiated merger transaction, and the fact that the Merger Agreement does
not preclude the Company from discussing with third parties unsolicited
competing offers or, subject to payment of a "break-up" fee and expenses,
from accepting a competing offer which the Board determines, in the
exercise of its fiduciary duties, to be more favorable to the Company's
stockholders than the Offer and the Merger.
(ix) The likelihood that the proposed acquisition would be consummated,
including the experience, reputation and financial condition of SNI AG and
its ultimate parent, Siemens AG, and the risks to the Company that the
acquisition would not be consummated. In this regard, the Board evaluated
the terms of the Merger Agreement, including in particular the conditions
to SNI AG's and Purchaser's obligations to consummate the Offer and the
Merger, which the Board considered to be customary in transactions of this
nature.
(x) The effect of the transaction on the Company's relationship with its
employees and the communities in which it operates. As described elsewhere
in this Supplement and the Schedule 14D-9, it is expected that the Company
will continue to be managed in the same general manner as it is now being
conducted. In addition, the Board believed that the Merger would
substantially enhance the Company's financial and business image from the
perspective of its customers and markets.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Board did not find it practicable
to, and did not, quantify or otherwise attempt to assign relative weights to
the specific factors considered in reaching its respective determinations.
The Board recognized that the Offer and the Merger are not structured to
require the approval of a majority of the stockholders of the Company other
than SNI AG, and that Purchaser, if it purchases a sufficient number of Shares
to satisfy the Minimum Condition, would have sufficient voting power to
approve the Merger without the affirmative vote of any other stockholder of
the Company. While consummation of the Offer would result in the stockholders
of the Company receiving a premium for their Shares over the trading prices of
the Shares prior to the announcement of the Offer and the Merger, it would
eliminate any opportunity for stockholders of the Company other than SNI AG to
participate in the potential future growth prospects of the Company. The
Board, however, believed that this was reflected in the Offer price to be
paid.
The Board determined that it was not necessary to appoint a committee of
independent directors or an unaffiliated representative to act solely on
behalf of the unaffiliated stockholders of the Company for the purpose of
negotiating the terms of the Merger Agreement. In making such determination,
the
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Board noted that of the seven directors who participated in the deliberations
concerning the Offer and the Merger, five are not employed by the Company and
will have no financial interest in the Company following consummation of the
Merger. Dr. Bodo, SNI AG's designee on the Board, did not participate in any
Board deliberations concerning, or act on behalf of Purchaser in connection
with, the Offer and the Merger. As noted above, the Board unanimously (with
Dr. Bodo recusing himself) has determined that each of the Offer and the
Merger is fair to, and in the best interests of, the stockholders of the
Company.
In reaching its determination, the Board relied upon and concurred with the
financial analyses performed by Smith Barney that resulted in their opinion
that the consideration to be received by the Company's stockholders pursuant
to the Offer and the Merger is fair, from a financial point of view. The Smith
Barney analyses (as described more fully below), conducted at the Company's
direction, show, in the Company's view, that the consideration to be paid
pursuant to the Offer and the Merger as a multiple of revenues, and as a
function of the Company's recent earnings history and other comparative
measures, compares favorably with comparable transactions considered.
Neither the Company's nor Smith Barney's valuation analyses included
consideration of the liquidation value of the Company. The Board did not
consider the Company's liquidation value to be a relevant measure of
valuation, given that the consideration to be paid in the Offer and the Merger
significantly exceeded the book value of the Company. However, there can be no
assurance that liquidation value would not produce a higher valuation of the
Company.
The Company has advised Purchaser that, to the Company's knowledge after
reasonable inquiry, each of the Company's executive officers, directors and
affiliates, with the exception of SNI AG and any subsidiary of SNI AG,
including Purchaser, presently intends to tender all Shares held of record or
beneficially owned by such person pursuant to the Offer, other than Shares, if
any, held by any such person which when tendered, could subject such person to
liability under the provisions of Section 16(b) of the Exchange Act. See Item
6 of the Schedule 14D-9. Except for the recommendation of the Board contained
in this Supplement and in the Schedule 14D-9, to the Company's knowledge after
reasonable inquiry, no executive officer, director or affiliate of the Company
has made a recommendation in support of or opposed to the Offer or the Merger.
2. OPINION OF SMITH BARNEY AS FINANCIAL ADVISOR TO THE COMPANY
Smith Barney was retained by the Company to act as its financial advisor in
connection with the Board's consideration of the Offer and the Merger. In
connection with such engagement, the Company requested that Smith Barney
evaluate the fairness, from a financial point of view, to the stockholders of
the Company of the consideration to be received by such stockholders pursuant
to the Offer and Merger. On January 20, 1995, Smith Barney rendered to the
Board its written opinion to the effect that, as of such date and based upon
and subject to certain considerations and assumptions, the consideration to be
received by the stockholders of the Company pursuant to the Offer and Merger
was fair, from a financial point of view.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives of the Company concerning the business, operations and
prospects of the Company. Smith Barney examined certain publicly available
business and financial information relating to the Company and SNI AG, as well
as certain financial forecasts and other data for the Company which were
provided to Smith Barney by senior management of the Company. Smith Barney
reviewed the financial terms of the Merger as set forth in the Merger
Agreement in relation to, among other things, the Company's historical and
projected earnings and the capitalization and financial condition of the
Company. Smith Barney considered, to the extent publicly available, the
financial terms of certain other similar transactions which Smith Barney
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considered comparable to the Merger and analyzed certain financial and other
publicly available information relating to the businesses of other public
companies whose operations Smith Barney considered comparable to those of the
Company. In addition to the foregoing, Smith Barney conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as Smith Barney deemed necessary to arrive at its opinion.
Smith Barney noted that its opinion was necessarily based upon financial,
stock market and other conditions and circumstances existing and disclosed to
Smith Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information publicly available or furnished to or otherwise
discussed with Smith Barney. With respect to financial forecasts and other
information provided to or otherwise discussed with Smith Barney, Smith Barney
assumed that such forecasts and other information were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of the Company as to the expected future financial performance of
the Company. Smith Barney assumed the correctness of, and relied upon, the
representations of the Company and SNI AG, pursuant to the Merger Agreement,
and did not attempt to independently verify any such information. In addition,
Smith Barney did not make or obtain an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of the Company nor did
Smith Barney make any physical inspection of the properties or assets of the
Company. Although Smith Barney evaluated the financial terms of the Merger,
Smith Barney was not asked to and did not recommend the specific consideration
to be paid by Purchaser in the Merger. No other limitations were imposed by
the Company on Smith Barney with respect to the investigations made or
procedures followed by Smith Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED JANUARY 20, 1995,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THE SCHEDULE 14D-9, WHICH WAS
MAILED TO THE COMPANY'S STOCKHOLDERS ON JANUARY 27, 1995. STOCKHOLDERS OF THE
COMPANY ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. SMITH
BARNEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE
RECEIVED BY THE STOCKHOLDERS OF THE COMPANY FROM A FINANCIAL POINT OF VIEW AND
HAS BEEN PROVIDED SOLELY FOR THE USE OF THE COMPANY'S BOARD OF DIRECTORS IN
ITS EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER
OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OF THE COMPANY AS TO WHETHER SUCH STOCKHOLDER SHOULD ACCEPT THE
OFFER. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH HEREIN IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Board of Directors of the Company, Smith
Barney performed a variety of financial and comparative analyses, including
those described below, and provided the Board of Directors with a written
presentation with respect to such analyses. A copy of Smith Barney's written
presentation to the Board of Directors has been included as Exhibit (b)(2) to
the Statement on Schedule 13E-3 filed by Purchaser, SNI AG, Siemens AG and the
Company with the Commission and will be available for inspection and copying
at the principal executive offices of the Company during its regular business
hours by any interested stockholder of the Company or such stockholder's
representative duly designated in writing. The summary of such analyses set
forth herein does not purport to be a complete description of the analyses
underlying Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. In arriving at its opinion,
Smith Barney did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Smith Barney believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and factors, without considering all analyses and
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factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, Smith Barney made
numerous assumptions with respect to the Company, industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of the Company. The estimates contained
in such analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than those suggested by such analyses. In addition, analyses relating to the
value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
Comparable Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples
of computer hardware/systems companies, including Amdahl Corporation, Auspex
Systems, Convex Computer, Data General, Digital Equipment Corp., Hewlett-
Packard, NetFrame, Parallan Computer, Sequent Computer Systems, Silicon
Graphics, Stratus Computer, Sun Microsystems, Tandem Computers and Tricord
Systems (collectively, the "Comparable Companies"). Smith Barney compared
market values per share as multiples of, among other things, latest 12 months
net earnings per share and earnings per share for calendar 1994 and projected
calendar 1995. The multiples of latest 12 months net earnings per share and
earnings per share for calendar 1994 and projected calendar 1995 of the
Comparable Companies were between the following ranges: (i) latest 12 months:
10.7x to 50.3x (with a mean of 21.7x and a median of 17.7x); (ii) calendar
1994: 8.8x to 34.9x (with a mean of 19.1x and a median of 17.6x); and (iii)
projected calendar 1995: 7.7x to 47.1x (with a mean of 19.0x and a median of
14.8x). Purchaser's offer of $16 per Share represents a multiple of projected
calendar 1995 net income per Share of 26.6x. The Company's net earnings per
Share for the latest 12 months and for calendar 1994 were negative; therefore,
the latest 12 months multiple and the calendar 1994 multiple were not
meaningful.
Smith Barney compared adjusted market values (equity market value, plus the
book value of debt and preferred stock, less cash and cash equivalents) to
latest 12 months net revenues and operating income. The multiples of latest 12
months net revenues and operating income of the Comparable Companies were
between the following ranges: (i) latest 12 months net revenues: 0.32x to
3.06x (with a mean of 1.12x and a median of 1.05x); and (ii) latest 12 months
operating income: 8.5x to 22.6x (with a mean of 14.7x and a median of 13.6x).
Purchaser's offer of $16 per Share represents a multiple of the Company's net
revenues for the latest 12 months of 0.95x. The Company's latest 12 months
operating income was negative; therefore, the operating income multiple was
not meaningful.
Smith Barney also considered the profit margins, net return on average
common equity and historic revenue and earnings growth of the Comparable
Companies with those of the Company. The latest 12 months operating margins,
net income margins and net return on average common equity percentages of the
Comparable Companies were between the following ranges: (i) operating income
margins: 4.5% to 13.5% (with a mean of 8.6% and a median of 7.4%); (ii) net
income margins: 1.8% to 9.8% (with a mean of 7.0% and a median of 6.8%); and
(iii) net return on average common equity: -56.4% to 19.2% (with a mean of
1.8% and a median of 11.3%). The Company's latest 12 months operating income
and net income margins were negative and therefore not meaningful on a
comparative basis to those of the Comparable Companies. The Company's latest
12 months net return on average common equity was -15.7%. The latest three
fiscal years compound annual growth rate for revenues, operating income and
net income for the Comparable Companies were between the following ranges: (x)
compound annual revenue growth rate: -1.7% to 164.6% (with a mean of 36.8% and
a median of 18.9%); (y) operating income: -0.3% to 178.8% (with a mean of
40.5% and a median of 14.0%); and (z) net income: -10.1% to 180.3% (with a
mean of 48.8% and a median of 32.5%). The latest three fiscal years compound
annual revenue growth rate for the Company was 6.6%. Operating income and net
income growth rates for the Company for the same period were not meaningful
because operating income and income growth rates were negative.
