1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 30, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________________ to __________________ Commission File Number 0-14686 PYRAMID TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-2781589 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3860 N. FIRST STREET, SAN JOSE, CALIFORNIA 95134 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (408) 428-9000. Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ 1

2 Based on the closing sale price of the Common Stock on the NASDAQ National Market System on November 28, 1994, the aggregate market value of the voting stock held by non-affiliates of the registrant was $125,327,943. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares outstanding of the registrant's Common Stock, $.01 par value, was 15,583,965 on November 28, 1994. DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for the fiscal year ended September 30, 1994 - Items 3, 5, 6, 7, 8 and 14(a)(1). (2) Proxy Statement for the registrant's Annual Meeting of Stockholders to be held on January 26, 1995 - Items 10, 11, 12 and 13. Total number of pages, including cover page - 164 Index to exhibits page - 24 2

3 PART I ITEM 1 BUSINESS GENERAL Pyramid Technology Corporation ("Pyramid" or the "Company") was incorporated in California in December 1981 and reincorporated in Delaware in June 1987. The Company designs, manufactures, markets, and supports high-end, large-scale servers that deliver mainframe-class performance for the open enterprise client/server environment. These servers are aimed at the global 2000 marketplace which is comprised of certain Fortune 2000 businesses in the United States, representative corporations in other countries, and government agencies worldwide. Pyramid's high-availability, fault-resilient systems run large UNIX relational databases, and are based on a symmetric multiprocessing (SMP) architecture that combines an enhanced UNIX operating system with reduced instruction set computing (RISC) processor technology. The Company's systems support up to 2,160 MIPS (millions of instructions-per-second), thousands of transactions-per-second, and more than 10,000 concurrent users in clustered configurations. Since its founding in 1981, Pyramid has consistently focused on meeting the needs of customers at the high-end of the market, and more recently, on fostering the move by major corporations toward open enterprise client/server computing. Today, Pyramid is one of the leaders in the high-end, server market with more than 3,500 systems installed worldwide. With its mid- and high-end UNIX servers, the Company delivers on-line transaction processing (OLTP), enterprise-wide messaging, data warehousing, and decision support solutions. To support its hardware and software offerings, Pyramid has developed strategic relationships with companies that provide expertise in databases, application development tools, mainframe transition toolsets, business solutions, communications, and data center integration. Pyramid markets its open systems solutions via a combination of direct and indirect sales channels. In line with changing market dynamics, during the past two years, the Company has been transitioning to a direct-sales dominated marketing strategy. Direct sales accounted for 62 percent of total product revenue in fiscal 1994, the same as in fiscal 1993. Direct sales are handled through a field sales and support network in the Americas, the United Kingdom, Hong Kong, and Japan. Indirect sales are handled via ventures with joint sales partners, original equipment manufacturers (OEMs), value-added resellers (VARs), and distributors. In fiscal 1994, the Company continued to build on the successful launch of its new family of fault-resilient, SMP-based UNIX servers, the Pyramid Nile(TM) Series. The first Pyramid Nile server, the Pyramid Nile 150, was introduced in October 1993. It is the Company's most powerful server to date and features a number of enhancements for reliability, availability, and serviceability. In May 1994, the Company expanded the family with the Pyramid Nile 100. The Pyramid Nile 100 is targeted at the mid-range of the scalable, open systems market and offers the performance and availability of the high-end Pyramid Nile 150 at a size and price-point typical of mid-range systems. Currently, the Company is developing a new product which is internally referred to as MESHine. MESHine will enhance Pyramid's Nile- based SMP and clustering competencies with massively parallel processing (MPP) technology to provide for extending the Company's enterprise server capabilities within the areas of OLTP, data warehousing and decision support, and electronic messaging. The product is expected to be released sometime in fiscal 1995. 3

4 PYRAMID'S ROLE IN THE ENTERPRISE As Pyramid continues to expand it's focus on enterprise computing, the Company is concentrating on delivering solutions for the most demanding OLTP, messaging, and decision support business applications. The Company teams with industry-leading database, tools, and application software companies to optimize their software running on Pyramid servers. The investments the Company has made in these long-term partnerships have enabled Pyramid to expand its technology offerings and provide complete enterprise solutions for very large corporations. Pyramid's systems are increasingly used in four ways: - OFF-LOADING -- Business-critical applications such as decision support and OLTP are being off-loaded from mainframes to powerful, scalable servers from Pyramid. Applications developed in CICS/COBOL, SAS, and FOCUS can be migrated to Pyramid systems. These migrations free up expensive mainframe resources, improve performance, and enable users to maintain and continue development of the application in a more cost-effective, user-friendly environment. - LARGE-SCALE NEW APPLICATION DEVELOPMENT -- Through strategic partnerships with relational database partners -- Oracle, Informix, Sybase, and Computer Associates (ASK/Ingres) -- Pyramid runs some of the largest RDBMS sites in production. The Company has made substantial investments in core engineering and joint development to ensure its servers are optimized to run the largest, most demanding RDBMS solutions. As a result, over 90 percent of Pyramid's installed systems run RDBMSs. - DECISION SUPPORT AND DATA WAREHOUSING -- Business process re-engineering and the evolution of open systems are changing the current role of corporate computer systems from an almost exclusive focus on running day-to-day transaction processing to running new information applications such as decision support, Electronic Data Interchange (EDI), corporate messaging, work flow, and document management. The evolution of these new enabling technologies also has created emerging multimedia applications, such as interactive entertainment and video on- demand. Pyramid servers have the performance and availability to run all of these emerging applications. - PACKAGED APPLICATIONS -- According to a recent survey conducted by the Gartner Group, a market research firm, there is an increasing trend toward purchasing off-the-shelf packaged applications. Pyramid has developed strong relationships with most of the providers of leading applications. These providers include Oracle Financials, Uniplex, PeopleSoft, and FourGen. In addition, the Company provides a wide range of solutions for its six key vertical markets with such products as Cybors, Connect, Prism, Oracle Manufacturing, and Avalon. PRODUCTS Pyramid's goal with platform technology is to develop high-end, large-scale enterprise servers that deliver mainframe-class reliability, availability, and serviceability. Five commercial enhancements differentiate Pyramid's platform technology from that of its competitors today: 4

5 - Leading System Architecture: Pyramid's servers are based on a high-performance SMP architecture that offers both high single-threaded performance and system scalability. The Company's architecture uses the MIPS RISC processors, recognized for their industry leading integer performance -- a requirement for OLTP applications. - Leading Open Operating System: All of Pyramid's servers run an enhanced SMP version of the industry-standard System V Release 4 (SVR4) UNIX operating system, called DataCenter / OSx(R). Compliant with the leading open system standards, DC/OSx also has been enhanced to support coexistence with proprietary systems by including features for mainframe- level resource management, system administration, and security. - Fault Resilience: Pyramid Nile servers can be configured to provide for fault-tolerant levels of systems availability. Pyramid has adopted the term "configurable fault resilience" to describe its systems' automated recovery and reconfiguration capabilities. These attributes of the Pyramid Nile systems, together with on-line maintenance and component replacement, result in industry leading availability of database and system resources to user applications. - Near-Linear Scalability: Pyramid's SMP delivers near-linear scalability -- where each new CPU added to the system delivers almost as much computing power as the first CPU. With the Pyramid Nile Series, systems deliver 2,160 MIPS and support in excess of 1000 transactions-per-second (TPS). - Mainframe-Class Storage and Backup: To support the processing and storage demands of global 2000 customers, Pyramid's enterprise servers support a virtual disk technology, mainframe-level backups, and a variety of disk management tools. The Company's goal is to provide a full range of solutions for storing, maintaining, and backing up terabytes of critical business data in the UNIX environment. Systems Pyramid's enterprise product line today comprises two core, compatible product families -- the Pyramid Nile Series and MIServer(R) ES Series -- plus two high-availability, clustered computing configurations for each family. The Company also continues to support its MIServer S and T Series of servers. The Pyramid Nile, MIServer ES, and MIServer S Series use the MIPS RISC microprocessor family. The Nile is based on the R4400 architecture, the MIServer ES and S Series on the R3000 architecture. The MIServer T Series uses Pyramid's own fourth-generation RISC technology. Each Pyramid server can operate as an independent system or as a central server for networks of workstations, terminals, and personal computers. Users can be connected to Pyramid systems directly, or through local- and wide-area networks. Pyramid Nile Series In October 1993, the Company announced the Pyramid Nile Series of Enterprise Servers. Based on the MIPS R4400 architecture, the Pyramid Nile Series focuses on reliability, availability, and serviceability in the enterprise client/server market. The Pyramid Nile Series is designed specifically to run business-critical, transaction-oriented applications. Scalable from 5

6 2 to 16 processors, and supporting up to four gigabytes of main memory and terabytes of disk subsystem capacity, the Pyramid Nile Series provides a high-performance, fault-resilient alternative for migrating business-critical applications to open systems. The two family members -- the Pyramid Nile 150 and the Pyramid Nile 100 -- are fully compatible and can operate on the same network for distributed data sharing and easy migration. - THE PYRAMID NILE 150, introduced in October 1993, is targeted at the high-end of the UNIX multiprocessor marketplace, and represents Pyramid's latest generation of SMP-based, fault-resilient technologies. It provides more than double the transactions-per-second and three- to four-times the single thread performance of previous generations, while incorporating standard-setting fault-resilient features for very high availability. - THE PYRAMID NILE 100, introduced in May 1994, is aimed at the mid-range of the scalable, open systems market, and offers the performance and availability of the high-end Pyramid Nile 150 at a size and price point typical of mid- range systems. The Pyramid Nile 100 provides a scalable entry point for business-critical OLTP and decision support/data warehousing information management solutions. MIServer ES Series Based on the MIPS R3002A architecture, the MIServer ES Series was the first mainframe-class open system for enterprise client/server computing. It is scalable from 2 to 24 tightly coupled processors and features a three-bus architecture, a scalable cache, and workload management tools for multiprocessing configurations. The MIServer ES Series supports up to 768 MIPS, hundreds of transactions per second, and more than 1,000 concurrent users. Clustered Configurations Both the Pyramid Nile Series and MIServer ES Series can be operated in fault-resilient clustered computing configurations. Offering continuous platform availability, clustered solutions are the highest availability option for Pyramid systems today. The Company currently offers the following clustered configurations: - RELIANT CLUSTER provides for the dynamic allocation and reallocation of computing resources across the entire cluster from a single point of systems management. Switching over applications, data, and other resources, such as networking, are completely automated and can be customized to precisely accommodate a unique recovery policy in the user's business-critical environment. - RELIANT FAULT-TOLERANT LOCK MANAGER OPTION can be implemented within the Reliant Cluster environment in conjunction with the ORACLE7 PARALLEL SERVER to provide a continuously available operating environment for very large Oracle databases. Closely integrated with Oracle7 Parallel Server, this scalable, high-availability solution supports a loosely coupled systems foundation that provides dynamic sharing of a single database resource. 6