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All projected earnings per share figures for the Comparable Companies were
based on the consensus estimates as provided by the Institutional Brokers
Estimate System. All multiples for Comparable Companies were based on closing
stock prices as of January 18, 1995.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase prices and implied
transaction multiples in the following selected merger and acquisition
transactions in the computer hardware/systems industry: MIPS Computer
Systems/Silicon Graphics; Teradata/AT&T; NCR/AT&T; Prime Computer/JH Whitney &
Company; Apollo Computer/Hewlett-Packard; and Convergent/Unisys (the "Selected
Acquisitions"). In this analysis, Smith Barney compared transaction values as
multiples of latest 12 months revenues of the Selected Acquisitions and
compared these multiples to the multiple of the Company's revenue as set forth
in the Comparable Companies analysis. The multiples of revenue of the Selected
Acquisitions were between the range of 0.8x to 1.7x (with a mean of 1.1x).
Purchaser's offer of $16 per Share represents a multiple of the Company's net
revenues for the last 12 months of 0.95x. Also, Smith Barney compared the
latest 12 months earnings before interest, taxes, depreciation and
amortization ("EBITDA") margins of the targets in the Selected Acquisitions
with the latest 12 months EBITDA margin of the Company. The EBITDA margins of
the targets in the Selected Acquisitions were between the range of 6.8% to
21.5% (with a mean of 12.4%). The latest twelve months EBITDA margin for the
Company was 4.2%.
No company, transaction or business used in the Comparable Companies and
Selected Acquisitions analyses as a comparison is identical to the Company.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition or public trading value of the
Comparable Companies or the business segment or company to which they are
being compared.
Smith Barney also analyzed the purchase price paid in selected technology-
related merger and acquisition transactions since 1988 to determine, among
other things, the percentage by which the price paid in each such transaction
exceeded the market value of the target company's stock one month and two
months prior to the announcement of such transaction. The mean value of the
calculation of the premium paid versus the market price of the stock in all
such transactions one month and two months prior to the announcement thereof
was 57.6% and 65.0%, respectively, and the median was 53.7% and 61.6%,
respectively. The premium paid in the Offer versus the market price of the
Shares one month and two months prior to the announcement on January 9, 1995
of the initial offer from Purchaser was 48.8% and 52.4%, respectively.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash flow
analysis of the projected free cash flow of the Company for the fiscal years
ending September 30, 1995 through 1999, assuming, among other things, discount
rates of 15.0%, 17.5%, 20.0% and 22.5% and terminal multiples of net income of
15.0x to 19.0x. Smith Barney performed this analysis based on internal
operating projections prepared by the Company's management. This analysis
resulted in ranges of values per Share of $11.59 to $19.79.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of the Company's
historical and projected financial results; the history of trading prices for
the Shares and the relationship between movements of such Shares, movements of
the common stock of Comparable Companies and selected companies and the stock
market in general.
On June 7, 1994, the Company entered into a letter agreement with Smith
Barney pursuant to which Smith Barney was engaged to act as exclusive
financial advisor to the Company and to furnish financial advisory and
investment banking services in connection with a variety of potential
transactions between the Company and a list of specific companies provided by
the Company. This letter
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agreement was amended on January 9, 1995 to include SNI AG as one of the
companies identified by the Company. Under the letter agreement, the Company
agreed to pay Smith Barney a fee based on the value of a transaction. Assuming
the Offer and the Merger are consummated, Smith Barney will receive a total
fee of approximately $2.2 million. Of such amount, $250,000 shall be paid for
the delivery by Smith Barney of the opinion described above. In addition to
the foregoing compensation, the Company has agreed to reimburse Smith Barney
for its reasonable out-of-pocket expenses and to indemnify Smith Barney
against certain liabilities arising out of or in connection with this
engagement.
Smith Barney has in the past two years provided financial advisory and
investment banking services to the Company and has received fees of
approximately $350,000 for rendering such services.
Smith Barney is a nationally recognized investment banking firm and was
selected by the Company based on Smith Barney's experience and expertise.
Smith Barney regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes.
3. COMPANY FINANCIAL PROJECTIONS
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data.
However, in connection with the Company's review of the transactions
contemplated by the Merger Agreement, the Company furnished Smith Barney with
six-year projections prepared by Company management (the "Projections"). Set
forth below is a discussion of the Projections.
The information described below was not prepared with a view toward
compliance with published guidelines of the Commission or the American
Institute of Certified Public Accountants regarding forward-looking
information or generally accepted accounting principles. Ernst & Young LLP,
independent auditors for the Company, have never examined nor compiled the
information discussed below and accordingly do not express an opinion or any
other form of assurance with respect thereto. This information necessarily
makes assumptions, some (but not all) of which are set forth below and many of
which are beyond the control of the Company and may not have been, or may no
longer be, accurate. Additionally, this information does not reflect revised
prospects for the Company's businesses, changes in general business and
economic conditions or any other transaction or event that has occurred or
that may occur and that was not anticipated at the time such information was
prepared. Accordingly, such information is not necessarily indicative of
current values or future performance, which may be significantly more
favorable or less favorable than as set forth below, and should not be
regarded as a representation that they will be achieved. The fiscal 1995
portion of the Projections includes one quarter of actual results of the
Company. The Projections were not prepared in contemplation of the proposed
Merger. The Company does not intend to update or supplement this material.
11
<PAGE>
The material financial data contained in the Projections furnished by the
Company to Smith Barney in connection with their preparation of the opinion
described above are as follows:
<TABLE>
<CAPTION>
PROJECTED YEARS ENDING SEPTEMBER 30,
-----------------------------------------------------
1995E 1996E 1997E 1998E 1999E 2000E
-------- -------- -------- -------- -------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues........... $280,000 $336,755 $424,296 $509,155 $585,528 $673,358
Total cost of sales...... 158,760 190,120 242,560 292,764 339,607 393,914
Gross profit............. 121,240 146,635 181,736 216,391 245,922 279,443
Total operating expenses. 112,573 129,049 149,977 179,223 206,106 237,022
Operating income......... 8,667 17,586 31,759 37,168 39,816 42,422
Net income............... 9,966 15,349 26,687 29,786 32,058 34,341
Earnings per share....... 0.61 0.85 1.35 1.44 1.48 1.51
CASH FLOW DATA
Capital expenditures..... 12,600 13,470 15,699 18,839 21,665 24,914
Capitalized software
development costs....... 8,960 8,419 8,910 9,165 8,783 9,858
Depreciation &
amortization............ 17,248 17,511 19,687 22,403 24,358 27,818
Change in net working
capital................. 1,347 9,622 18,715 20,873 13,835 16,661
</TABLE>
The Projections are based on the assumption that the Company will continue to
operate under the same ownership structure as presently exists, including SNI
AG's investment in the Company at the level contemplated by the Purchase
Agreement (as well as the continuation of pre-existing business relationships
between the Company and SNI AG). The Projections are also based on other
revenue and operating assumptions that include: (i) forecasted increases in
revenue for fiscal years 1995, 1996 and 1997 of 28%, 20% and 26%, respectively;
(ii) relatively stable gross margins of approximately 43% to 44% for each of
fiscal years 1995, 1996 and 1997; and (iii) declining operating expenses as a
percentage of revenue for fiscal years 1995, 1996 and 1997 of approximately
40%, 38% and 35%, respectively. The forecasted operating results for fiscal
years 1998, 1999 and 2000 are projected from previous years, assuming similar
growth rates and margins.
4. POSITION OF SNI AG REGARDING THE FAIRNESS OF THE OFFER AND THE MERGER
SNI AG believes that the consideration to be received by the Company's
stockholders, other than SNI AG, pursuant to the Offer and the Merger is fair
to the Company's stockholders. SNI AG bases its belief solely on (i) the fact
that the Company's Board concluded that the Offer and the Merger are fair to
and in the best interests of the Company's stockholders, (ii) the report of
Goldman Sachs to SNI AG described below, (iii) the fact that, in order to avoid
any possibility of conflict of interest, Dr. Bodo, SNI AG's representative on
the Board, did not participate in any Board deliberations concerning, or act on
behalf of SNI AG in connection with, the Offer or the Merger, (iv) the fact
that SNI AG believes that it did not and does not have the ability to control
the Company, due to, among other things, the fact that the Purchase Agreement
imposes substantial restrictions on SNI AG's voting rights and ability to
acquire additional Shares, the fact that SNI AG has the right to designate only
one of the Company's directors, and the fact that the commercial relationship
between SNI AG and the Company is small relative to the Company's business, and
that the parties consequently negotiated the terms of the Offer and the Merger
and the Merger Agreement with the Company on an arm's-length basis, (v) the
fact that the consideration to be paid in the Offer and the Merger represents a
premium of approximately 50% over the weighted average closing price for the
Shares both for the preceding calendar quarter and calendar year 1994, and (vi)
the historical financial performance of the Company and its financial results.
SNI AG has reviewed the factors considered by the Board in support of their
decision, as described in the Schedule 14D-9 and above, and had no basis to
question their consideration of or reliance on those factors. In reaching its
conclusions, SNI AG also considered generally the current and historical market
prices for the Shares.
12
<PAGE>
SNI AG did not find it practicable to assign, nor did it assign, relative
weights to the individual factors considered in reaching its conclusion as to
fairness.
5. ANALYSIS OF GOLDMAN SACHS AS FINANCIAL ADVISORS TO SNI AG
SNI AG retained Goldman Sachs as its exclusive financial advisors in
connection with the Offer and the Merger. Goldman Sachs were requested to
review data relating to the Company which was supplied by SNI AG, as well as
published financial and market information, and to advise SNI AG with respect
to certain means of valuation of the Company. Goldman Sachs were not requested
to provide any opinion as to the fairness of the Offer to SNI AG or the
stockholders of the Company or to perform any independent examination or
investigation of the Company's business or assets. Accordingly, Goldman Sachs
did not attempt to verify the accuracy or completeness of any of the
information supplied by SNI AG or obtained through other sources, nor did
Goldman Sachs, prior to the delivery of the Goldman Sachs Report (as defined
below), conduct any discussion with, or obtain any information from, any
officers or employees of the Company in connection with their advice to SNI AG.
At a meeting between representatives of Goldman Sachs, SNI AG and its counsel
on January 3, 1995 (the "January 3 Meeting"), Goldman Sachs delivered their
evaluation of the Company (the "Goldman Sachs Report"), a summary of which is
set forth below. Based on such evaluation, Goldman Sachs advised SNI AG that
assuming the accuracy and completeness of the information supplied by SNI AG
and publicly available information concerning the Company, it was the view of
Goldman Sachs that the value of the Company in the acquisition market was
approximately $13.00 to $15.00 per Share. The range of value for the Company
was derived by applying methodologies and assumptions which Goldman Sachs
believed measured the value of the Company under then current market
conditions.