7 Networking Given the multi-vendor orientation of most large computing environments, Pyramid believes networking and communications are an essential part of its total solutions approach to enterprise computing. Pyramid's servers not only support a wide range of networking standards for local- and wide-area networks, but also include intelligent communications controllers designed to enhance performance and scalability. The Company's OpenNet enterprise communications software is designed to meet specific communications requirements for rightsizing including: - Coexistence with mainframe and networking environments including support of SNA and BSC protocols, and high-speed connections using Token Ring and HYPERchannel. - Full suite of "open" networking solutions, including TCP/IP, X.400, DCE, OSI, NFS, and management capabilities supplied via SNMP and CMIP. - PC integration strategy implemented through support of Netware and PC/NFS. - Client/server strategy that includes integration of Netware, DCE, DECnet, and industry-leading databases. High- performance interconnections are provided via support for Ethernet, Token Ring, HYPERchannel, and FDDI. Enterprise Software Solutions Because of the nature of its customer base, Pyramid's software solutions are oriented toward global 2000-class organizations with business-critical needs. These organizations often must support thousands of users who are performing transactions on very large databases. The Company's software offering includes a broad array of software development tools, as well as vertical and horizontal business applications. These software solutions include industry-leading databases and application development tools; leading technologies that allow customers to move their existing mainframe applications to open systems platforms; and leading technologies that support enterprise data access. The Company provides what it calls "best of class" software solutions for its target markets. Pyramid supports industry-leading database technology and application development tools. Currently, several databases run on Pyramid systems, including databases from Oracle, Informix, Sybase, Computer Associates, and Information Builders FOCUS. Many of these databases can support systems with more than 100 gigabytes of data, and some can support as much as 300 gigabytes of data. The Company also provides best-of-class application development tools that are available to help customers more easily test and deploy new client/server applications across the enterprise. These products include Uniface, Oracle CDE, Dynasty, and Informix's New Era. To serve the needs of today's enterprise client/server environment, Pyramid also provides end-user application packages including cross-industry (horizontal) solutions such as Oracle Financials and PeopleSoft as well as solutions that serve the specific vertical markets such as Oracle Manufacturing or Anasazi for the hospitality industry. As more off-the-shelf applications become available, Pyramid is working to provide broad support of these applications to its customers. To date, more than 750 third-party software products are available for Pyramid systems through the Company's Software Vendor program. To help its customers migrate applications from mainframes to open systems, the Company is working to improve the data integration between legacy applications and newer client/server- 7

8 based technologies. Pyramid has developed strong relationships with systems integrators including Electronic Data Systems, Price Waterhouse, AT&T Federal, SHL Systemhouse, and Perot Systems. Finally, to help customers who lack adequate systems network management tools, Pyramid is working with leading vendors in this field, including Computer Associates, Eco Systems, and Fourth Dimension. PRODUCT DEVELOPMENT The Company's research and product development programs are intended to sustain and enhance its competitive position by incorporating the latest advances in hardware and software technologies. Pyramid's current product development efforts are aimed at increasing the price/performance and reliability, availability, and serviceability of its enterprise servers and DC/OSx operating system, as well as increasing its range of service and support products. In fiscal 1994, major research and development projects included: - Development of the Pyramid Nile 100, which is a derivative of the Pyramid Nile 150, a high-end R4400 based SMP system. - Continued development of MESHine, an MPP based system providing enterprise server capabilities within the areas of OLTP, data warehousing and decision support, and electronic messaging. Research and development expenses and capitalized software development costs amounted to $34.7 million, $36.5 million, and $34.4 million in fiscal 1994, 1993, and 1992, respectively. CUSTOMERS AND MARKETING Pyramid sells to and supports its customers worldwide through a combination of direct and indirect channels. An integral part of the Company's marketing strategy during the last two years has been to transition from selling primarily through indirect channels - - namely OEMs -- to selling direct through its worldwide sales force. The Company's sales force is organized on a geographic basis. Through this organization, Pyramid sells direct to end users in the Americas, the United Kingdom, Hong Kong, and Japan. The sales force focuses on six target vertical markets: financial services, telecommunications, transportation/hospitality, health care, manufacturing, and government. Indirect sales are handled via ventures with joint sales partners, OEMs, VARs, and distributors. Joint sales partners include Anasazi, AT&T Federal, Electronic Data Systems, ICL PLC, and Fujitsu/ICL Australia. OEMs, VARs, and distributors include Olivetti Systems and Networks Division, Siemens Nixdorf Informationssysteme AG, Group Bull, ICL, Hyundai Electronic Industries, Sharp Electronics Corporation, and Kobe Steel. System integrators include Electronic Data Systems, Perot Systems, and SHL Systemhouse, Inc. In fiscal 1994, Pyramid and Fujitsu Australia Limited formed Pyramid Data Centre Systems to market the Pyramid Nile Series of scalable enterprise servers along with complementary Fujitsu and ICL hardware and mainframe connectivity software. This joint venture represents an expansion for Pyramid into the Australian mainframe market. During fiscal 1994, 1993, and 1992, the Company had export sales of approximately 15%, 18%, and 19%, respectively. Export sales by geographic areas as a percentage of total 8

9 revenues for fiscal 1994, 1993, and 1992 were 11%, 14%, and 17%, respectively, to Europe, and 4%, 4%, and 2%, respectively, to the Asia Pacific region. During fiscal 1994, 1993, and 1992, product revenue was 70%, 75%, and 72% of total revenue and service revenue was 30%, 25%, and 28% of total revenue, respectively. Backlog as of September 30, 1994 was not material to the Company, as was the case for each of the last two fiscal year ends. SERVICE AND SUPPORT To meet the service and support needs of its global 2000 customers, Pyramid has worked to consistently increase the availability, reliability, and serviceability of its products. A key element of Pyramid's corporate strategy, customer services, generated 30% of gross revenue in fiscal 1994. Pyramid's support offerings include a series of services and tools that address the entire information technology environment. Available around the world, these services leverage the Company's experience with open systems and UNIX technology. They include start-up services, an automatic system monitoring and analysis reporting system, project management, multi-vendor integration, porting of custom software, performance analysis, capacity planning, and other supplements to internal staff capabilities. Pyramid has regional customer support centers in Japan, Hong Kong, Australia, the United Kingdom, and the United States. These centers are linked together via an on-line central repository of technical information for Pyramid support personnel worldwide. In addition, Pyramid partners with other worldwide companies who can expand its geographic reach and better oversee solutions for customers. These service partners include associations with Bull HN (for North America) and Siemens Nixdorf (for Europe). For customers covered by a Pyramid warranty or maintenance contract, the Company has Customer Support Centers (CSCs) located at its corporate headquarters in San Jose, California, and in the United Kingdom and Australia. Both hardware and software problems may be remotely evaluated by a CSC through a system support facility built in to every Pyramid system. Customers experiencing system problems may contact a CSC at any time through a toll-free telephone service. Both Nile and MIServer systems have a 90-day warranty on the base system CPU and memory. No rights of return, other than warranty rights, accompany Pyramid's sales of its products. The warranty period begins with the date of installation, which the Company believes is consistent with industry practice. Pyramid offers fixed-fee maintenance contracts ranging from 5-day, 8-hour per day to 7-day, 24-hour per day coverage, as well as service on time, materials, and travel. The Company has reached agreements with distributors in other parts of the world to provide 4-hour, on-site response capability. MANUFACTURING AND SUPPLIERS Pyramid principally uses standard components and parts for its Pyramid Nile and MIServer systems. Currently, the Company has a sole source for the gate arrays used in its MIServer T Series products. Additionally, the Company has single and sole sources for the acquisition of gate arrays used in its MIServer S Series, ES Series, and Pyramid Nile Series products. The inability of the Company to obtain these components would require the Company to redesign its products in order to use components from other manufacturers, which would delay shipments, and could have a material adverse effect on the Company. Pyramid has no significant contractual commitments for future requirements from the vendor of these components, however, to date, the Company had not experienced any significant problems in obtaining them. 9

10 COMPETITION The market for Pyramid's products is intensely competitive and is characterized by rapid technological advances in both hardware and software. These advances result in frequent product introductions, short product life cycles, and increased capabilities that typically represent significant price/performance improvements. Competition is based on a variety of factors including price, performance, product features, product quality, commitment to open system standards, marketing and distribution capabilities, customer support, name recognition, and financial strength. Further, given the Company's reliance on its strategic partners and system resellers, the Company's competitive position is affected by its partners' competitive positions and strengths. Pyramid believes that it competes favorably on the basis of price, performance, product features, commitment to open system standards, customer support, and marketing and distribution capabilities. The Company competes directly with other system manufacturers for system product sales to end users as well as with OEM, VAR, and other reseller customers. Main competitors include Data General, Digital Equipment Corporation, Hewlett-Packard Company, IBM, NCR, Sequent Computer Systems, Sun Microsystems, and Unisys. Many of the Company's direct and indirect competitors are major corporations with substantially greater technical, financial, and marketing resources, and with greater name recognition than Pyramid. There can be no assurances that Pyramid will have the financial resources, technical expertise, or marketing, distribution, or support capabilities to compete successfully in the future. PATENTS AND LICENSES Pyramid has applied for a number of patents for its technology in the past two years, and is in the process of applying for additional patents. The Company, however, believes that patents are less significant in its industry than such factors as innovation, technological experience, and the abilities of its personnel. Pyramid has acquired certain licenses that permit the Company to grant object code sublicenses to its customers. These include software to support database management, networking applications, and software development tools. Pyramid licenses operating system software for use on the MIServer T Series, MIServer S Series, MIServer ES Series, and Pyramid Nile Series from Novell's UNIX Systems Division. Pyramid has enhanced this software under the trademark OSx(R) and DC(TM)/OSx. Additionally, the Company licenses operating system software for use on the MIServer T Series from the University of California, Berkeley. EMPLOYEES As of September 30, 1994, the Company had 849 full-time employees. The Company believes that its future success will depend in large part upon its ability to attract and retain highly skilled and motivated technical, marketing, and managerial personnel. Competition for qualified personnel in the computer industry is intense and there is no assurance that the Company can continue to attract and retain the required personnel. The Company has never experienced a work stoppage, and none of its employees are represented by a labor union. The Company believes that its employee relations are good. - - ------------------------------------------------------------------------------- Nile, DC/OSx, and ServiceExpert are trademarks, and MIServer, Reliant, and OSx are registered trademarks of Pyramid Technology Corporation; all other trademarks used herein are the property of their respective companies. 10

11 ITEM 2 PROPERTIES Pyramid's headquarters are located in three buildings in San Jose, California. Pyramid occupies these leased buildings, two of which are approximately 90,000 square feet each and the other of which is approximately 101,000 square feet. This complex houses the Company's manufacturing, technology, marketing, customer support, and general and administrative personnel. The Company's previous headquarters were in Mountain View, California where one building still remains under a lease. This building is being subleased to an unaffiliated company. The Company also leases sales, marketing, and customer support offices elsewhere in the United States, and sales and customer support offices in Australia, Canada, France, Germany, Hong Kong, Japan, the People's Republic of China, Sweden, Taiwan, and the United Kingdom. The Company believes that its existing facilities are adequate to meet current requirements, and that suitable additional or substitute space will be available as needed to accommodate further physical expansion of corporate operations and for additional sales and customer support offices. ITEM 3 LEGAL PROCEEDINGS Incorporated by reference from the information under the caption "Commitments" in the Notes to Consolidated Financial Statements on page 29 of the Annual Report to Shareholders for the fiscal year ended September 30, 1994. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1994. Executive Officers of the Registrant - - ------------------------------------ The following sets forth certain information with respect to the executive officers of Pyramid: Richard H. Lussier (age 57) joined the Company as President, Chief Executive Officer, and Chairman of the Board in November 1986. He held the title of President until June 1993. John S. Chen (age 39) joined the Company as Executive Vice President in August 1991. In October 1992, he became Chief Operating Officer, then in June 1993, became President. Prior to joining Pyramid, he held various management and executive positions with Unisys Corporation, a computer company, for twelve years, the last position being Vice President and General Manager of its UNIX Systems Group, and prior to that, Vice President and General Manager of its RISC Technology Platform Division. Edward W. Scott, Jr. (age 56) joined the Company as Vice President of Marketing in September 1988. He was promoted to Executive Vice President in October 1991. Mitchell Mandich (age 46) joined the Company in January 1993 as Vice President, Americas Sales. He was promoted to Senior Vice President in July 1993 and from that time to September 1993, he was also responsible for Worldwide Corporate Marketing. From 1982 to 11

12 joining the Company, he was employed by Tandem Computers, where he was Director of Sales for the Western Region in his last management position. Dr. Raj Nathan (age 41) joined the Company in November 1991 as Vice President of Systems Management. In June 1993, he was named Vice President of Engineering. He was promoted to Senior Vice President in October 1994. From 1985 to joining the Company, he held progressively responsible engineering management positions for Unisys Corporation and its predecessor, Burroughs Corporation. S. Boyd Pierce (age 49) joined the Company in October 1994 as Vice President of Marketing. Prior to joining the Company, he was employed by Teradata/NCR/AT&T, a computer company, where he was most recently Vice President and General Manager for their Torrey Pines Development Center. From 1986, he served at Teradata in several senior marketing, sales, and strategic planning management positions. Kent L. Robertson (age 53) first joined the Company in February 1987 as Vice President, Chief Financial Officer and Secretary. He was promoted to Senior Vice President in April 1990. After serving as Executive Vice President, Chief Financial Officer and Secretary of RasterOps, a company that markets microcomputer peripherals, from March 1992 to December 1993, he rejoined the Company in January 1994 as Senior Vice President, Chief Financial Officer and Secretary. Allan D. Smirni (age 54) joined the Company as Vice President and General Counsel in September 1989. He also held the additional position of Corporate Secretary of the Company from February 1992 to January 1994. He held a similar position with Memorex Corporation, a computer company, from 1987 to 1989. William M. Wishart (age 54) was promoted to Vice President of Human Resources and Administration in February 1992. He joined Pyramid in March 1989 as Director of Human Resources and Administration, after seven years as Manager of Human Resources for Litton Applied Technology, a manufacturer of early warning radar systems. Executive officers are elected annually by the Board of Directors and serve at the discretion of the Board. There is no family relationship between any director or executive officer of the Company and any other director or executive officer of the Company. 12

13 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Incorporated by reference from the information under the captions "Borrowing Arrangements" on page 31 and "Stock Information" on the inside back cover of the Annual Report to Shareholders for the fiscal year ended September 30, 1994. ITEM 6 SELECTED FINANCIAL DATA Incorporated by reference from the information under the caption "Selected Financial Data" on page 17 of the Annual Report to Shareholders for the fiscal year ended September 30, 1994. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference from the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18 - 21 of the Annual Report to Shareholders for the fiscal year ended September 30, 1994. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference from the consolidated financial statements and the notes thereto on pages 22 - 35 of the Annual Report to Shareholders for the fiscal year ended September 30, 1994. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. - - ------------------------------------------------------------------------------- With the exception of the information incorporated by reference from the Annual Report to Shareholders for the fiscal year ended September 30, 1994 in Parts I, II, and IV of this Form 10-K, the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1994 is not to be deemed filed as part of this report. 13

14 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to directors, including two directors who are also executive officers of Pyramid, is incorporated by reference from the information under the caption "Proposal No.1 - Election of Directors" in the Proxy Statement for the registrant's Annual Meeting of Stockholders to be held on January 26, 1995. ITEM 11 EXECUTIVE COMPENSATION Incorporated by reference from the information under the caption "Executive Compensation" in the Proxy Statement for the registrant's Annual Meeting of Stockholders to be held on January 26, 1995. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the information under the captions "Record Date and Voting Securities" and "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement for the registrant's Annual Meeting of Stockholders to be held on January 26, 1995. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the information under the caption "Certain Transactions" in the Proxy Statement for the registrant's Annual Meeting of Stockholders to be held on January 26, 1995. 14

15 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The following consolidated financial statements of Pyramid Technology Corporation and the Report of Independent Auditors are incorporated herein by reference to the registrant's Annual Report to Shareholders for the fiscal year ended September 30, 1994. <TABLE> <CAPTION> Page(s) in Annual Report ------ <S> <C> Consolidated Balance Sheet - September 30, 1994 and 1993 23 Consolidated Statement of Operations - Years ended September 30, 1994, 1993, and 1992 22 Consolidated Statement of Shareholders' Equity - Years ended September 30, 1994, 1993, and 1992 24 Consolidated Statement of Cash Flows - Years ended September 30, 1994, 1993, and 1992 25 Notes to Consolidated Financial Statements 26 - 34 Report of Independent Auditors 35 </TABLE> (a)(2) The following financial statement schedules for the years ended September 30, 1994, 1993, and 1992 are submitted herewith and should be read in conjunction with the Consolidated Financial Statements: <TABLE> <CAPTION> Page in Form 10-K --------- <S> <C> <C> Schedule I - Summary of Short-Term Investments 20 Schedule II - Amounts Receivable from Directors, Officers, and Employees 21 Schedule VIII - Valuation and Qualifying Accounts 22 Schedule X - Supplementary Income Statement Information 23 </TABLE> All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (a)(3) Exhibits included herein (numbered in accordance with Item 601 of Regulation S-K): <TABLE> <CAPTION> Exhibit Number Description - - ------ ----------- <S> <C> 3.1 Certificate of Incorporation, as amended (3) </TABLE> 15

16 <TABLE> <S> <C> <C> 3.2 Bylaws, as amended (3) 10.1 * Amended 1982 Incentive Stock Option Plan (4) 10.23 Agreement between the Company and Nixdorf Computer AG dated May 3, 1985 (1)(2) 10.26 Lease Agreement for premises at 1295 Charleston Road, Mountain View, California dated November 1, 1983 (1) 10.28 Software Agreement between the Company and American Telephone and Telegraph Company dated January 1, 1982, as amended (1) 10.29 License Agreement between the Company and the Regents of the University of California dated December 30, 1981 (1) 10.34 * Employee Stock Purchase Plan (4) 10.35 * 1986 Executive Officers' Nonstatutory Stock Option Plan (4) 10.40 Lease Agreement for premises at Solartron Road, Farnborough, Hampshire, United Kingdom, dated November 27, 1989 (7) 10.41 Lease Agreement for premises at 3870 North First Street,San Jose, California dated May 30, 1990 (5) 10.42 Lease Agreement for premises at 3850 North First Street,San Jose, California dated May 30, 1990 (5) 10.43 Lease Agreement for premises at 3860 North First Street,San Jose, California dated May 30, 1990 (5) 10.45 * Directors' Option Plan, as amended (5) 10.46 Purchase Agreement between the Company and Olivetti Systems and Networks s.r.l dated December 21, 1990 (6) 10.47 $20,000,000 Revolving Credit Agreement with The First National Bank of Boston dated July 30, 1993 (8) 10.48 $10,500,000 Collateralized Loan Agreement (letter) with GE Capital dated September 10, 1993 and Master Security Agreement dated October 6, 1993 (8) 10.49 First Amendment to the Revolving Credit Agreement with Limited Waivers with the Bank of Boston dated May 31, 1994 (9) 10.50 Partnership Agreement with Fujitsu Data Centre Systems PTY Limited and Fujitsu Australia Limited dated June 10, 1994 (9) 10.51 Common Stock and Warrant Purchase Agreement with Siemens Nixdorf Information Systems, Inc. dated August 21, 1994 </TABLE> 16

17 <TABLE> <S> <C> 10.52 Software and Hardware License Agreement with Siemens Nixdorf Informationssysteme AG dated August 25, 1994 (10) 10.53 $10,000,000 Revolving Credit Agreement (letter) with Comerica dated October 20, 1994 11.1 Computation on Net Income per Common and Common Equivalent Share 13.1 Annual Report to Shareholders for the fiscal year ended September 30, 1994 21.1 Schedule of Subsidiaries 23.1 Consent of Independent Auditors 24.1 Power of Attorney (included on pages 18 and 19) 27.1 Financial Data Schedule </TABLE> - - ------------------------------------------------------------------------------- (1) Incorporated by reference to identically numbered exhibits filed in response to Item 16(a), "Exhibits," of the Registrant's Registration Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto, which became effective on December 4, 1985. (2) Confidential treatment has previously been granted with respect to this exhibit pursuant to an order dated December 4, 1985. (3) Incorporated by reference to Exhibits B and C filed with the Registrant's Proxy Statement dated May 14, 1987. (4) Incorporated by reference from the Registrant's Proxy Statement dated January 21, 1988. (5) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. (6) Nonconfidential portions incorporated by reference from the Annual Report on Form 10-K for the fiscal year ended September 30, 1991. (7) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1989. (8) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. (9) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 1, 1994. (10) The registrant has applied for confidential treatment for portions of this agreement. * Indicates management compensatory plan, contract, or arrangement. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1994. 17