In arriving at their evaluation, Goldman Sachs reviewed, among other things:
Annual Reports to Shareholders and Annual Reports on Form 10-K of the Company
for the five years ended September 30, 1994; certain interim reports to
shareholders and Quarterly Reports on Form 10-Q; certain other communications
from the Company to its shareholders; and certain financial analyses and
forecasts for the Company separately prepared by the management of each of SNI
AG and the Company. The only difference between the financial analyses and
forecasts provided by the Company which were used by Smith Barney and those
used by Goldman Sachs was that those used by Smith Barney included the actual
results for the first quarter of the 1995 fiscal year and those used by Goldman
Sachs contained the estimated results for such quarter, because the actual
results were not yet available when Goldman Sachs performed its evaluation. On
January 17, 1995, the Company provided the actual results for the first quarter
of the 1995 fiscal year to Goldman Sachs. The difference between the estimated
and actual results for the first quarter of the 1995 fiscal year did not
materially affect Goldman Sachs' evaluation of the Company presented at the
January 3 Meeting. The financial analyses and forecasts prepared by the
management of SNI AG were derived from those provided by the Company but
reflected reduced growth rates in sales of the Company's products based on a
study of growth rates for products in that category obtained by SNI AG from
independent sources. SNI AG also provided Goldman Sachs with information
describing the synergies that SNI AG believed to be attainable upon
consummation of the Offer and the Merger. Goldman Sachs also collected and
summarized reports published during 1994 by various analysts who followed the
Company and made recommendations with respect to holding its Shares. In
addition, Goldman Sachs reviewed the reported price and trading activity for
the Shares, compared certain financial and market information for the Company
with similar information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain recent business
combinations and performed such other studies and analyses as Goldman Sachs
considered appropriate.
The financial and comparative analyses Goldman Sachs performed in connection
with their evaluation of the Company and the preparation of the Goldman Sachs
Report included: (i) analyses of selected comparable publicly-traded companies;
(ii) comparable transaction analyses; and (iii) a future
13
<PAGE>
value analysis. Goldman Sachs did not consider or conduct a liquidation
analysis of the Company. Though Goldman Sachs did not have the opportunity to
perform the due diligence necessary to conduct such a liquidation analysis, it
is the view of Goldman Sachs that the analyses described below provide a more
accurate measure of the value of the Company in the acquisition market.
Valuation Summary of Selected Publicly-Traded Companies. Goldman Sachs
reviewed certain financial and stock market information of the Company and
selected publicly traded companies engaged in the computer hardware industry.
Such companies included: Auspex Systems, Concurrent Computer, Data General and
Encore Computer (the "RISC Companies"); and Sequent Computer Systems, Stratus
Computer and Tandem Computers (the "OLTP Companies", and together with the RISC
Companies, the "Selected Companies"). Although the Selected Companies were
comparable to the Company based on certain characteristics of their businesses,
none of these companies possessed characteristics identical to those of the
Company. Goldman Sachs examined and compared various valuation methods and
calculated various financial multiples and ratios for the Company and the
Selected Companies based on publicly available information. The multiples and
ratios for the Company were calculated using a price of $13.00 per Share, which
was the closing price of the Shares on December 30, 1994, the last trading day
prior to the January 3 Meeting. The multiples and ratios for each of the
Selected Companies were based on the most recent publicly available information
as of December 30, 1994.
The multiples were as follows: (i) the ratio of price to 1995 earnings
estimates (which ratio was based on analysts' estimates)--20.6x for the
Company, which compared to a median of 12.2x for the RISC Companies and a
median of 11.7x for the OLTP Companies; (ii) market capitalization as a
percentage of latest quarter annualized sales--.79x for the Company, which
compared to a median of .93x for the RISC Companies and 1.18x for the OLTP
Companies; and (iii) the ratio of market capitalization to latest quarter
annualized EBITDA--10.0x for the Company, which compared to a median of 6.5x
for the RISC Companies and 5.1x for the OLTP Companies.
Comparable Transaction Analyses. Goldman Sachs reviewed and compared the
prices paid in selected merger and acquisition transactions in the computer
hardware industry (the "Selected Transactions") and a range of possible prices
which might be paid by SNI AG. Goldman Sachs calculated the aggregate
consideration and various financial multiples from available actual and
estimated information for each such Selected Transaction. The aggregate
consideration for the Selected Transactions ranged from $92 million to $7,277
million. The financial multiples, in each case (other than the market premium
multiple) based on the sum of the consideration paid for the equity of the
acquired company plus the amount of net debt assumed in the transaction
("Aggregate Consideration"), were as follows: (i) the ratio of Aggregate
Consideration to sales for the latest twelve months prior to the announcement
of each of the Selected Transactions which ranged from a high of 2.84x to a low
of .16x, with a median of .98x, which compares to a ratio of 1.1x based on the
terms of the Offer and the Merger; (ii) the ratio of Aggregate Consideration to
EBITDA for the latest twelve months for Selected Transactions ranged from a
high of 23.7x to a low of 3.6x with a median of 7.8x, which compares to a ratio
of 26.0x based on the terms of the Offer and the Merger; (iii) the ratio of
Aggregate Consideration to the latest 12 months net income for the Selected
Transactions which ranged from a high of 58.2x to a low of 6.7x with a median
of 24.4x, which ratio does not lend itself to comparison to a ratio based on
the terms of the Offer and the Merger because net income for the Company in the
1994 fiscal year was negative; and (iv) the market premium for the Selected
Transactions ranged from a high of 129% to a low of 5.7% with a median of 42%,
which compares to a market premium of 23.1% based on the terms of the Offer and
the Merger.
Future Value Analysis. Goldman Sachs performed a future value analysis based
upon (a) estimates of financial performance provided to Goldman Sachs by SNI AG
based upon certain financial projections of the Company which, using discount
rates that ranged from 10% to 16% with terminal values of the Company's fiscal
1997 net income that ranged from 10x to 16x, resulted in implied per
14
<PAGE>
Share values ranging from $12.70 to $21.38 and (b) certain independent research
analysts' estimates of future financial performance which were publicly
available which, using discount rates that ranged from 10% to 16% with terminal
values of the Company's fiscal 1997 net income that ranged from 10x to 16x,
resulted in implied per share values ranging from $8.71 to $15.17.
Other Analyses. Goldman Sachs prepared a financial analysis of the proposed
acquisition of the Company by SNI AG and Purchaser and calculated the aggregate
consideration and various financial multiples based upon cash consideration per
Share prices ranging from $10.00 to $26.00. Goldman Sachs determined which
companies were most likely to be potential purchasers of the Company. This
determination was not based upon any indication by any such potential purchaser
that it was interested in a transaction with the Company, but rather reflected
Goldman Sachs' and SNI AG's view that such potential purchasers operated
businesses which were similar or complementary to the Company's and had the
capability to finance an acquisition of the Company. With respect to selected
potential purchasers, Goldman Sachs prepared a pro forma analysis of the
financial impact of an acquisition of the Company on such selected potential
purchasers, assuming purchase prices of $15 and $20 a Share and assuming
financing (i) entirely by debt, (ii) 50% by debt and 50% by the issuance of
common stock and (iii) entirely by the issuance of common stock and assuming
pooling of interests accounting treatment.
Goldman Sachs are acting as Dealer Managers in connection with the Offer and
have provided certain financial advisory services in connection with the
acquisition of the Company. Siemens Corporation ("Siemens"), a Delaware
corporation and an indirect wholly owned subsidiary of Siemens AG, has paid
Goldman Sachs a fee of $250,000, has agreed to pay an additional fee of
$250,000 upon the signing of the Merger Agreement and has agreed to pay an
additional transaction fee of $1,250,000 when the Offer and the Merger are
consummated. Siemens has also agreed to reimburse Goldman Sachs for all
reasonable out-of-pocket expenses incurred by Goldman Sachs, including the
reasonable fees and expenses of legal counsel, and to indemnify Goldman Sachs
against certain liabilities and expenses in connection with their engagement,
including certain liabilities under the federal securities laws.
Goldman Sachs is an internationally recognized investment banking firm
engaged in the evaluation of businesses and their securities in connection with
mergers and acquisitions, negotiated primary and secondary underwritings,
private placements and valuations for corporate and other purposes. SNI AG
selected Goldman Sachs as its financial advisor based upon Goldman Sachs'
familiarity with the industry in which the Company operates and its experience,
ability and reputation with respect to mergers and acquisitions.
A copy of the Goldman Sachs Report has been filed as Exhibit (b)(3) to the
Statement on Schedule 13E-3 filed by SNI AG, Purchaser, Siemens AG and the
Company and is incorporated herein by reference. Copies of the Goldman Sachs
Report are available for inspection and copying at the principal executive
offices of SNI AG during regular business hours by any stockholder of the
Company, or a stockholder's representative who has been so designated in
writing.
6. PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONSOF SNI AG FOR THE
OFFER AND THE MERGER
The purpose of the Offer and the Merger is for Siemens AG indirectly to
acquire control of, and the entire equity interest in, the Company. The purpose
of the Merger is for Siemens AG indirectly to acquire all Shares not purchased
pursuant to the Offer. Upon consummation of the Merger the Company will become
an indirect wholly owned subsidiary of Siemens AG. The acquisition of the
entire equity interest in the Company has been structured as a cash tender
offer followed by a cash merger in order to provide a prompt and orderly
transfer of ownership of the Company from the public stockholders to Purchaser
and to provide stockholders with cash for all their Shares.
15
<PAGE>
SNI AG and the Company believe that the businesses of the Company are
complementary to SNI AG's businesses and that aligning or integrating certain
of the Company's operations with those of SNI AG will result in a number of
benefits, including economies of scale in purchasing and manufacturing,
pooling of research and development resources and expansion of the sales of
each Company's products in the global markets by accessing each other's
distribution channels, particularly through increased sales of the Company's
products in Europe and of SNI AG's products in the United States. SNI AG and
the Company considered attempting to achieve such an alignment or integration
through an expansion of the parties' commercial relationship without
increasing SNI AG's ownership of Shares and through such an expansion of the
commercial relationship coupled with some increase in SNI AG's ownership of
Shares. SNI AG and the Company concluded, however, that these approaches would
not enable SNI AG and the Company to take full advantage of market
opportunities and to achieve the desired operating benefits. After the
Companies considered these approaches, they determined it would be extremely
difficult to achieve these synergies unless the two business organizations
were under common control. The companies each concluded that, without such
common control, achieving such purchasing and manufacturing economies of scale
and research and development and sales synergies would likely result in
conflicts of interest that they would be unable to resolve. Consequently,
following joint studies and discussions, SNI AG and the Company concluded that
an acquisition by SNI AG of the entire equity interest in the Company
constituted the only feasible means to achieve such operating benefits. SNI AG
and the Company chose to undertake the transaction at this time because the
businesses in which SNI AG and the Company operate are subject to rapid change
and SNI AG and the Company wished to seize commercial opportunities that might
no longer be available at a later time.
7. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER;CERTAIN EFFECTS OF THE
OFFER AND THE MERGER
Pursuant to the Merger Agreement, upon completion of the Offer, SNI AG
intends to effect the Merger in accordance with the terms of the Merger
Agreement. See Section 10 of the Offer to Purchase.
The management of SNI AG has begun, and intends to continue, a review of the
Company and its assets, corporate structure, capitalization, operations,
properties, policies, management and personnel to determine what changes, if
any, would be desirable in order best to organize and integrate the activities
of the Company into those of SNI AG. As more fully described in Item 3 of the
Schedule 14D-9, at the request of SNI AG, John S. Chen, President and Chief
Operating Officer of the Company, has entered into a Management Retention
Agreement (the "Chen Agreement") with the Company, commencing upon the
effectiveness of the Merger and terminating five years later. Terms of the
Chen Agreement include Mr. Chen serving as Chief Executive Officer of the
Company and as a member of the Board. In addition, as more fully described in
Item 3 of the Schedule 14D-9, discussions have taken place regarding a senior
management position for Mr. Lussier, Chief Executive Officer and Chairman of
the Board of the Company, within the Siemens group of companies. Except as
noted above, following the Offer and the Merger, SNI AG intends that the
Company's current management, under the direction of the Company's Board of
Directors as it will be constituted following the Merger, will continue to
manage the Company as an ongoing business in the same general manner as it is
now being conducted. However, SNI AG expressly reserves the right to make any
changes that it deems necessary or appropriate in light of its review or in
light of future developments or that would be desirable to permit SNI AG more
effectively to manage the Company and function more efficiently as an
integrated worldwide enterprise. Except as otherwise disclosed in this
Supplement or the Offer to Purchase, SNI AG has no present plans or proposals
that would result in an extraordinary corporate transaction involving the
Company or any of its subsidiaries, such as a merger, reorganization,
liquidation, sale or transfer of a material amount of assets, or any material
changes in the Company's present dividend policy, corporate structure or
business, the composition of its management or personnel or its indebtedness
or capitalization.
16
<PAGE>
At September 30, 1994, Pyramid's book value per Share was $8.74. At December
31, 1994, Pyramid's book value per Share was $8.80. If the Merger is
consummated, the interest of SNI AG in the Company's net book value and net
income will become 100% and SNI AG and its subsidiaries will be entitled to all
benefits resulting from that interest, including all income generated by the
Company's operations and any future increase in the Company's value. Similarly,
SNI AG will also bear the risk of any decrease in the value of the Company
after the Merger. Upon consummation of the Merger, the Surviving Corporation
will become a privately held corporation. Accordingly, stockholders will not
have the opportunity to participate in the earnings and growth of the Surviving
Corporation after the Merger and will not have any right to vote on corporate
matters. Similarly, stockholders will not face the risk of decline in the value
of the Company after the Merger.
Purchaser intends, and is required under the Merger Agreement, to vote all of
its Shares, whether currently owned by SNI AG and transferred to Purchaser
immediately after consummation of the Offer or acquired pursuant to the Offer,
in favor of the Merger.
8. RIGHTS OF STOCKHOLDERS IN THE MERGER
Holders of Shares will not have appraisal rights as a result of the Offer. If
the Merger is consummated, however, holders of Shares at that time would have
the right to appraisal of their Shares in accordance with Section 262 of
Delaware Law ("Section 262"), the provisions of which are set forth in Annex A
hereto. Such appraisal rights, if the statutory procedures are complied with,
would result in a judicial determination of the "fair value" of the Shares
owned by such holders. Any such judicial determination of the fair value of the
Shares could be based upon considerations other than or in addition to the
price paid in the Offer and the Merger and the market value of the Shares,
including asset values, the investment value of the Shares and any other
valuation considerations generally accepted in the investment community. The
value so determined for Shares could be more or less than the value of the
consideration per Share to be paid pursuant to the Offer or the Merger, and
payment of such consideration would take place subsequent to payment pursuant
to the Offer.
In addition, several recent decisions by the Delaware courts have held that a
controlling stockholder of a corporation involved in a merger has a fiduciary
duty to the other stockholders to ensure that the merger is fair to such other
stockholders. In determining whether a merger is fair to minority stockholders,
the Delaware courts have considered, among other things, the type and amount of
consideration to be received by the stockholders and whether there was fair
dealing among the parties. The Delaware Supreme Court indicated in Weinberger
v. UOP, Inc. that ordinarily the remedy available to stockholders in a merger
that is found not to be "fair" to minority stockholders is the right to
appraisal described above. SNI AG believes that it does not have the ability to
control the Company.
9. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
In considering the recommendation of the Company's Board with respect to the
Offer and the Merger and the fairness of the consideration to be paid pursuant
to the Offer and the Merger, stockholders should be aware that certain officers
and directors of the Company have interests in the Offer and the Merger which
are described below and in the recommendation of the Board contained in this
Supplement and in the Schedule 14D-9 which may present them with certain
potential conflicts of interest.
Employment Arrangements. As more fully described in Item 3 of the Schedule
14D-9, at the request of SNI AG, John S. Chen, President and Chief Operating
Officer of the Company, has entered into a Management Retention Agreement (the
"Chen Agreement") with the Company, commencing upon the effectiveness of the
Merger and terminating five years later. Terms of the Chen Agreement include
Mr. Chen serving as Chief Executive Officer of the Company and as a member of
the Board. In addition, as more fully described in Item 3 of the Schedule 14D-
9, discussions have taken place
17
<PAGE>
regarding a senior management position for Mr. Lussier, Chief Executive Officer
and Chairman of the Board of the Company, within the Siemens group of
companies.
Stock and Stock Option Ownership. SNI AG currently owns 2,717,743 Shares,
representing approximately 17.37% of the Shares. As more fully described in
Section 8 of the Offer to Purchase, SNI AG also owns a warrant (the "Warrant")
to purchase up to 1,330,000 Shares. However, SNI AG does not currently intend
to exercise the Warrant in connection with the Offer or the Merger. Richard H.
Lussier, Chairman and Chief Executive Officer of the Company, holds currently
exercisable options to acquire 205,552 Shares. John S. Chen, President and
Chief Operating Officer and a director of the Company, holds currently
exercisable options to acquire 142,857 Shares. Paul J. Chiapparone, a director
of the Company, holds currently exercisable options to acquire 5,000 Shares.
Donald E. Guinn, a director of the Company, holds currently exercisable options
to acquire 42,750 Shares. Jack L. Hancock, a director of the Company, holds
currently exercisable options to acquire 5,000 Shares. Clarence W. Spangle, a
director of the Company, holds currently exercisable options to acquire 23,750
Shares. George D. Wells, a director of the Company, holds currently exercisable
options to acquire 17,250 Shares. Mitchell Mandich, a Senior Vice President of
the Company, holds currently exercisable options to acquire 40,464 Shares.
Edward W. Scott, Jr., an Executive Vice President of the Company, holds
currently exercisable options to acquire 43,100 Shares. Allan D. Smirni, Vice
President and General Counsel of the Company, holds currently exercisable
options to acquire 37,033 Shares. Dr. Rudolf Bodo, a director of the Company
and SNI AG's designee on the Board, does not own any Shares and holds no
options to acquire Shares.
As of January 27, 1995, the members of the Company's Board beneficially owned
an aggregate of 634,947 Shares, representing approximately 4.06% of the
outstanding Shares, assuming the full exercise of the options held by such
persons. Mr. Lussier is the beneficial owner of 1.33% of the Shares. No other
individual director or executive officer owns more than 1% of the Shares.
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS
Pursuant to the Merger Agreement, the Company has agreed that, between the
date of the Merger Agreement and the Effective Time, unless SNI AG shall
otherwise agree in writing, neither the Company nor any subsidiary of the
Company will declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to
any of its capital stock. Moreover, pursuant to a Revolving Credit Loan
Agreement with Comerica Bank - California effective as of October 1, 1994, the
Company is not permitted to pay cash dividends. This Credit Agreement expires
on December 31, 1995.
On February 3, 1995, Purchaser was informed by the Federal Trade Commission
that early termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), relating to the
purchase of Shares pursuant to the Offer had been granted. Accordingly, the
condition to the Offer requiring the expiration or termination of any
applicable waiting period under the HSR Act prior to expiration of the Offer
has been satisfied. In addition, on February 13, 1995, the Company received a
letter from the New Jersey Department of Environmental Protection stating that
the Industrial Site Recovery Act ("ISRA") is not applicable to the Company's
New Jersey facilities. Accordingly, the condition to Purchaser's obligation to
purchase any Shares tendered in the Offer relating to ISRA set forth in the
second paragraph of Annex A of the Merger Agreement has been satisfied. The
Offer remains subject to the other conditions set forth in Section 14 of the
Offer to Purchase.
18
<PAGE>
FEES AND EXPENSES
The following is an estimate of expenses to be incurred in connection with
the Offer and the Merger. The Merger Agreement provides that all costs and
expenses incurred in connection with the Offer and the Merger will be paid by
the party incurring such costs and expenses, whether or not the Offer or the
Merger is consummated.
EXPENSES TO BE PAID BY PURCHASER AND ITS AFFILIATES:
<TABLE>
<S> <C>
Financial Advisory and Dealer Manager Fees.................... $1,750,000
Legal Fees.................................................... 350,000
Printing and Mailing.......................................... 150,000
Advertising................................................... 70,000
Filing Fee.................................................... 53,000
Depositary Fees............................................... 10,000
Information Agent Fees........................................ 10,000
----------
Total....................................................... $2,393,000
==========
</TABLE>
EXPENSES TO BE PAID BY THE COMPANY:
<TABLE>
<S> <C>
Investment Banking Fees and Expenses.......................... $2,200,000
Legal Fees and Expenses....................................... 350,000
Printing and Mailing.......................................... 85,000
Accounting Fees............................................... 10,000
Miscellaneous................................................. 55,000
----------
Total....................................................... $2,700,000
==========
</TABLE>
MISCELLANEOUS
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), Siemens AG,
SNI AG and Purchaser have filed with the Commission the Schedule 14D-1 with
respect to the Offer and certain amendments thereto, and may file further
amendments thereto. Pursuant to Rule 14d-9 promulgated under the Exchange Act,
the Company has filed with the Commission the Schedule 14D-9 with respect to
the Offer, and may file amendments thereto. Siemens AG, SNI AG, Purchaser and
the Company have filed a statement on Schedule 13E-3 with respect to the Offer
and may file amendments to the Schedule 13E-3. Such statements, including
exhibits and any amendments thereto, which furnish certain additional
information with respect to the Offer, may be inspected at, and copies may be
obtained from, the same places and in the same manner as set forth in Section
7 of the Offer to Purchase (except that they will not be available at the
regional offices of the Commission).
SIEMENS NIXDORF MID-RANGE ACQUISITION CORP.
February 15, 1995
19
<PAGE>
ANNEX A
SUMMARY OF STOCKHOLDER APPRAISAL RIGHTS AND TEXT OF SECTION 262 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
Summary of Stockholder Appraisal Rights. No appraisal rights are available
in connection with the Offer. However, if the Merger is consummated,
stockholders will have certain rights under Delaware Law to dissent and demand
appraisal of, and to receive payment in cash of the fair value of, their
Shares. Such rights to dissent, if the statutory procedures were complied
with, could lead to a judicial determination of the fair value of the Shares,
as of the day prior to the date on which the stockholders' vote was taken
approving the Merger or similar business combination (excluding any element of
value arising from the accomplishment or expectation of the Merger), required
to be paid in cash to such dissenting holders for their Shares. In addition,
such dissenting stockholders would be entitled to receive payment of a fair
rate of interest from the date of consummation of the Merger on the amount
determined to be the fair value of their Shares. In determining the fair value
of the Shares, the court is required to take into account all relevent
factors. Accordingly, such determination could be based upon considerations
other than, or in addition to, the market value of the Shares, including,
among other things, asset values and earning capacity. In Weinberger v. UOP,
Inc., the Delaware Supreme Court stated, among other things, that "proof of
value by any techniques or methods which are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered in an appraisal proceeding. Therefore, the value so determined in
any appraisal proceeding could be the same, more or less than the purchase
price per Share in the Offer or the Merger Consideration (as defined in the
Offer to Purchase).
GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE
(S)262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S)228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of a stock of a corporation, which stock
is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an
A-1
<PAGE>
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 holders; and
further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger
did not require for its approval the vote of the holders of the surviving
corporation as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
A-2
<PAGE>
(2) If the merger or consolidation was approved pursuant to (S)228 or 253
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be
sent by certified or registered mail, return receipt requested, addressed
to the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing of such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into
A-3
<PAGE>
account all relevant factors. In determining the fair rate of interest, the
Court may consider all relevant factors, including the rate of interest which
the surviving or resulting corporation would have had to pay to borrow money
during the pendency of the proceeding. Upon application by the surviving or
resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit discovery or
other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
his certificates of stock to the Register in Chancery, if such is required,
may participate fully in all proceedings until it is finally determined that
he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon the
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 262, L.
'94, effective 7-1-94.)
A-4
<PAGE>
ANNEX B
DOCUMENT: PAGE:
- --------- -----
Audited Consolidated Financial Statements (and Related Notes) for Pyramid
Technology Corporation for the Fiscal Years ended September 30, 1993 and
September 30, 1994...................................................... B-2
Unaudited Consolidated Financial Statements (and Related Notes) for
Pyramid Technology Corporation for the First Quarter of the Fiscal Year
ending September 30, 1995............................................... B-18
B-1
<PAGE>
AUDITED FINANCIAL STATEMENTS FOR PYRAMID TECHNOLOGY CORPORATION FOR THE FISCAL
YEARS ENDED SEPTEMBER 30, 1993 AND SEPTEMBER 30, 1994
PYRAMID TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Product revenues................ $ 152,590 $ 174,364 $ 138,916
Service revenues................ 65,925 59,334 53,310
------------- ------------- -------------
218,515 233,698 192,226
Cost of Sales:
Cost of products sold........... 87,708 86,828 78,743
Cost of services................ 50,875 45,293 44,786
------------- ------------- -------------
138,583 132,121 123,529
Gross profit...................... 79,932 101,577 68,697
Operating expenses:
Research and development........ 25,488 27,831 28,371
Sales, marketing, general and
administrative................. 73,744 64,411 64,741
Restructuring................... -- -- 41,180
Legal settlement................ -- -- 900
------------- ------------- -------------
Total operating expenses...... 99,232 92,242 135,192
------------- ------------- -------------
Operating income (loss)........... (19,300) 9,335 (66,495)
Interest income................... 655 781 826
Interest expense.................. (704) (523) (967)
Loss on investment in joint ven-
ture............................. (129) -- --
------------- ------------- -------------
Income (loss) before income taxes. (19,478) 9,593 (66,636)
Provision (benefit) for income
taxes............................ 2,935 959 (6,929)
------------- ------------- -------------
Net income (loss)................. $ (22,413) $ 8,634 $ (59,707)
============= ============= =============
Net income (loss) per share....... $ (1.66) $ 0.67 $ (4.99)
============= ============= =============
Shares used in computing net in-
come (loss) per share............ 13,467 12,890 11,962
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-2
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1994 1993
------------- -------------
(IN THOUSANDS, EXCEPT PAR
VALUE AND NUMBER OF SHARES)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................... $ 21,558 $ 31,358
Short-term investments......................... 20,651 --
Accounts receivable, net of allowance for
doubtful accounts of $1,660 in 1994 and $2,020
in 1993....................................... 49,310 51,392
Inventories.................................... 25,840 35,712
Prepaid expenses and deposits.................. 15,270 11,873
------------- -------------
Total current assets......................... 132,629 130,335
Property and equipment, at cost:
Machinery and equipment........................ 85,825 79,675
Furniture and fixtures......................... 6,546 5,674
Leasehold improvements......................... 9,627 9,924
------------- -------------
101,998 95,273
Less accumulated depreciation and amortization... 74,386 60,686
------------- -------------
27,612 34,587
Capitalized software development costs........... 18,381 15,959
Service spare parts and other assets............. 12,091 10,777
------------- -------------
$ 190,713 $ 191,658
============= =============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................... $ 16,398 $ 20,312
Accrued payroll and related liabilities........ 4,493 7,043
Accrued commissions............................ 2,424 2,419
Deferred revenue............................... 8,272 7,197
Other accrued liabilities...................... 10,932 8,764
Restructuring accruals......................... 3,075 4,464
Income taxes payable........................... 3,678 1,561
Current portion of long-term debt.............. 1,440 1,795
------------- -------------
Total current liabilities.................... 50,712 53,555
Noncurrent portion of long-term debt............. 1,563 487
Deferred income taxes payable.................... 2,400 --
Commitments
SHAREHOLDERS' EQUITY:
Common stock--$.01 par value; 30,000,000 shares
authorized, 15,567,000 issued and outstanding
in 1994 and 13,177,000 in 1993................ 156 132
Additional paid-in capital..................... 174,652 155,078
Accumulated deficit............................ (37,927) (15,514)
Accumulated translation adjustment............. (843) (2,080)
------------- -------------
Total shareholders equity.................... 136,038 137,616
------------- -------------
$ 190,713 $ 191,658
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-3
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED ACCUMULATED TOTAL
------------- PAID-IN EARNINGS TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT EQUITY
------ ------ ---------- --------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1991................... 11,807 $118 $138,149 $ 35,559 $ 993 $174,819
Stock options exercised. 119 1 972 -- -- 973
Sales under employee
stock purchase plan.... 221 2 2,051 -- -- 2,053
Compensation related to
stock option grants.... -- -- 45 -- -- 45
Net loss................ -- -- -- (59,707) -- (59,707)
Foreign currency
translation adjustment. -- -- -- -- (641) (641)
Tax benefit of stock
options exercised...... -- -- 187 -- -- 187
------ ---- -------- -------- ------- --------
Balance at September 30,
1992................... 12,147 121 141,404 (24,148) 352 117,729
Stock options exercised. 837 9 9,794 -- -- 9,803
Sales under employee
stock purchase plan.... 193 2 1,922 -- -- 1,924
Compensation related to
stock option grants.... -- -- 45 -- -- 45
Net income.............. -- -- -- 8,634 -- 8,634
Foreign currency
translation adjustment. -- -- -- -- (2,432) (2,432)
Tax benefit of stock
options exercised...... -- -- 1,913 -- -- 1,913
------ ---- -------- -------- ------- --------
Balance at September 30,
1993................... 13,177 132 155,078 (15,514) (2,080) 137,616
Stock options exercised. 90 1 745 -- -- 746
Sales under employee
stock purchase plan.... 300 3 2,079 -- -- 2,082
Issuance of common
shares to Siemens
Nixdorf, net of
issuance costs......... 2,000 20 16,735 -- -- 16,755
Compensation related to
stock option grants.... -- -- 15 -- -- 15
Net loss................ -- -- -- (22,413) -- (22,413)
Foreign currency
translation adjustment. -- -- -- -- 1,237 1,237
------ ---- -------- -------- ------- --------
Balance at September 30,
1994................... 15,567 $156 $174,652 $(37,927) $ (843) $136,038
====== ==== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-4
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1994 1993 1992
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $(22,413) $ 8,634 $(59,707)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization................. 28,455 29,961 31,118
Non-cash portion of restructuring charges..... -- -- 18,826
Compensation related to option grants......... 15 45 45
Changes in:
Accounts receivable, net.................... 2,082 (14,729) 16,605
Inventories................................. 9,872 (5,143) 743
Prepaid expenses and deposits and income tax
receivable................................. (3,397) 500 (2,497)
Accounts payable, accrued liabilities, and
other...................................... 1,085 (2,839) 10,945
-------- ------- --------
Net cash provided by operating activities....... 15,699 16,429 16,078
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments.............. (20,651) -- --
Investment in property and equipment............ (11,970) 13,722) (16,848)
Increase in capitalized software development
costs.......................................... (9,223) (8,695) (6,051)
Decrease (increase) in other assets............. (3,885) 870 354
-------- ------- --------
Net cash used for investing activities.......... (45,729) (21,547) (22,545)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt............ (2,503) (1,709) (1,690)
Borrowings under loan agreement................. 3,150 -- --
Issuance of common stock........................ 19,583 11,727 3,026
-------- ------- --------
Net cash provided by financing activities....... 20,230 10,018 1,336
-------- ------- --------
Increase (decrease) in cash and cash equivalents.. (9,800) 4,900 (5,131)
Cash and cash equivalents, at beginning of year... 31,358 26,458 31,589
-------- ------- --------
Cash and cash equivalents, at end of year......... $ 21,558 $31,358 $ 26,458
======== ======= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Tax benefit from exercise of stock options...... $ -- $ 1,913 $ 187
Acquisition of equipment under capital lease ob-
ligations...................................... 73 246 1,360
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest.......................... 704 523 967
Cash paid (received) for income taxes........... $ 374 $(4,967) $ 907
-------- ------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-5
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Principles of Consolidation The consolidated financial statements include
the accounts of Pyramid Technology Corporation (the "Company") and its wholly
owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated. Certain prior year information has been reclassified to
conform to the current year presentation.
Revenue Recognition The Company generally recognizes revenue at the time of
shipment and provides for the estimated cost to repair or replace products
under warranty provisions in effect at the time of sale. Deferred revenue on
maintenance contracts is recognized ratably over the contract period.
Income Taxes Effective for the fiscal year ended September 30, 1994, the
Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes." In accordance with this statement, deferred
income taxes are provided for temporary differences between financial
statement income and income for tax purposes using enacted tax laws and rates
for the years in which the taxes are expected to be paid. Adoption of this
statement did not have a material effect on the Company's consolidated
financial statements. During fiscal 1993 and 1992, the Company accounted for
income taxes pursuant to Statement of Financial Accounting Standard No. 96,
"Accounting for Income Taxes."
Net Income (Loss) Per Share Net income (loss) per share is computed based on
the weighted average number of common and common equivalent shares outstanding
during the period. Equivalent shares are calculated using the treasury stock
method or the modified treasury stock method (whichever applies) and consist
of outstanding stock options that have a dilutive effect on income per share.
During fiscal 1994 and 1992, no common stock equivalents were included in the
computation of loss per share as their effect would have been antidilutive.
Cash and Cash Equivalents The Company classifies certain investments as cash
equivalents if the original maturity from the date of acquisition of such
investments is three months or less. These investments are carried in the
balance sheet at cost, which approximates fair value. The effect of foreign
currency exchange rate fluctuations on cash flows has not been material.
Short-Term Investments Short-term investments consist of commercial paper
with original maturities from the date of acquisition greater than three
months and less than twelve months. These investments are carried at cost
which approximates fair value due to the short period of time to maturity.
Accounting for Certain Investments in Debt and Equity Securities Effective
September 30, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This statement addresses the accounting and reporting for
investments in marketable equity securities that have readily determinable
fair values and for all investments in debt securities. These securities are
required to be classified at the time of purchase and re-evaluated at each
reporting date as either (1) held-to-maturity, (2) trading, or (3) available-
for-sale.
The Company classifies its investment in commercial paper and money market
funds ($15,889,000 in cash equivalents and $20,651,000 in short-term
investments) as held-to-maturity given the Company's positive intent and
ability to hold the securities to maturity. In accordance with the statement,
held-to-maturity securities are carried at amortized cost, therefore, there
was no impact of adopting the statement on current period operations or
shareholders equity.
B-6
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Inventories Inventories are stated at the lower of cost (first-in, first-
out) or market and consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................. $10,617 $12,236
Work in process........................................... 8,320 14,517
Finished goods............................................ 6,903 8,959
------- -------
$25,840 $35,712
======= =======
</TABLE>
Property and Equipment Property and equipment, including assets held under
capital leases, are stated at cost. Depreciation and amortization are computed
using the straight-line method. Useful lives of three to five years are used
for machinery and equipment and furniture and fixtures; leasehold improvements
are amortized over the shorter of their useful lives or the term of the lease.