18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. PYRAMID TECHNOLOGY CORPORATION Registrant By: /s/ Richard H. Lussier ---------------------- Richard H. Lussier Chairman and Chief Executive Officer December 22, 1994 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard H. Lussier and Allan D. Smirni, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys- in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: <TABLE> <CAPTION> Signature Title Date --------- ----- ---- <S> <C> <C> /s/ Richard H. Lussier Chairman and - - ------------------------------- Chief Executive Officer December 22, 1994 Richard H. Lussier (Principal Executive Officer) /s/ John S. Chen President and - - ------------------------------- Chief Operating Officer December 22, 1994 John S. Chen /s/ Kent L. Robertson Senior Vice President, - - ------------------------------- Chief Financial Officer December 22, 1994 Kent L. Robertson and Secretary (Principal Financial Officer) /s/ James J. Nelson Vice President, - - ------------------------------- Corporate Controller December 22, 1994 James J. Nelson (Principal Accounting Officer) </TABLE> 18

19 <TABLE> <CAPTION> Signature Title Date --------- ----- ---- <S> <C> <C> /s/ Dr. Rudolf Bodo - - ------------------------------- Director December 22, 1994 Dr. Rudolf Bodo /s/ Paul J. Chiapparone - - ------------------------------- Director December 22, 1994 Paul J. Chiapparone /s/ Donald E. Guinn - - ------------------------------- Director December 22, 1994 Donald E. Guinn /s/ Jack L. Hancock - - ------------------------------- Director December 22, 1994 Jack L. Hancock /s/ Clarence W. Spangle - - ------------------------------- Director December 22, 1994 Clarence W. Spangle /s/ George D. Wells - - ------------------------------- Director December 22, 1994 George D. Wells </TABLE> 19

20 PYRAMID TECHNOLOGY CORPORATION SCHEDULE I - SUMMARY OF SHORT-TERM INVESTMENTS Year ended September 30, 1994 (In thousands) <TABLE> <CAPTION> Type of Short-Term Investment Cost Market Value Carrying Amount - - ----------------------------- ---- ------------ --------------- <S> <C> <C> <C> Commercial Paper $20,651 $20,651 $20,651 </TABLE> 20

21 PYRAMID TECHNOLOGY CORPORATION SCHEDULE II - AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, AND EMPLOYEES Year ended September 30, (In thousands) <TABLE> <CAPTION> Balance at End of Period Balance at ------------------------ Beginning Year Name of Debtor of Period Additions Deductions Currents Noncurrent ---- --------------------------- ----------- --------- ---------- -------- ---------- <S> <C> <C> <C> <C> <C> <C> 1992 Edward W. Scott, Jr. (1) $300 $- $100 $- $200 John S. Chen (1) $100 $- $- $- $100 1993 Edward W. Scott, Jr. (1) $200 $- $133 $- $67 John S. Chen (1) $100 $- $- $- $100 1994 Edward W. Scott, Jr. (1) $67 $- $67 $- $- John S. Chen (1) $100 $- $100 $- $- </TABLE> (1) See "Certain Transactions" in the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on January 26, 1995. 21

22 PYRAMID TECHNOLOGY CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS Year ended September 30, (In thousands) <TABLE> <CAPTION> Additions Balance at Charged to Write-offs Beginning Costs and Net of Balance at Allowance for Doubtful Accounts: of Year Expenses Recoveries End of Year ------- -------- ---------- ----------- <S> <C> <C> <C> <C> 1992 $1,506 $425 ($83) $2,014 1993 $2,014 $291 $285 $2,020 1994 $2,020 $102 $462 $1,660 </TABLE> 22

23 PYRAMID TECHNOLOGY CORPORATION SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION Year ended September 30, (In thousands) <TABLE> <CAPTION> Charged to Costs and Expenses ----------------------------------------- Item 1994 1993 1992 - - ------------------------------ ---- ---- ---- <S> <C> <C> <C> Maintenance and repairs $2,271 * $2,094 </TABLE> * Does not exceed 1% of sales. 23

24 INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION - - ------- ------------------------------------------------------ <S> <C> 10.51 Common Stock and Warrant Purchase Agreement with Siemens Nixdorf Information Systems, Inc. dated August 21, 1994 10.52 Software and Hardware License Agreement with Siemens Nixdorf Informationssysteme AG dated August 25, 1994 10.53 $10,000,000 Revolving Credit Agreement (letter) with Comerica dated October 20, 1994 11.1 Computation of Net Income per Common and Common Equivalent Share 13.1 Annual Report to Shareholders for the fiscal year ended September 30, 1994 21.1 Schedule of Subsidiaries 23.1 Consent of Independent Auditors 27.1 Financial Data Schedule </TABLE> 24

1 EXHIBIT 10.51 Common Stock and Warrant Purchase Agreement with Siemens Nixdorf Information Systems Inc. dated August 21, 1994

2 COMMON STOCK AND WARRANT PURCHASE AGREEMENT THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") is dated as of August 21, 1994, by and between Pyramid Technology Corporation, a Delaware corporation (the "Company") and Siemens Nixdorf Information Systems, Inc., a Massachusetts corporation (the "Purchaser"). SECTION 1 SALE OF COMMON STOCK AND WARRANT 1.1 Sale of Common Stock and Warrant. Subject to the terms and conditions hereof, the Company will issue and sell to the Purchaser, and the Purchaser will purchase from the Company, at the Closing (as defined below), for an aggregate purchase price of $17,250,000 (i) 2,000,000 shares (the "Shares") of the Company's common stock, $.01 par value (the "Common Stock"), and (ii) a warrant to purchase up to 1,330,000 shares of Common Stock (the "Warrant Shares") at an exercise price of $10.00 per share and on such other terms and conditions as are specified in substantially the form of warrant attached as Exhibit A hereto (the "Warrant"). 1.2 Closing Date. The closing of the purchase and sale of the Shares and the Warrant (the "Closing") shall be held at the law offices of Wilson, Sonsini, Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California at 10:00 a.m. not later than the third business day following expiration or early termination of all waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and satisfaction of all closing condi-tions set forth in Sections 4 and 5 hereof or at such other time and place upon which the Company and the Purchaser shall mutually agree (the date of the Closing is hereinafter referred to as the "Closing Date"). 1.3 Delivery. At the Closing, the Company will deliver to the Purchaser (i) a certificate registered in the name of the Purchaser representing the Shares, against payment of the purchase price of $17,250,000 therefor by check payable to the order of the Company or by wire transfer in same day funds to the Company's account, (ii) the duly executed Warrant, and (iii) all documents and certificates required to be delivered under Section 4 of this Agreement. 1.4 Legend. The certificate for the Shares and the Warrant shall be subject in each case to a legend restricting transfer under the Securities Act of 1933, as amended (the "Securities Act"), and referring to restrictions on transfer and rights of first refusal herein, such legend to be substantially as follows:

3 "The securities represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933. Such securities may not be sold or transferred in the absence of such registration or an exemp-tion from such registration. "The securities represented by this certificate are subject to restrictions on transfer, including any sale, pledge or other hypothecation, and rights of first refusal set forth in a certain Common Stock and Warrant Purchase Agreement dated as of August 19, 1994, a copy of which may be obtained at no cost by written request made by the holder of record of this certificate to the secretary of the Company at the Company's principal executive offices." None of the Shares or the Warrant may be sold, assigned, transferred or otherwise disposed of unless registered under the Securities Act of 1933, as amended (the "Securities Act"), or unless an exemption from such registration is available and perfected. SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as disclosed in the disclosure statement dated the date hereof (the "Disclosure Schedule"), delivered in connection with this Agreement, the Company hereby represents and warrants to the Purchaser as follows: 2.1 Organization. The Company is a corporation duly organized and validly existing under the laws of the State of Delaware and is in good standing under such laws. The Company has all requisite corporate power and authority to own, lease and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction in which the ownership of its property or the nature of its business requires such qualification, except where failure to so qualify would not have a material adverse effect on the Company or any of its Subsidiaries, their condition (financial or otherwise), their results of operations, their assets, their liabilities or their business, taken as a whole ("Material Adverse Effect"). The Company has furnished to the Purchaser true and correct copies of its Certificate of Incorporation and Bylaws, as amended to date, and will furnish true and correct copies of any amendments thereto through the term of this Agreement. - 2 -

4 2.2 Capitalization. The authorized capital stock of the Company consists of 30,000,000 shares of Common Stock, $.01 par value, of which at August 11, 1994, 13,418,189 shares were issued and outstanding. All such issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonasses-sable. As of August 11, 1994, the Company has duly reserved a total of 6,116,666 shares of its Common Stock for issuance under its Amended 1982 Incentive Stock Option Plan, of which 2,670,788 shares are duly reserved for issuance upon exercise of outstanding options; a total of 400,000 shares for issuance under its Executive Officers Nonstatutory Stock Option Plan, of which 20,313 shares are duly reserved for issuance upon exercise of outstanding options; a total of 160,000 shares for issuance under its Amended and Restated Directors' Option Plan, of which 99,500 shares are duly reserved for issuance upon exercise of outstanding options; and a total of 1,150,000 shares for issuance under its 1987 Employee Stock Purchase Plan. On December 8, 1988, the Company entered into a Common Shares Rights Agreement (the "Rights Agreement") with Bank of America, NT & SA, and has announced the distribution of rights under the Rights Agreement to all stockholders of record as of January 17, 1989. In addition, effective upon the Closing, the Company has duly authorized the reservation of such number of shares of Common Stock as shall be necessary to provide for the exercise of the Warrant. Except as provided or described in this Agreement, there are no other options, warrants, conversion privileges, convertible securities or other contractual rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of any of the Company's capital stock or other securities. Schedule 2.2 to the Disclosure Statement identifies, assuming the consummation at the Closing of the transactions contemplated hereby (1) to the best of the Company's knowledge, based upon filings pursuant to Section 13(g) of the Securities Exchange Act of 1934 (the "Exchange Act") received by the Company as of December 31, 1993, and based upon filings pursuant to Section 13(d) of the Exchange Act received as of the date hereof, each record and beneficial owner of 5% or more of the outstanding Common Stock, including the name, address and number of shares of Common Stock held by each such holder. Except as provided in this Agreement, immediately prior to the Closing there were, and upon the Closing there will be, no preemptive or similar rights to purchase or otherwise acquire shares of Voting Stock of the Company or its Subsidiaries pursuant to any provision of law, the Certificates of Incorporation or By-laws of the Company, in each case as amended to the date hereof, or any agreement to which the Company is a party, or otherwise; there was, and upon the Closing there will be, no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting trust, etc.) with respect to the sale or voting of any - 3 -