Maintenance and repairs are expensed as incurred.
Capitalized Software Development Costs The Company capitalizes software
development costs as the resulting products become "technologically feasible."
Amortization of capitalized software development costs begins when the
products are available for general release to customers, and is computed on a
product-by-product basis as the greater of: (a) the ratio of current gross
revenues for a product to the total of current and anticipated future gross
revenues for the product; or (b) the straight-line method over a period not to
exceed three years. Amortization expense for fiscal 1994, 1993, and 1992 was
$6,802,000, $7,323,000, and $6,069,000, respectively.
Service Spare Parts and Other Assets Net service spare parts at September
30, 1994 and 1993 were $10,677,000 and $8,821,000, respectively (with related
accumulated amortization of $11,032,000 and $10,122,000, respectively).
Amortization for service spare parts is provided using the straight-line
method over five years. Purchased technology and the excess of the cost over
the fair value of the net assets of acquired businesses, which are included in
other assets, are amortized on a straight-line basis over a period of seven
years. Amortization expense of $635,000, $635,000, and $724,000 was recorded
in fiscal 1994, 1993, and 1992, respectively.
Prepaid Royalties The Company has entered into several agreements for the
purpose of further enhancing the Company's competitive position in offering
relational database management and other applications software. Under these
agreements, the Company has made commitments, some of which were prepaid, to
provide minimum amounts of license royalties to the licensor. As software
packages are sold with the Company's systems or into the Company's existing
customer base, the Company will receive credit towards the minimum license
royalty commitments. Amortization of prepaid royalties is computed as the
greater of (a) the royalty per unit as the products are shipped; or (b) on a
straight-line basis over the lesser of the term of the agreement or three
years starting when the products are available for general release to
customers. Net prepaid royalties at September 30, 1994 and 1993 were
$1,915,000 and $1,377,000, respectively. As of September 30, 1994, the
remaining minimum license royalty payment commitments amounted to $150,000.
Joint Venture During the third quarter of fiscal 1994, a partnership
agreement between Pyramid Technology Australia PTY, Ltd., a wholly owned
subsidiary of the Company, and Fujitsu Australia Limited was signed. Pyramid
Data Centre Systems, the new joint venture created by the agreement, began
operations on July 2, 1994. The new venture will market Pyramid's Nile Series
of scalable
B-7
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
enterprise servers along with complementary Fujitsu and ICL hardware and
mainframe connectivity software. Pyramid Data Centre Systems' focus will be
the high-end commercial data center computing market, with emphasis on major
Australian corporations that are downsizing their mainframe operations.
Pyramid's share of the joint venture is 49% and is being accounted for using
the equity method.
Restructuring During fiscal 1992, the Company recorded restructuring costs
totaling $41,180,000 in connection with two restructuring programs designed to
reduce costs and improve operating efficiencies. These restructuring plans
reflect a realignment of corporate infrastructure, downsizing or discounting
less profitable business units, and a more focused research and development
effort. The cost reductions included a consolidation of facilities, a write-
off of nonproductive assets, and a reduction in workforce. At September 30,
1994, $3,075,000 remained accrued for excess facilities in Mountain View,
California and the United Kingdom which will be used to offset excess facility
costs over the next two to four years.
Concentration of Credit Risk Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash
investments and trade receivables. The Company sells its products to customers
in diversified industries primarily in North America, Europe, and Asia-
Pacific. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses were not material during the three
years reported.
The Company invests its excess cash in deposits with major banks, in money
market funds, and in commercial paper of companies with strong credit ratings
and in diversified industries. Generally, the investments mature within 120
days and, therefore, are subject to little risk. The Company has not
experienced losses related to these investments.
Foreign Exchange Contracts In order to reduce the impact of currency
fluctuations on intercompany balances, the Company enters into foreign
currency forward exchange contracts, which require the Company to exchange
foreign currencies for U.S. dollars at rates agreed to at the inception of the
contracts. The contracts generally have maturities that do not exceed one
month. The objective of these contracts is to neutralize the impact of foreign
currency exchange rate movements on the Company's operating results. These
contracts do not subject the Company to significant market risk from exchange
rate movements because the contracts offset gains and losses on the balances
being hedged. At September 30, 1994, the Company had foreign exchange
contracts outstanding to sell the equivalent of $1,779,000, which approximates
fair value, in Japanese and Swedish currencies, and to buy the equivalent of
$6,883,000, which approximates fair value, in Australian, British, and German
currencies.
Foreign Currency Translation Substantially all assets and liabilities of the
Companys foreign operations are translated into United States dollars at
exchange rates prevailing at the fiscal year-end. The resulting translation
adjustments are recorded as cumulative translation adjustments to shareholders
equity. Revenues and expenses for the year are translated at the average
exchange rates in effect during the year. Foreign currency exchange gains or
losses were not material during the three years reported.
Related Party Transactions During the second quarter of fiscal 1994, a
senior executive of a major customer and vendor of the Company was elected to
the Company's Board of Directors. The related party accounted for
approximately 4%, 2%, and 1% of the Company's revenue during fiscal 1994,
1993,
B-8
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and 1992, respectively. Additionally, the Company has contracted with the
related party to perform consulting services ranging from a minimum of
$6,000,000 to $7,000,000 per year over the next eight years.
During the third quarter of fiscal 1994, the Company made a sale to a
customer which accounted for less than 1% of the Company's fiscal 1994
revenues, and also purchased $900,000 of prepaid software licenses from the
customer. The Company's chairman of the board is a member of the customers
board of directors.
During the fourth quarter of fiscal 1994, Pyramid and Siemens Nixdorf
announced an expansion of their cooperative agreement for high-end UNIX
systems by entering into a new software and hardware licensing agreement and
amending its existing OEM agreement. Siemens Nixdorf licensed Pyramid's
enhancement of the UNIX operating system for massively parallel processing
(MPP) and received the right to purchase the related MPP hardware product,
internally known as MESHine, under the OEM agreement. In addition, Siemens
Nixdorf paid $17,250,000 for 2,000,000 shares of Common Stock and a warrant to
purchase an additional 1,330,000 shares at $10.00 per share. The warrant
expires on September 30, 1995. Siemens Nixdorf's ownership in Pyramid
increased to approximately 18% with the initial purchase of shares and would
increase to approximately 24% if the warrant is exercised. A senior executive
of Siemens Nixdorf was also elected to the Company's Board of Directors.
Siemens Nixdorf accounted for approximately 5%, 6%, and 8% of the Company's
revenue during fiscal 1994, 1993, and 1992, respectively. At September 30,
1994, Siemens Nixdorf owed the Company approximately $6,000,000 for the
purchase of products.
COMMITMENTS
Leasing Arrangements The Company leases its corporate headquarters,
manufacturing facilities, and sales offices under noncancelable operating
lease agreements which expire at various dates through 2014. Rental expense
under operating leases, including month to month facilities and equipment
rentals was approximately $11,763,000, $12,501,000, and $12,112,000 in 1994,
1993, and 1992, respectively. In connection with the fiscal 1992
restructurings, which included a consolidation of facilities, the Company
subleases certain of its facilities under noncancelable subleases. The minimum
future rentals to be received under these subleases are $951,000, $949,000,
and $647,000 in fiscal 1995, 1996, and 1997, respectively.
The Company has entered into capital lease agreements for certain machinery
and equipment which are accounted for as the acquisition of an asset and
incurrence of a liability. Assets held under capital leases included in
property and equipment are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment.................................. $ 3,252 $ 2,972
Furniture and fixtures................................... 4,880 4,359
------- -------
8,132 7,331
Less accumulated amortization............................ 4,418 4,091
------- -------
$ 3,714 $ 3,240
======= =======
</TABLE>
B-9
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Minimum future payments under all capital and operating lease agreements as
of September 30, 1994 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING SEPTEMBER 30, LEASES LEASES
------------------------- --------- -------
(IN THOUSANDS)
<S> <C> <C>
1995................................................. $ 9,510 $ 446
1996................................................... 8,654 131
1997................................................... 7,183 14
1998................................................... 6,281 --
1999................................................... 6,072 --
Thereafter............................................. 26,319 --
------- -----
Total minimum lease payments........................... $64,019 591
======= =====
Amount representing interest........................... (37)
-----
Present value of minimum lease payments................ 554
Current obligations under capital leases............... (415)
-----
Noncurrent obligations under capital leases............ $ 139
=====
</TABLE>
Dismissal of Shareholder Class Action Complaints During the first quarter of
fiscal 1994, two shareholder class action complaints were filed naming as
defendants the Company and certain of its officers and directors, and alleging
violations of federal securities laws as well as a state law fraud claim. The
complaints alleged that the Company made false and misleading statements in
press releases and other public statements and that some of the individual
defendants traded the Company's Common Stock on inside information. The
complaints sought an award of an unspecified amount of damages. The cases were
consolidated by order of the District Court on July 14, 1994. After review of
initial disclosures made by the Company and discussions with the Company's
attorneys, counsel for the plaintiffs agreed to dismiss the actions. On July
26, 1994, pursuant to a stipulation of the parties, the District Court entered
an order for dismissal without prejudice of the consolidated actions.
COMMON STOCK
Common Shares Rights Agreement The Company has a plan to protect
shareholders rights in the event of a proposed takeover of the Company. Under
the plan, the Board of Directors declared a dividend of one common share
purchase right (a right) for each share of the Company's Common Stock. Each
right entitles the shareholder to purchase one share of the Company's Common
Stock at an exercise price of $64. The rights become exercisable following the
tenth day after a person or group (a) acquires beneficial ownership of 20% or
more of the Company's Common Stock or (b) announces a tender or exchange offer
which would result in ownership by a person or group of 30% or more of the
Company's Common Stock.
If any person or group acquires 20% of the Company's Common Stock, each
right not held by the acquiring person will entitle the holder to purchase
$128 worth of the Company's Common Stock for $64. If the Company is acquired
in a merger or other business combination transaction, each right not held by
the acquiring person will entitle its holder to purchase $128 worth of the
common stock of the acquiring company for $64.
The rights are redeemable at the Company's option for $0.01 per right.
Additionally, the exercise price and number and kind of shares covered by each
right are subject to adjustment for stock splits, stock dividends, and certain
other events. The rights expire on December 12, 1998.
B-10
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the fourth quarter of fiscal 1994, all necessary corporate action
required under the Rights Agreement to amend the Rights Agreement was
authorized and taken so that the potential exercise of a warrant to purchase
1,330,000 shares of Common Stock or any other purchase of Common Stock by
Siemens Nixdorf would not make Siemens Nixdorf an acquiring person.
Incentive Stock Option Plan The Company has an Incentive Stock Option Plan
(the "Plan") under which officers, consultants and key employees may be
granted options to purchase the Company's Common Stock. Options are granted at
a price not less than fair market value on the date of grant, as determined by
the Board of Directors.
At September 30, 1994, 6,116,666 shares of Common Stock had been reserved
for issuance under the Plan. The options are generally exercisable at the rate
of 25% commencing one year after the date of grant and in monthly increments
of 1/36 of the remaining balance thereafter. Expiration dates are determined
by the Board of Directors, but in no event will they exceed ten years from the
date of grant. Unexercised options are cancelable three months after the date
of termination of employment.