5 shares of the Company's Voting Stock (whether outstanding or issuable upon conversion or exercise of outstanding securities), except as contemplated by this Agreement. To the best of the Company's knowledge, the Company has not violated Section 5 of the Securities Act or any state securities or blue sky laws in connection with the issuance of any shares of Common Stock or other securities prior to or on the date hereof to the extent any such violation would have a material adverse effect on the Company or any of its Subsidiaries, taken as a whole. Subject to normal year-end adjustment and except for obligations incurred in the normal course of business that are not required to be reflected, reserved against, accrued for or otherwise disclosed on the Company's unaudited consolidated balance sheet in order for such balance sheet to fairly present the financial condition of the Company and the Subsidiaries as of July 1, 1994 in accordance with generally accepted accounting principles consistently applied, to the best of the Company's knowledge (a) the Company and the subsidiaries of the Company which are consolidated with the Company for financial accounting purposes (the "Subsidiaries") had no liabilities, obligations, payments or commitments exceeding $100,000 (whether matured or unmatured, fixed or contingent) that were not provided for on such balance sheet or described in the notes thereto and (b) all reserves established by the Company and set forth on the balance sheet were adequate in all material respects. 2.3 Authorization. The Company has all corporate right, power and authority to enter into this Agreement, the Registration Rights Agreement in substantially the form attached hereto as Exhibit B (the "Registration Rights Agreement") and the Warrant and to consummate the transactions contemplated hereby and thereby. All requisite corporate and stockholder action on the part of the Company, its directors and stockholders necessary for (i) the authorization, execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Warrant by the Company, (ii) the authorization, sale, issuance and delivery of the Shares and the Warrant Shares upon exercise of the Warrant pursuant to the terms thereof, and (iii) the performance of the Company's obligations hereunder and under the Registration Rights Agreement and the Warrant have been duly authorized and taken. This Agreement and, as of the Closing, the Registration Rights Agreement and the Warrant will have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable - 4 -

6 remedies, and to limitations of public policy as they may apply to Section 7 of the Registration Rights Agreement. Upon their issuance and delivery pursuant to this Agreement, the Shares will be duly authorized, validly issued, fully paid and nonassessable. Upon exercise of the Warrant in accordance with the terms thereof, the Warrant Shares will be duly authorized, validly issued, fully paid and nonassessable. The issuance and sale of the Shares, the Warrant and the Warrant Shares upon exercise of the Warrant will not give rise to any preemptive rights or rights of first refusal on behalf of any person in existence either on the date hereof or immediately prior to the Closing. 2.4 No Conflict. Subject to compliance with the HSR Act, the execution and delivery of this Agreement, the Registration Rights Agreement and the Warrant do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to the creation of any lien, security interest or encumbrance, or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit, under, any provision of (i) the Certificate of Incorporation or Bylaws of the Company or any judgment, order decree, statute, law, ordinance, rule ore regulation applicable to the Company, its properties or assets, or (ii) any mortgage, indenture, lease or other agreement or instrument, permit, concession, franchise, license, which violation under this Section 2.4(ii) would have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as a whole, or materially impair or restrict its power to perform its obligations as contemplated hereby or thereby. 2.5 Accuracy of Reports. The Company has, since September 30, 1990, filed with the Securities and Exchange Commission ("SEC") all forms, reports and documents (collectively, the "SEC Reports") which it has been required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder. Each of the SEC Reports complied as of its filing date in all material respects with all applicable requirements of the Exchange Act. Except as subsequently disclosed or corrected in an SEC Report filed prior to the date of this Agreement, none of such SEC Reports, including, without limitation, any financial statement, schedule or footnote included therein, contained at the time filed any untrue statement of a material fact or omitted to state a material fact required to be stated therein, or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. - 5 -

7 2.6 Financial Statements and Changes. The Company's (a) unaudited consolidated balance sheet as of July 1, 1994 and the related consolidated statement of income, cash flows and stockholders' equity for the interim period then ended contained in the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 1994 (together with footnotes), and (b) audited consolidated balance sheets as of September 30, 1993 and 1992 and the related audited consolidated statements of income, cash flows and stockholders' equity for the fiscal years then ended contained in the Company's Annual Report on Form 10-K for the years ended September 30, 1993 and 1992 (together with footnotes) (i) comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, (ii) are in accordance with the books and records of the Company and its Subsidiaries, (iii) have been prepared in accordance with generally accepted accounting principles (except to the extent that certain footnote disclosures regarding any period may have been omitted in accordance with the applicable rules of the SEC under the Exchange Act) consistently applied except as noted therein and except, in the case of unaudited interim financial statements, for normal year-end adjustments, (iv) fairly present the consolidated financial position of the Company and its consolidated Subsidiaries as of the respective dates set forth therein and the results of operations and cash flows for the Company and its consolidated Subsidiaries for the respective fiscal periods set forth therein and (v) are true and correct in all material respects. Except as otherwise disclosed herein or in the SEC Reports, since July 1, 1994, there has been no material adverse change in the business condition (financial or otherwise), results of operations, assets, liabilities or obligations of the Company and its consolidated Subsidiaries, taken as a whole. Except as set forth on Schedule 2.6 to the Disclosure Schedule, since July 1, 1994 there has not been (a) any material adverse change in the condition (financial or otherwise), operations, results of operations, assets, liabilities, or business of the Company or any of the Subsidiaries, (b) any liabilities or obligations that involve payments or commitments in excess of $100,000 (whether contingent or otherwise) incurred by the Company or any of the Subsidiaries, other than current liabilities or obligations incurred in the ordinary course of business, (c) any assets or properties of the Company or any of the Subsidiaries having a value in excess of $100,000 individually or $250,000 in the aggregate made subject to a lien of any kind, (d) any cancellation of any debts or claims held by the Company or any of the subsidiaries, in either case having a value in excess of $100,000 individually or $250,000 in the aggregate, (e) any payment of dividends on, or otherwise distributions with respect to, or any direct or indirect redemption or acquisition of, any shares of the capital stock of the Company - 6 -

8 or any of the Subsidiaries, or any agreement or commitment therefor, (f) any issuance of any stock, bonds or other securities of the Company or any of the Subsidiaries except as contemplated by this Agreement and except for the grant or exercise of options and the issuance of stock to directors, officers, employees and consultants in connection with their service to the Company and the Subsidiaries, (g) any sale, assignment, transfer or other disposition (other than in the ordinary course of business) of any tangible or intangible assets of the Company or any of the Subsidiaries, having a value in excess of $100,000 individually or $250,000 in the aggregate, (h) any loan by the Company to any officer, director, employee or stockholder of the Company or any of the Subsidiaries, or any agreement or commitment therefor other than travel advances or other advances not in excess of $2,500 as to any such person or $25,000 as to all such persons, (i) any increase, direct or indirect, in the compensation paid or payable to any officer, director, employee or agent of the Company or any of the Subsidiaries by an amount exceeding 10% of such compensation prior to such increase or (j) any change in the accounting methods or practices followed by the Company or any of the Subsidiaries or any change in depreciation policies or rates therefore adopted. 2.7 Consents, etc. No consent, approval or authorization of or designation, declaration or filing with (i) any governmental authority or (ii) any third party (pursuant to any of the Company's contracts or otherwise) which absence of such third party consent would have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as a whole, or materially impair or restrict its power to perform its obligations hereunder, on the part of the Company is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the Shares, the Warrant or the Warrant Shares upon exercise of the Warrant, or the consummation of any other transaction contemplated hereby, except the filing of such forms with the United States Department of Justice and the Federal Trade Commission as shall be required by the HSR Act and the expiration of any waiting periods thereunder and such filings as may be required to be made with the SEC and the NASD, filings or notices, if any, to be made in compliance with applicable blue sky requirements and any other filings agreed by counsel to the Company and counsel to the Purchaser to be required under applicable law. 2.8 Amendment to Rights Agreement. All necessary corporate action required under the Rights Agreement to amend the Rights Agreement has been duly authorized and taken (or will have been duly authorized and taken prior to the Closing) so that the issuance of the Shares, the Warrant and the Warrant Shares upon exercise of the Warrant and any purchases by the Purchaser of - 7 -

9 Voting Stock pursuant to Section 7.8 below shall not cause the Purchaser to become an "Acquiring Person" or cause a "Shares Acquisition Date", "Distribution Date" or "Triggering Event" to occur (each as defined in the Rights Agreement). 2.9 Intellectual Property Rights. In each case, except as set forth on Schedule 2.9 to the Disclosure Schedule: (a) each of the Company and the Subsidiaries owns, possesses, and has the right to use, has the right to bring actions for the infringement of, or where necessary, has made timely and proper application for, all Intellectual Property Rights (as hereinafter defined) necessary or required for the conduct of its business as currently conducted. (b) no royalties, honorariums or fees in excess of $50,000 per annum are payable by the Company or its Subsidiaries to other persons by reason of the ownership or use of said Intellectual Property Rights; (c) to the best of the Company's knowledge, no product or service that is manufactured, marketed, performed or sold by the Company or the Subsidiaries violates any license or infringes any Intellectual Property Rights of another, nor is there any pending or written threat of a claim or litigation against the Company or Subsidiaries (nor does there exist any basis therefor) contesting the validity of, or right to use, any of the foregoing Intellectual Property Rights; (d) none of the Company or the Subsidiaries has received notice that any of such Intellectual Property Rights, or that the operation or proposed operation of the Company's or the Subsidiaries' businesses, conflicts or will conflict with the asserted rights of others; and (e) the Company has not granted any exclusive rights to any third party to develop, manufacture, use, market or service the Company's current products. As used herein, the term "Intellectual Property Rights" means all industrial and intellectual property rights, including, without limitation, Proprietary Technology (as hereinafter defined), patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, knowhow, certificates of public convenience and necessity, franchises, licenses, trade secrets, proprietary processes and formulae used by the Company in its businesses. As used herein, "Proprietary Technology" means all source code, - 8 -

10 designs, algorithms, layouts, processes, inventions, trade secrets, knowhow and other proprietary rights owned or licensed by the Company or the Subsidiaries pertaining to any product or service manufactured, marketed, performed or sold, or proposed to be manufactured, marketed, performed or sold (as the case may be), by the Company or the Subsidiaries or used, employed or exploited in the development, license, sale, marketing, distribution or maintenance thereof, and all documentation and media embodying or relating to the above, including, without limitation, manuals, models, prototypes, memoranda, knowhow, notebooks, patents and patent applications, trademarks and trademark applications, copyrights and copyright applications, records and disclosures. 2.10 Litigation. Except as set forth on Schedule 2.10 to the Disclosure Schedule, there are no actions, suits, claims, investigations or legal or administrative or arbitration proceedings (collectively, "Claims"), pending and served or of which the Company or any Subsidiary has received written notification or, to the Company's best knowledge, threatened against the Company or any of the Subsidiaries, whether at law or in equity, whether civil or criminal in nature or whether before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign; except as set forth on Schedule 2.10 to the Disclosure Schedule, to the best of the Company's knowledge, there are no orders, judgments or decrees of any court or governmental agency which would have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as a whole, that apply to the Company or any of the Subsidiaries. Also set forth on Schedule 2.10 are all lawsuits filed and served by or against the Corporation or any Subsidiary during the previous two (2) years that involves claims in excess of $500,000. 2.11 Taxes. The Company and the Subsidiaries have filed all Federal, state, local and foreign tax returns that are required to be filed by them on or prior to the Closing and all such returns are true and complete. The Company and the Subsidiaries have paid all taxes pursuant to such returns or pursuant to any assessments received by them or which they are obligated to withhold from amounts owing to any employee, creditor or third party. Except as disclosed on Schedule 2.11 to the Disclosure Schedule, the Company has not been notified in writing of any examination by the Internal Revenue Service or by appropriate state or departmental tax authorities of any Federal, state or local income tax or franchise tax returns of or with respect to the Company or any of the Subsidiaries through all relevant periods. The liability for taxes payable on the Company's unaudited consolidated balance sheet as of July 1, 1994 are sufficient for the future payment of all accrued - 9 -

11 and unpaid Federal, state, local and foreign taxes as of such date, the failure for which to provide would have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as whole. Except as set forth on Schedule 2.11 to the Disclosure Schedule, the Company and the Subsidiaries have not waived any statute of limitations with respect to taxes or agreed to any extension of time with respect to any tax assessment or deficiency. 2.12 Agreements. Except as set forth on Schedule 2.12 to the Disclosure Schedule, to the best of the Company's knowledge, the Company and the Subsidiaries are not parties to any material written or oral contract or commitment not made in the ordinary course of business and, whether or not made in the ordinary course of business, the Company and the Subsidiaries are not parties to any written or oral (i) contract or commitment with any labor union, (ii) contract or commitment for the future purchase of fixed assets in excess of $250,000 in the aggregate or for the future purchase of materials, supplies or equipment in excess of normal operating requirements, (iii) contract or commitment for the employment of any officer, individual employee or other person on a full-time basis or any contract with any individual on a consulting basis, except for such similar contracts listed in the documents filed by the Company with the SEC pursuant to the Exchange Act, (iv) bonus, pension, profit-sharing, retirement, stock purchase, stock option, or extraordinary hospitalization, medical insurance or similar plan, contract or understanding in effect with respect to employees or any of them or the employees of others, (v) agreements, indentures or commitments relating to the borrowing of money in excess of $250,000 in the aggregate or to the mortgaging, pledging or otherwise placing a lien on any assets of the Company or the Subsidiaries (other than relating to equipment held under capitalized leases or secured by purchase money security interests), (vi) guaranty of any obligation (other than any obligation of a Subsidiary) in excess of $250,000 in the aggregate, (vii) lease or agreement under which the Company or the Subsidiaries are lessees of or hold or operate (A) any real property or (B) personal property pursuant to which annual rental payments to the lessor thereof exceed $250,000 (other than as incidental to the leasing of any real property), (viii) lease or agreement under which the Company or the Subsidiaries are lessor of or permits any third party to hold or operate any property, real or personal, owed or controlled by the Company or the Subsidiaries, (ix) agreement or other commitment for capital expenditures in excess of $250,000 individually, (x) contract or agreement under which the Company or the Subsidiaries are obligated to pay any broker's fees, finder's fees or any such similar fees to any third party (other than as are incidental to the operation of its business in the ordinary course of business consistent with industry practices), (xi) contract or agreement for - 10 -

12 the payment or receipt of any royalty, (xii) license for the use of any patent, knowhow, trademark, trade name, copyright or other intellectual property which is material to the financial condition or operations of the Company or (xiii) any other contract, agreement, arrangement or understanding that is material to the financial condition or operations of the Company and the Subsidiaries, taken as a whole. The Company has furnished or made available to counsel for the Purchaser true and correct copies of all such agreements and such other documents as have been requested by the Purchaser or their authorized representatives. Each of the foregoing contracts are valid, binding and in full force and effect in accordance with its terms. 2.13 Compliance. Except as set forth on Schedule 2.13 to the Disclosure Schedule, to the best of the Company's knowledge, the Company and the Subsidiaries have (or have applied for and which none of the Company or any Subsidiary has any reason to believe and does not believe will not be obtained in due course) all governmental approvals, authorizations, consents, qualifications, licenses and permits necessary or required to conduct their business as currently conducted or as planned to be conducted where the failure to obtain such approvals, authorizations, consents, qualifications, licenses and permits would result in liability in excess of $200,000 or materially impede the timely development of any of the products being developed by the Company or any Subsidiary. To the best of the Company's knowledge, the Company and the Subsidiaries are currently and at all times since inception have been in compliance with all Federal, state, local or foreign laws, ordinances, regulations and orders (including, without limitation, those relating to the provisions of health insurance, environmental protection, occupational safety and health, Federal securities laws, equal employment opportunity, consumer protection, credit reporting, "truth-in-lending", warranties and trade practices) applicable to their business where the failure to be in compliance would result in liability in excess of $250,000 or materially impede the timely development of any of the products being developed by the Company or any Subsidiary; and, to the best of the Company's knowledge, all such licenses, qualifications and permits are in full force and effect and no violations exist in respect of any such licenses or permits and no proceeding is pending or threatened to revoke or limit any thereof. 2.14 Disclosure. Neither this Agreement, the Disclosure Schedule, the Warrant, or the Registration Rights Agreement contains any untrue statement of a material fact or omits to state a material fact necessary, in light of the circumstances under such statements were made, in order to make the statements contained herein and therein, not misleading. - 11 -

13 2.15 Certain Transactions. Except as set forth in the Company's SEC Reports, no executive officer or director of the Company or any Subsidiary has engaged in any transaction since September 30, 1990 that would require disclosure in the document filed with the Commission pursuant to Item 404 of Regulation S-K promulgated under the Securities Act. 2.16 Insurance. Each of the Company and the Subsidiaries maintains such insurance coverage, including amounts, described on Schedule 2.16 to the Disclosure Schedule. Such insurance listed on Schedule 2.16 to the Disclosure Schedule is outstanding and in full force and effect and all premiums with respect to such policies are currently paid. Each of the Company and the Subsidiaries has not during the past three (3) fiscal years been denied or had revoked or rescinded any insurance policy. 2.17 Definitions. As used in this Section 2, the term "to the best of the Company's knowledge" shall mean actual knowledge of the officers, directors and key employees of the Company or the Subsidiaries obtained in the management of his or her business affairs after making due inquiry of officers, directors, and key employees of the Company and the Subsidiaries. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser hereby represents and warrants to the Company as follows: 3.1 Investment. The Purchaser will acquire the Shares, the Warrant and any Warrant Shares purchased from the Company pursuant to this Agreement for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Purchaser understands that the Shares, the Warrant and any Warrant Shares purchased by it from the Company pursuant to this Agreement have not been, and will not be, registered (unless sold in connection with a public offering by the Company or pursuant to a demand registration under the Registration Rights Agreement) under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the Purchaser's investment intent and the accuracy of the Purchaser's representations as expressed in this Section 3.1. - 12 -

14 3.2 Organization. The Purchaser is a corporation duly organized and validly existing and in good standing under the laws of the state of its incorporation, with all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted and as proposed to be conducted. 3.3 Authority. The Purchaser has all corporate right, power and authority to enter into this Agreement and the Registration Rights Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Registration Rights Agreement by the Purchaser and the consummation by the Purchaser of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on behalf of the Purchaser. This Agreement and the Registration Rights Agreement have been duly executed and delivered by the Purchaser and constitute legal, valid and binding obligations of the Purchaser, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and to limitations of public policy as they may apply to Section 7 of the Registration Rights Agreement. Subject to compliance with the HSR Act and such filings as may be required to be made with the SEC and any exchange or quotation system on which the Purchaser's securities are listed or designated, the execution and delivery of this Agreement and the Registration Rights Agreement do not, and the consummation of the transactions contemplated hereby and thereby will not, conflict with or result in any violation of any obligation under any provision of the Certificate or Articles of Incorporation or Bylaws of the Purchaser or any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Purchaser. 3.4 Government Consents, etc. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Purchaser is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the Shares or the Warrant, the issuance of the Warrant Shares upon exercise of the Warrant or the consummation of any other transaction contemplated hereby, except the filing of such forms with the United States Department of Justice and the Federal Trade Commission as shall be required by the HSR Act and the expiration of any waiting periods thereunder and such filings as may be required to be made with the SEC and any exchange or quotation system on which the Purchaser's securities are listed or principally traded. - 13 -

15 3.5 Investigation. The Purchaser has had a reasonable opportunity to discuss the Company's business management and financial affairs with the Company's management. 3.6 Financing. The Purchaser has or will have the funds to provide the Company with the funds necessary to consummate the transactions to occur at the Closing. SECTION 4 CONDITIONS TO OBLIGATIONS OF THE PURCHASER The obligation of the Purchaser to purchase the Shares and the Warrant at the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any or all of which may be waived at the option of the Purchaser: 4.1 Representations and Warranties Correct. The representations and warranties made by the Company in Section 2 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. 4.2 Covenants. All covenants, agreements and conditions (including corporate proceedings) contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects. 4.3 Opinion of Company's Counsel. The Purchaser shall have received from Wilson Sonsini Goodrich & Rosati, P.C., counsel to the Company, an opinion addressed to it, dated the Closing Date, in substantially the form attached hereto as Exhibit C. 4.4 No Order Pending. There shall not then be pending or threatened in writing any order, injunction or other action by any court, arbitrator or governmental body or authority enjoining or restraining the transactions contemplated by this Agreement or imposing any material condition on the consummation thereof. 4.5 HSR Act. The Purchaser and the Company shall have filed such forms with the United States Department of Justice and the Federal Trade Commission as shall be required by the HSR Act and the applicable waiting periods under such HSR Act shall have expired (or been terminated) without notice from such governmental agencies that additional inquiries are being made. - 14 -