Plan transactions for the years ended September 30, 1993 and 1994 were as
follows:
<TABLE>
<CAPTION>
PRICE
----------------------------------
NUMBER OF SHARES PER SHARE TOTAL
----------------------------------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at
September 30, 1992..... 2,528,042 $ 1.31-$29.00 $ 37,089
Grants.................. 1,192,500 $ 7.75-$20.25 12,854
Exercises............... (834,314) $ 1.31-$18.50 (9,773)
Cancellations........... (432,326) $ 6.50-$29.00 (6,243)
---------------- ------------------- --------------
Options outstanding at
September 30, 1993..... 2,453,902 $ 1.31-$29.00 33,927
Grants.................. 1,117,500 $ 6.63-$20.50 14,358
Exercises............... (89,927) $ 1.31-$18.00 (738)
Cancellations........... (526,823) $ 1.31-$29.00 (7,653)
---------------- ------------------- --------------
Options outstanding at
September 30, 1994..... 2,954,652 $ 1.31-$29.00 $ 39,894
================ =================== ==============
</TABLE>
At September 30, 1994, there were 1,722,581 shares exercisable under this
Plan at $1.31 to $29.00 per share, and options for 781,043 shares of Common
Stock were available for grant. At September 30, 1993, there were 1,178,800
shares exercisable under this plan at $1.31 to $29.00 per share.
Executive Officers' Nonstatutory Stock Option Plan The Company has an
Executive Officer's Nonstatutory Stock Option Plan (the "Plan") under which
400,000 shares of Common Stock were reserved for issuance to executive
officers of the Company. Under the Plan, the Board of Directors determines the
number of shares, option price, and exercisability of options. Options expire
ten years after the date of grant. There were no option grants, exercises, or
cancellations under the Plan during fiscal 1994 and 1993. At September 30,
1994, there were 20,313 shares outstanding and exercisable under this Plan at
$17.00 per share and options for 7,000 shares of Common Stock were available
for grant. At September 30, 1993, there were 20,313 shares outstanding and
12,500 shares exercisable under the Plan at $17.00 per share.
Directors' Option Plan The Company has a Directors' Option Plan (the "Plan")
under which 160,000 shares of Common Stock were reserved for issuance to
nonemployee directors as of September 30, 1994. The Plan provides for the
automatic grant of an option to purchase 12,000 shares
B-11
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of Common Stock to nonemployee directors on the date on which such person
first becomes a director, and the annual grant of an option to purchase 6,000
shares on each January 31 thereafter. The per share exercise price of the
Common Stock subject to an option shall be 100% of the fair market value per
share on the date of the option grant. As of September 30, 1994, options for
58,000 shares were available for grant. At September 30, 1994, there were
61,500 shares exercisable under this plan at $13.50 to $18.25 per share. At
September 30, 1993, there were 30,000 shares exercisable under this plan.
<TABLE>
<CAPTION>
PRICE
------------------------------------
NUMBER OF SHARES PER SHARE TOTAL
------------------------------------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at
September 30, 1992..... 42,000 $ 14.75-$18.25 $ 693
Grants.................. 18,000 $14.75 266
Exercises............... (2,500) $14.75 (37)
-------------- --------------------- --------------
Options outstanding at
September 30, 1993..... 57,500 $ 14.75-$18.25 922
Grants.................. 42,000 $ 13.50-$14.50 585
-------------- --------------------- --------------
Options outstanding at
September 30, 1994..... 99,500 $ 13.50-$18.25 $ 1,507
============== ===================== ==============
</TABLE>
EMPLOYEE BENEFIT PROGRAMS
Employee Stock Purchase Plan In September 1987, the Company adopted the 1987
Employee Stock Purchase Plan (the "Plan"). As of September 30, 1994, 1,150,000
shares of Common Stock have been reserved for issuance under the Plan. The
Plan permits eligible employees to purchase Common Stock through payroll
deductions of up to a maximum of 10% of their eligible compensation at 85% of
the fair market value. During fiscal 1994, 300,074 shares were purchased at
prices of $6.69 to $7.23 per share. At September 30, 1994, 31,626 shares were
available for future issuance.
410(K) Plan The Company has adopted a tax deferred savings plan ("401(k)
Plan" or the "Plan") in which virtually all domestic employees are eligible to
participate. Participating employees may contribute up to 15% of qualified
earnings. The Company matches employee contributions at a 50% rate up to the
first 5% of each employees salary deferral contribution. Employee
contributions are fully vested, whereas vesting in matching Company
contributions occurs at a rate of 33 1/3% per year of employment. All
contributions to the Plan are transferred to a trustee and are invested at the
employee's discretion in six separate funds. During fiscal 1994, 1993, and
1992, the Company's contribution amounted to approximately $1,122,000,
$887,000, and $946,000, respectively.
BORROWING ARRANGEMENTS
For the purposes of hedging its foreign currency exposures, the Company had
available a bank facility which provides for up to $70,000,000 of foreign
exchange contracts. At September 30, 1994, $61,338,000 was available under the
foreign exchange line of credit as $8,662,000 was utilized for foreign
currency hedging contract positions. This credit facility expired on October
31, 1994. During October 1994, the Company entered into a new revolving line
of credit agreement with a bank which provides it with the ability to borrow
up to $10,000,000. Amounts borrowed under the line of credit are secured by
the Company's accounts receivable and inventory. The interest rate on
borrowings under the line of credit is at the bank's prime rate. The agreement
also provides for up to $50,000,000 of foreign exchange contract availability
in addition to the $10,000,000 revolving line of credit. This line of credit
expires on December 31, 1995. The above facilities do not permit the Company
to pay cash dividends and they set limitations on the Company in regard to
other indebtedness, pledging assets,
B-12
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
guarantees, mergers and acquisitions, and annual capital expenditure levels as
well as requiring the Company to maintain certain financial requirements.
During fiscal 1994, the Company financed $3,150,000 of equipment under a
capital equipment financing agreement with a lending company. The loans, which
have an average interest rate of approximately 8%, are repaid on a monthly
basis over a three-year period.
INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1993 1992
-------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal....................................... $ (1,039) $ 912 $ (4,046)
State......................................... 144 298 --
Foreign....................................... 1,307 231 21
-------- ------ --------
412 1,441 (4,025)
-------- ------ --------
DEFERRED:
Federal....................................... 2,523 (482) (2,596)
State......................................... -- -- (308)
-------- ------ --------
2,523 (482) (2,904)
-------- ------ --------
$ 2,935 $ 959 $ (6,929)
======== ====== ========
</TABLE>
Pretax income (loss) from foreign operations amounted to $3,214,000,
$1,262,000, and $(10,098,000) for fiscal 1994, 1993, and 1992, respectively.
The total provision (benefit) for income taxes differs from the amount
computed by applying the statutory federal rate of 34% to income (loss) before
taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1993 1992
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed expected tax provision (benefit).......... $(6,623) $ 3,262 $(22,656)
State tax, net of federal benefit.................. 144 197 (203)
Losses not benefited and income taxed at other than
U.S. rates........................................ 10,084 -- 14,200
Utilization of operating loss carryforward......... (670) (1,185) --
Utilization of general business credits............ -- (923) 1,947
Other.............................................. -- (392) (217)
------- ------- --------
$ 2,935 $ 959 $ (6,929)
======= ======= ========
</TABLE>
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes." As permitted by
SFAS 109, the Company has elected not to restate the financial statements of
any prior years. The effect of adoption of this standard was not material to
the Company's financial position or results of operations for the year ended
September 30, 1994.
B-13
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect tax credit and loss carryforwards and the tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax liabilities
and assets as of September 30, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1994
------------------
(IN THOUSANDS)
<S> <C>
Deferred tax liabilities:
Capitalized software development costs and other........ $ (7,181)
--------
Total deferred tax liabilities........................ (7,181)
--------
Deferred tax assets:
Tax credits............................................. 4,274
Depreciation............................................ 1,998
Special charge and other reserves....................... 13,193
Loss carryforwards and other............................ 10,034
--------
Total deferred tax assets............................. 29,499
--------
Valuation allowance for deferred tax assets............... (22,318)
--------
Net deferred taxes........................................ $ 0
========
</TABLE>
The valuation allowance increased $9,426,000 in the year ended September 30,
1994. Approximately $3,279,000 of the valuation reserve is related to benefits
of stock option deductions which will be allocated directly to additional
paid-in capital when realized.
For federal income tax purposes at September 30, 1994, the Company had
$29,100,000 of net operating loss carryforwards which expire in the year 2009.
The Company had research and development credit carryforwards of approximately
$3,500,000 which expire through the year 2006. The Company had alternative
minimum tax credit carryforwards of approximately $800,000 which do not
expire. The Company had foreign net operating losses of approximately
$2,900,000.
Significant components of the deferred income tax in the provision for
income taxes for the years ended September 30, 1993 and September 30, 1992 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------
1993 1992
------ -------
(IN THOUSANDS)
<S> <C> <C>
Depreciation............................................... $ (754) $ (10)
Inventory valuation differences............................ (241) (589)
Capitalized software development........................... 309 (383)
Allowance for doubtful accounts............................ (4) (62)
Unrealized profits on intercompany transactions............ (90) 28
Restructuring costs........................................ 1,061 (1,704)
Deferred revenue........................................... (645) 12
Other, net................................................. (118) (196)
------ -------
Total deferred taxes....................................... $ (482) $(2,904)
====== =======
</TABLE>
B-14
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INDUSTRY SEGMENT, SIGNIFICANT CUSTOMER, AND GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment: the design,
manufacture, marketing, and service of high-performance open system servers
and related software that combine the advantages of the UNIX multi-user
operating system with a system architecture based on the principles of reduced
instruction set computing (RISC).
During fiscal 1994, 1993, and 1992, the Company had export sales of
approximately 15%, 18%, and 19% of total revenues, respectively. Export sales
by geographic areas were 11%, 14%, and 17% to Europe and 4%, 4%, and 2%
primarily to Asia and the Far East as a percentage of total revenues for
fiscal 1994, 1993, and 1992, respectively. During fiscal 1994, AT&T accounted
for 18% ($38,372,000) of the Company's total revenues. Sales to AT&T in fiscal
1993 and 1992 were 17% ($40,676,000) and 20% ($39,297,000), respectively.
The Company's operations by geographic area are as follows:
<TABLE>
<CAPTION>
UNITED UNITED ASIA-
STATES KINGDOM PACIFIC ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1994
Revenues:
Sales to unaffiliated
customers............... $169,535 $25,411 $23,569 $ -- $218,515
Intercompany sales....... 10,986 -- -- (10,986) --
-------- ------- ------- -------- --------
Total revenues........... 180,521 25,411 23,569 (10,986) 218,515
-------- ------- ------- -------- --------
Operating income (loss).. (27,742) 1,261 1,602 5,579 (19,300)
-------- ------- ------- -------- --------
Identifiable assets...... 210,492 14,823 7,026 (41,628) 190,713
-------- ------- ------- -------- --------
1993
Revenues:
Sales to unaffiliated
customers............... 186,883 26,328 20,487 -- 233,698
Intercompany sales....... 31,691 -- -- (31,691) --
-------- ------- ------- -------- --------
Total revenues........... 218,574 26,328 20,487 (31,691) 233,698
-------- ------- ------- -------- --------
Operating income (loss).. 9,481 1,197 (130) (1,213) 9,335
-------- ------- ------- -------- --------
Identifiable assets...... 216,694 16,928 12,837 (54,801) 191,658
-------- ------- ------- -------- --------
1992
Revenues:
Sales to unaffiliated
customers............... 146,302 24,263 21,661 -- 192,226
Intercompany sales....... 25,808 -- -- (25,808) --
-------- ------- ------- -------- --------
Total revenues........... 172,110 24,263 21,661 (25,808) 192,226
-------- ------- ------- -------- --------
Operating income (loss).. (55,010) (4,233) (5,987) (1,265) (66,495)
-------- ------- ------- -------- --------
Identifiable assets...... $193,751 $15,739 $12,631 $(45,930) $176,191
======== ======= ======= ======== ========
</TABLE>
Intercompany sales are accounted for at prices which approximate arm's
length transactions and include systems and spare parts.