16 4.6 No Law Prohibiting or Restricting Such Sale. There shall not be in effect any law, rule or regulation prohibiting or restricting such sale, or imposing material conditions on such sale, or requiring any consent or approval of any person which shall not have been obtained (including blue sky filings) to issue the Shares, the Warrant or the Warrant Shares (except as otherwise provided in this Agreement). 4.7 Compliance Certificate. The Company shall have delivered to the Purchaser a certificate in substantially the form attached hereto as Exhibit D, executed on behalf of the Company by the Chief Executive Officer and Chief Financial Officer of the Company, dated the Closing Date, and certifying to the fulfillment of the conditions specified in Sections 4.1 and 4.2 of this Agreement. 4.8 Technology Agreement. The Company shall have delivered to the Purchaser a duly executed counterpart of the license and OEM agreements on terms and conditions satisfactory to Purchaser in its sole discretion, which agreement shall include at a minimum the terms and conditions set forth on Exhibit E attached hereto (the "Technology Agreement"). Notwithstanding anything to the contrary herein, in the event of a material breach by the Company of its obligations under the Technology Agreement, all of the restrictions on Purchaser's ability to transfer Voting Stock set forth in Section 7.6 shall terminate and, except with respect to a transfer by the Purchaser of Voting Stock then held by the Purchaser which represents 20% or more of the Total Voting Power of the Company in a single transaction to a single person or group (as defined hereinafter), the Company's right of first refusal set forth in Section 8 hereof, shall terminate. 4.9 Registration Rights Agreement. The Company shall have delivered to the Purchaser a duly executed counterpart of the Registration Rights Agreement. 4.10 Material Adverse Change. There shall not have occurred or been discovered (whether through due diligence review or otherwise) since July 1, 1994, the date of the Company's most recent balance sheet any material adverse change in the condition (financial or otherwise), results of operations, assets, liabilities or business of the Company and its Subsidiaries, taken as a whole. 4.11 Corporate Authorizations. Purchaser shall have received (i) certified copies of the resolutions adopted by the Company's Board of Directors, authorizing the execution, delivery and performance of this Agreement, the Registration Rights Agreement, the Warrant, the Technology Agreement and (ii) copies of the - 15 -

17 Company's Certificate of Incorporation and By-Laws, as in effect on the Closing Date. SECTION 5 CONDITIONS TO OBLIGATIONS OF COMPANY The Company's obligation to sell and issue the Shares and the Warrant at the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any or all of which may be waived at the option of the Company: 5.1 Representations and Warranties Correct. The representations and warranties made by the Purchaser in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. 5.2 Covenants. All covenants, agreements and conditions (including corporate proceedings) contained in this Agreement to be performed by the Purchaser on or prior to the Closing Date shall have been performed or complied with in all material respects. 5.3 No Order Pending. There shall not then be pending or threatened in writing in effect any order, injunction or other action by any court, arbitrator or governmental body or authority enjoining or restraining the transactions contemplated by this Agreement or imposing any material condition on the consummation thereof. 5.4 HSR Act. The Purchaser and the Company shall have filed such forms with the United States Department of Justice and the Federal Trade Commission as shall be required by the HSR Act and the applicable waiting periods under such HSR Act shall have expired (or been terminated)without notice from such governmental agencies that additional inquiries are being made. 5.5 No Law prohibiting or Restricting Such Sale. There shall not be in effect any law, rule or regulation prohibiting or restricting such sale, or imposing material conditions on such sale, or requiring any consent or approval of any person which shall not have been obtained (including blue sky filings) to issue the Shares, the Warrant or the Warrant Shares (except as otherwise provided in this Agreement). - 16 -

18 5.6 Compliance Certificate. The Purchaser shall have delivered to the Company a certificate substantially in the form attached hereto as Exhibit E, executed on behalf of the Purchaser by an executive officer of the Purchaser, dated the Closing Date, and certifying to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this Agreement. 5.7 Technology Agreement. The Purchaser shall have delivered to the Company a duly executed counterpart of the Technology Agreement on terms and conditions satisfactory to the Company in its sole discretion, which agreement shall include at a minimum the terms and conditions set forth on Exhibit E hereto. 5.8 Registration Rights Agreement. The Purchaser shall have delivered to the Company a duly executed counterpart of the Registration Rights Agreement. SECTION 6 COVENANTS OF THE COMPANY Until the termination of this Agreement in accordance with Section 10.2 hereof or the particular covenant, as the case may be: 6.1 Sale of Additional Shares. The Company shall take such action as is reasonably necessary, including any necessary amendment to the Rights Agreement and any action required under the Registration Rights Agreement, subject to compliance with applicable law (including federal and state securities laws), to issue and sell to the Purchaser any Shares or Warrant Shares or any additional securities which the Purchaser shall be entitled to purchase from the Company pursuant to this Agreement. 6.2 Membership on the Board of Directors. (a) Upon or after the Closing, the Company shall cause to be appointed as a director to the Company's Board of Directors, at the request of the Purchaser, any person designated by the Purchaser and approved by the Company, which approval shall not unreasonably be withheld. Any such person shall serve until such person's successor has been duly elected and qualified. Thereafter, the Company shall include in the slate of nominees recommended by the Company's Board of Directors or management to stockholders for election as directors at each annual meeting of stockholders of the Company any person designated pursuant to this paragraph, or such substitute as may be designated by the Purchaser and who is reasonably acceptable to the Company, and the Company - 17 -

19 shall use its best efforts to cause the shares for which the Company's management or directors hold proxies or are otherwise entitled to vote to be voted in favor of the election of such designee to the extent necessary to ensure his election, assuming that all Voting Stock beneficially owned by the Purchaser is voted for such designee. In the event that any such designee shall cease to serve as a director for any reason, the Company shall use its best efforts to fill such vacancy by a designee of the Purchaser approved by the Company, which approved shall not be unreasonably withheld. Notwithstanding the foregoing, the Company's obligation under this paragraph and under paragraphs 6.3, 6.4 and 6.5 below shall terminate if the percentage interest of the Purchaser in the Total Voting Power of the Company, after adjustment for the exercise, or failure to exercise, of the right to maintain by the Purchaser pursuant to Section 7.8 below (except in the event of a delaying notice pursuant to Section 7.8(e)) is less than 5% (even if the Purchaser's percentage interest should subsequently increase for any reason to 5% or more). (b) The Company shall be entitled to excuse any designee of the Purchaser serving as a director on the Company's Board of Directors from all discussions and deliberations of the Board of Directors of the Company (or any committee constituted by the Board) concerning competitors of the Purchaser or relationships between the Company and the Purchaser. Upon notice to the Purchaser's designee, the Company may refrain from sending or providing to the Purchaser, or the Purchaser may refuse to receive, any information otherwise disseminated to the directors of the Company concerning competitors of the Purchaser or relationships between the Company and the Purchaser. The Company shall not be obligated to compensate a designee-director of the Purchaser on the same terms as other outside directors but shall provide all rights and benefits of indemnity to such designee- director as are provided such other directors. 6.3 Information Rights. So long as Purchaser holds at least 5% of the Total Voting Power of the Company, the Company shall provide to the Purchaser copies of all SEC Reports filed by Company with the Securities and Exchange Commission and all business plans, budgets, financial statements and other information made available to the Company's Board of Directors, subject to the Company's fiduciary duties and obligations to keep such materials confidential. - 18 -

20 6.4 Access to Records. Each of the Company and the Subsidiaries shall afford to the Purchaser and the Purchaser's authorized employees, counsel, accountants and other representatives free and full access, at all reasonable times to all of the books, records and properties of the Company or the Subsidiaries, as the case may be, and to all officers of the Company or the Subsidiaries, as the case may be, upon reasonable advance notice by the Purchaser to the Company or its Subsidiaries, as the case may be, in order to verify the representations and warranties made and information delivered to the Purchaser pursuant to this Agreement. 6.5 Affirmative Covenants. Each of the Company and the Subsidiaries covenants and agrees with the Purchasers as follows: (a) Corporate Existence Properties, Etc. Each of the Company and the Subsidiaries shall, and shall cause each of its Affiliates (as defined in Section 10.1(i) below) to: maintain, preserve, and keep in full force and effect its corporate existence and all rights, franchises, licenses, insurance policies and permits necessary to the proper conduct of its business and to the ownership, lease, or operation of its properties which, if not so maintained, could reasonably be expected to have a $100,000 or greater adverse effect on it, except that this provision shall not restrict the Company's ability to effect merger of the Subsidiaries of the Company. The Company agrees to take all action that may be reasonably required to obtain, preserve, renew and extend all material licenses, permits, authorizations, trade names, trademarks, service names, service marks, copyrights and patents that are necessary for the continuance of the operation of any such property by it. (b) Payment of Taxes. Each of the Company and the Subsidiaries shall, and shall cause each of its Affiliates to, pay all taxes, assessments and governmental charges or liens imposed upon it or upon its income or receipts or upon any of its properties (except with respect to taxes being contested in good faith by appropriate legal proceedings), which if not so paid could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect on the Company or any of its Subsidiaries, taken as a whole. 6.6 Three-Year Business Plan. The Company agrees to provide to the Purchaser, as soon as practicable after it is available, copies of the Company's Three-Year Business Plan. 6.7 Emergency Business Plan. The Company will provide the Purchaser prior to Closing with copies of its emergency business plans. - 19 -

21 SECTION 7 COVENANTS OF THE PURCHASER Until the termination of this Agreement in accordance with the provisions of Section 10.2 hereof or the particular covenant, as the case may be: 7.1 Limitation on Ownership of Voting Stock. The Purchaser shall not (and Purchaser shall not permit any of its Affiliates to) acquire, directly or indirectly, beneficial ownership of any Voting Stock, any securities convertible into or exchangeable for Voting Stock, or any other right to acquire Voting Stock (except, in any case, as provided in this Agreement or the Warrant or by way of stock dividends or other distributions or offerings made available to holders of any Voting Stock generally) or authorize or make a tender, exchange or other offer, without the written consent of the Company, if the effect of such acquisition or offer would be to increase the Voting Power of all Voting Stock then owned by Purchaser or its Affiliates or which it has a right to acquire to more than the percentage of the Total Voting Power of the Company which Purchaser is entitled to hold at such time as provided in this Section 7.1: (a) The Purchaser shall be entitled to hold Voting Stock up to, and not to exceed except as permitted by this Agreement, 25% of the Total Potential Voting Power of the Company. Subject to such limitation, shares of Voting Stock not acquired by the Purchaser from the Company upon exercise of the Warrant or pursuant to Section 7.8 may be acquired by the Purchaser in the open market, from third parties or otherwise, so long as the Warrant has been exercised prior to such purchases. (b) The Purchaser may acquire Voting Stock without regard to the limitations in this Section 7.1 if a tender offer is made (as evidenced by the filing with the SEC of a Schedule 14D-1 (or any successor schedule or form promulgated or adopted for such purpose by the SEC) and the actual dissemination of tender offer materials to security holders) by another person or group to purchase or exchange for cash or other consideration any Voting Stock which, if successful, would result in such person or group owning or having the right to acquire shares of Voting Stock with aggregate Voting Power of at least 40% of the Total Voting Power of the Company then in effect; provided, however, that this provision shall not be effective until such time as the Purchaser in the exercise of the sole reasonable judgment of its Board of Directors, after consultation with its advisors, shall reasonably conclude - 20 -

22 that such tender offeror can finance such tender offer. If an offer or proposed acquisition is made by any person or group which pursuant to this Section 7.1(b) releases the Purchaser from the limitations set forth herein, which offer or proposed acquisition subsequently expires, is enjoined or terminated prior to any purchases thereunder or is otherwise withdrawn, upon the effectiveness of such expiration, injunction or termination the limitations of this Section 7.1(b) shall be reimposed, except that the Purchaser shall not be obligated to dispose of any Voting Stock acquired of record or beneficially during the pendency of such tender offer or proposed acquisition. (c) Purchaser may acquire Voting Stock (or rights to acquire Voting Stock) without regard to the limitations in this Section 7.1 as soon as it is publicly disclosed or Purchaser otherwise learns that another person or group subject to the filing requirements of Section 13(d)(i) of the Exchange Act with respect to such purchase has acquired, whether from the Company or otherwise, any Voting Stock (or rights to acquire Voting Stock), which results in such person or group owning or having the right to acquire Voting Stock with Total Voting Power of not less than 20%. (d) The Purchaser will not be obligated to dispose of any shares of Voting Stock if the aggregate percentage ownership of the Purchaser in the Total Voting Power of the Company is increased as a result of a recapitalization of the Company or a repurchase of securities by the Company or any other action taken by the Company or its affiliates, but the Purchaser shall not acquire any additional Voting Stock above the limitations then applicable pursuant to Section 7.1, unless such acquisition would otherwise be permitted under this Agreement. If, after the Purchaser has acquired Voting Stock in response to the acquisition of Voting Stock by another person or group, as permitted by this Section 7.1, then the Purchaser shall not be obligated to dispose of any shares of Voting Stock if the aggregate percentage ownership of such third party or group is thereafter reduced. (e) Notwithstanding the other provisions of this Section 7.1, the covenants and agreements of the Purchaser under this Section 7.1 shall terminate September 1, 1996. 7.2 Voting. The Purchaser shall take such action as may be required so that all shares of Voting Stock owned by the Purchaser are voted for the Purchaser's nominee to the Board of Directors of the Company in accordance with the recommendation of the Board of Directors consistent with the provisions of Section 6.2. Unless the Company otherwise consents in writing, the Purchaser shall take such action as may be required so that all shares of Voting Stock - 21 -

23 owned by the Purchaser are voted in accordance with the recommendations of the Board of Directors on all matters to be voted on by holders of Voting Stock in not less than the same proportion as the votes cast by the other holders of Voting Stock with respect to such matters; provided, however, that Voting Stock owned by Purchaser may be voted as the Purchaser determines in its sole discretion on any Significant Event (as defined in Section 10.1(c) below) presented to be voted on by the holders of Voting Stock. The Purchaser, as a holder of shares of Voting Stock, shall be present, in person or by proxy, at all meetings of stockholders of the Company so that all shares of Voting Stock beneficially owned by the Purchaser may be counted for the purposes of determining the presence of a quorum at such meetings. Notwithstanding any other provision of this Section 7.2, the provisions of this Section 7.2 shall terminate and be of no further force and effect should the provisions of Sections 7.1 and 7.6 be terminated for any reason. 7.3 Voting Trust, etc. So long as Section 7.1 hereof is in effect and has not been terminated for any reason, the Purchaser shall not deposit any shares of Voting Stock in a voting trust or, except as otherwise provided herein, subject any Voting Stock to any arrangement or agreement with respect to the voting of such Voting Stock. 7.4 Solicitation of Proxies. So long as Section 7.1 hereof is in effect and has not been terminated for any reason, without the Company's prior written consent, the Purchaser shall not solicit proxies with respect to any Voting Stock or become a "participant" in any "election contest" (as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act relating to the election of directors of the Company); provided, however, that the Purchaser shall not be deemed to be a "participant" by reason of the exercise of any right permitted by Section 6.2. 7.5 Acts in Concert with Others. So long as Section 7.1 hereof is in effect and has not been terminated for any reason, the Purchaser shall not join a partnership, limited partnership, syndicate or other group, or otherwise act in concert with any third person, for the purpose of acquiring, holding, or disposing of Voting Stock; provided, however, that Purchaser shall be permitted to act in concert with any of its Affiliates or Subsidiaries to transfer the Voting Stock the Purchaser is then authorized to hold pursuant to this Section 7 among such entities. 7.6 Restrictions on Transfer of Voting Stock. Prior to September 1, 1996, Purchaser and its Affiliates shall not, directly or indirectly, without the written consent of the Company, sell or - 22 -

24 transfer any Voting Stock except (i) to the Company or any person or group approved by the Company; (ii) to any Subsidiary or Affiliate of the Purchaser, all of the voting stock of which is owned by the Purchaser or its Affiliates (a "Wholly-Owned Subsidiary"); (iii) pursuant to a bona fide public offering registered under the Securities Act of either Voting Stock or securities exchangeable or exercisable for Voting Stock or pursuant to a rights offering or a dividend or other ratable distribution to stockholders of the Purchaser; (iv) pursuant to Rule 144 under the Securities Act (but only to the extent the sale or transfer of Voting Stock at any time is in compliance with the volume limitations under paragraph (e) thereunder); (v) in any other transactions not otherwise described in this Section 7.6 (including open market transactions), subject to the Company's right of first refusal as set forth in Section 8.1 hereof or in response to (1) an offer to purchase or exchange for cash or other consideration any Voting Stock (a) which is made by or on behalf of the Company or (b) which is made by another person or group and is not opposed by the Board of Directors of the Company within the time such Board is required, pursuant to regulations under the Exchange Act, to advise the Company's stockholders of such Board's position on such offer, or (2) subject to the Company's right of first refusal as set forth in Section 8.2, any other offer made by another person or group to purchase or exchange for cash or other consideration any Voting Stock which, if successful, would result in such person or group owning or having the right to acquire Voting Stock with aggregate Voting Power of more than 40% of the Total Voting Power of the Company then in effect. Notwithstanding the foregoing, with respect to Section 7.6(v), Purchaser shall not sell or transfer any Voting Stock in single transactions exceeding 5% of the Total Voting Power of the Company to any single person or group and such sales or transfers shall not directly or indirectly, result, to the best knowledge of the Purchaser after reasonable inquiry, in any single person or group owning or having the right to acquire Voting Stock with aggregate Voting Power of 10% or more of the Total Voting Power of the Company then in effect. Notwithstanding the foregoing, upon the acquisition by a single person or group (as defined hereinafter) of Voting Stock, whether from the Company or otherwise, representing 20% or more of the Company's Total Voting Power, the restrictions set forth in this Section 7.6 shall terminate. 7.7 Confidential Information. The Company may from time to time pursuant to this Agreement (including pursuant to Section 6.4 hereof) disclose to Purchaser certain strategic, technical, financial or other information which the Company deems to be confidential. The Purchaser agrees that all such confidential information - 23 -

25 will be kept confidential unless such information (i) is already lawfully in the Purchaser's or its Affiliates' possession, (ii) becomes generally available to the public other than as a result of a disclosure by the Purchaser or any of its directors, officers, employees, agents, advisors or Affiliates, (iii) becomes available to the Purchaser or its Affiliates on a nonconfidential basis from a source other than the Company or its advisors, provided that such source is not known to the Purchaser or its Affiliates to be bound by a confidentiality agreement with or other obligation of secrecy to the Company or another party, (iv) is required to be disclosed by the Purchaser or its Affiliates by operation of law, (v) is disclosed by the Purchaser or its Affiliates with the Company's prior written approval, (vi) has been held by the Purchaser or its Affiliates for not less than two (2) years from the date of receipt, provided that the confidentiality of confidential information furnished to an individual designated by the Purchaser as a director on the Company's Board of Directors (and not additionally furnished to other representatives of the Purchaser) shall not lapse by virtue of this clause, or (vii) is independently developed by the Purchaser or its Affiliates. Notwithstanding anything to the contrary, the Purchaser may disclose such confidential information to its directors, officers, employees, agents or advisors so long as it takes appropriate measures to protect the confidentiality thereof, which measures shall include at least the same degree of care that the Purchaser uses to protect its own confidential information of a similar nature. In the event that the Purchaser or any of its representatives is requested or required to disclose any of the confidential information referred to above, the Purchaser will provide the Company with prompt notice of such request or requirement so that the Company may, at the Company's expense, seek a protective order or waive the Purchaser's compliance with this Section 7.7, as appropriate. The Purchaser further acknowledges and understands that any information so obtained which may be considered "insider" nonpublic information will not be utilized by the Purchaser in connection with purchases and/or sales of the Company's securities except in compliance with applicable state and federal securities laws. 7.8 Right to Maintain. (a) If the percentage interest of the Purchaser in the Total Potential Voting Power of the Company is at or less than 25%, (the "Threshold Interest"), and is reduced as a result of an issuance by the Company of any Voting Stock (including any issuance following conversion of any security convertible into or exchangeable for Voting Stock or upon exercise of any option, warrant or other right to acquire any Voting Stock, but excluding issuance of - 24 -

26 the Warrant Shares), the Purchaser shall have the right to purchase from the Company for cash upon the terms set forth in this Section 7.8 up to and including that number of shares of Voting Stock which, if purchased by the Purchaser, would result in the Purchaser's retaining the Threshold Interest held by the Purchaser immediately prior to such reduction of the Purchaser's interest. (b) The purchase price per share at which the Purchaser shall be entitled to purchase Voting Stock under this