B-15
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------------------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1994
Revenues............................ $ 60,018 $ 46,548 $ 53,812 $ 58,137
Gross profit........................ 24,969 12,599 18,838 23,526
Net income (loss)................... 635 (15,973) (5,940) (1,135)
Net income (loss) per share......... 0.05 (1.19) (0.44) (0.08)
1993
Revenues............................ $ 55,103 $ 58,024 $ 60,022 $ 60,549
Gross profit........................ 22,700 24,842 27,175 26,860
Net income.......................... 468 1,440 3,334 3,392
Net income per share................ 0.04 0.12 0.25 0.25
</TABLE>
B-16
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Pyramid Technology Corporation
We have audited the accompanying consolidated balance sheet of Pyramid
Technology Corporation as of September 30, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pyramid
Technology Corporation at September 30, 1994 and 1993 and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended September 30, 1994 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
October 25, 1994
B-17
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR PYRAMID TECHNOLOGY CORPORATION FOR THE FIRST
QUARTER OF THE FISCAL YEAR ENDING SEPTEMBER 30, 1995
PYRAMID TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
DEC. 30 DEC. 31
1994 1993
--------- ---------
<S> <C> <C>
Revenues:
Product revenues....................................... $ 44,223 $ 43,978
Service revenues....................................... 17,896 16,040
--------- ---------
62,119 60,018
Cost of sales:
Cost of products sold.................................. 21,765 23,167
Cost of services....................................... 13,126 11,882
--------- ---------
34,891 35,049
Gross profit............................................. 27,228 24,969
Operating expenses:
Research and development............................... 6,007 6,643
Sales, marketing, general and administrative........... 20,001 17,441
--------- ---------
Total operating expenses............................... 26,008 24,084
--------- ---------
Operating income......................................... 1,220 885
Interest income.......................................... 518 121
Interest expense......................................... (97) (159)
Loss on investment in joint venture...................... (112) --
--------- ---------
Income before income taxes............................... 1,529 847
Provision for income taxes............................... 229 212
--------- ---------
Net income............................................... $ 1,300 $ 635
========= =========
Net income per common and common equivalent share........ $ 0.08 $ 0.05
========= =========
Shares used in computing net income per common and common
equivalent share........................................ 15,644 13,584
========= =========
</TABLE>
See accompanying notes
B-18
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DEC. 30 SEPT. 30
1994 1994
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 17,747 $ 21,558
Short-term investments.................................... 36,334 20,651
Accounts receivable, net.................................. 46,982 49,310
Inventories............................................... 30,432 25,840
Prepaid expenses and deposits............................. 13,868 15,270
-------- --------
Total current assets.................................... 145,363 132,629
Property and equipment, at cost............................. 105,110 101,998
Less accumulated depreciation and amortization.............. 77,961 74,386
-------- --------
27,149 27,612
Capitalized software development costs...................... 18,016 18,381
Service spare parts and other assets........................ 12,468 12,091
-------- --------
$202,996 $190,713
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 22,468 $ 16,398
Accrued payroll and related liabilities................... 6,309 4,493
Accrued commissions....................................... 2,823 2,424
Deferred revenue.......................................... 11,517 8,272
Other accrued liabilities................................. 10,478 10,932
Restructuring accruals.................................... 2,882 3,075
Income taxes payable...................................... 3,891 3,678
Current portion of long-term debt......................... 1,320 1,440
-------- --------
Total current liabilities............................... 61,688 50,712
Noncurrent portion of long-term debt........................ 1,233 1,563
Deferred income taxes payable............................... 2,400 2,400
Shareholders' equity:
Common stock.............................................. 156 156
Additional paid-in capital................................ 174,899 174,652
Accumulated deficit....................................... (36,628) (37,927)
Accumulated translation adjustment........................ (752) (843)
-------- --------
Total shareholders' equity.............................. 137,675 136,038
-------- --------
$202,996 $190,713
======== ========
</TABLE>
See accompanying notes
B-19
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
DEC. 30 DEC. 31
1994 1993
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 1,300 $ 635
Adjustments to reconcile net income to net cash from op-
erating activities:
Depreciation and amortization......................... 6,947 7,597
Changes in:
Accounts receivable, net............................ 2,328 (6,011)
Inventories......................................... (4,592) (1,788)
Prepaid expenses and deposits and income tax receiv-
able............................................... 1,402 855
Accounts payable, accrued liabilities, and other.... 11,212 (1,943)
--------- --------
Net cash provided by (used for) operating activities.... 18,597 (655)
--------- --------
Cash flows from investing activities:
Purchase of short-term investments...................... (15,683) --
Investment in property and equipment.................... (3,535) (3,337)
Increase in capitalized software development costs...... (1,596) (2,403)
Increase in other assets................................ (1,391) (1,169)
--------- --------
Net cash used for investing activities.................. (22,205) (6,909)
Cash flows from financing activities:
Principal payments on capital lease obligations......... (450) (546)
Net borrowings under loan agreement..................... -- 2,364
Issuance of common stock, net of repurchases............ 247 262
--------- --------
Net cash provided by (used for) financing activities.... (203) 2,080
--------- --------
Decrease in cash and cash equivalents..................... (3,811) (5,484)
Cash and cash equivalents, at the beginning of the period. 21,558 31,358
--------- --------
Cash and cash equivalents, at the end of the period....... $ 17,747 $ 25,874
========= ========
Supplemental disclosures of cash flow information:
Cash paid for interest.................................. $ 97 $ 159
Cash paid (received) for income taxes................... $ (2,199) $ 531
</TABLE>
See accompanying notes
B-20
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries after elimination of all significant
intercompany transactions.
While the financial information furnished is unaudited, the statements in
this report reflect all adjustments, consisting of normal recurring accruals,
which, in the opinion of management, are necessary for a fair statement of the
results of operations for the interim periods covered and of the financial
condition of the Company at the dates of the balance sheets. The operating
results for the interim periods presented are not necessarily indicative of
the results to be expected for the entire year.
Certain footnotes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
These financial statements should be read in conjunction with the Company's
audited financial statements and notes thereto for the fiscal year ended
September 30, 1994.
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
Effective September 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". This statement addresses the accounting and reporting for
investments in marketable equity securities that have readily determinable
fair values and for all investments in debt securities. These securities are
required to be classified at the time of purchase and re-evaluated at each
reporting date as either (1) held-to-maturity, (2) trading, or (3) available-
for-sale. The Company classifies its investment in commercial paper and money
market funds ($7,819,000 in cash equivalents and $36,334,000 in short-term
investments) as held-to-maturity given the Company's positive intent and
ability to hold the securities to maturity. In accordance with the statement,
held-to-maturity securities are carried at amortized cost which approximates
fair value.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following (in thousands):
<TABLE>
<CAPTION>
DEC. 30 SEPT. 30
1994 1994
------- --------
<S> <C> <C>
Raw materials............................................ $11,582 $10,617
Work-in-process.......................................... 11,589 8,320
Finished goods........................................... 7,261 6,903
------- -------
$30,432 $25,840
======= =======
</TABLE>
RELATED PARTY TRANSACTIONS
Siemens Nixdorf Informationssyteme AG (Siemens Nixdorf), which owns
approximately 17% of the Company's Common Stock, accounted for $6,587,000, or
11% of the Company's revenue during the first quarter of fiscal 1995 and
$1,707,000, or 3% of the Company's revenue during the first quarter of fiscal
1994. Siemens Nixdorf also holds a warrant to purchase 1,330,000 shares of the
Company's Common Stock at $10.00 per share. The warrant expires on September
30, 1995.
B-21
<PAGE>
PYRAMID TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
A senior executive of a major customer and vendor of the Company is a member
of the Company's board of directors. The related party accounted for
$1,136,000, or 2% of the Company's revenue during the first quarter of fiscal
1995 and $2,539,000, or 4% of the Company's revenue during the first quarter
of fiscal 1994. The Company purchased services from the vendor totaling
$2,323,000 during the first quarter of fiscal 1995 and $1,532,000 during the
first quarter of fiscal 1994.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
dilutive shares issuable upon the exercise of stock options using the treasury
stock or modified treasury stock method (whichever applies). For the three
month period ended December 30, 1994, no common equivalent shares were
included in the computation as the modified treasury stock method applied and
the effect would be anti-dilutive. For the three month period ended December
31, 1993, common equivalent shares were computed using the treasury stock
method.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
DEC. 30 DEC. 31
1994 1993
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Average shares outstanding............................... 15,644 13,240
Net effect of dilutive stock options..................... -- 344
---------- ----------
Shares used in computing net income per common and common
equivalent share........................................ 15,644 13,584
Net income............................................... $ 1,300 $ 635
Net income per common and common equivalent share........ $ 0.08 $ 0.05
</TABLE>
SUBSEQUENT EVENT
On January 23, 1995, Pyramid and Siemens Nixdorf jointly announced that they
had entered into an agreement pursuant to which a wholly-owned subsidiary of
Siemens Nixdorf will acquire all of the outstanding Common Stock of Pyramid
not currently owned by Siemens Nixdorf for an aggregate purchase price of
approximately $207 million. Under the agreement, Siemens Nixdorf's subsidiary
will commence a tender offer for all outstanding Common Stock of Pyramid for
$16.00 per share in cash. The tender offer will be followed by a merger in
which any shares not acquired by Siemens Nixdorf's subsidiary in the tender
offer will be acquired for the same amount of cash. Siemens Nixdorf currently
owns over 17% of the outstanding Common Stock of Pyramid. The tender offer,
which was approved by Pyramid's board of directors, commenced January 27, 1995
and is conditioned on a majority of the outstanding shares of Pyramid being
tendered as well as other customary conditions, including regulatory
approvals.
B-22
<PAGE>
Facsimiles of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates evidencing Shares and any other required
documents should be sent or delivered by each stockholder or his broker,
dealer, commercial bank, trust company or other nominee to the Depositary at
one of its addresses set forth below.
The Depositary for the Offer is:
CHEMICAL BANK
By Mail: By Facsimile: By Hand: or Overnight
(for Eligible Institutions only) Courier:
Chemical Bank
Reorganization Dept. (212) 629-8015 or Chemical Bank
P.O. Box 3085 (212) 629-8016 55 Water Street
G.P.O. Station Second Floor-Room 234
New York, NY 10116-3085 Confirm by Telephone: New York, NY 10041
(212) 946-7137 Attention: Reorganization
Department
Questions or requests for assistance may be directed to the Information
Agent at its address and telephone numbers listed below or to the Dealer
Managers at their address listed below. Additional copies of this Supplement,
the Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be obtained from the Information Agent. A stockholder may also
contact brokers, dealers, commercial banks or trust companies for assistance
concerning the Offer.
The Information Agent for the Offer is:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
(212) 509-6240 (COLLECT)
BANKS AND BROKERS CALL COLLECT (212) 440-9800
CALL TOLL FREE: 1-800-223-2064
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
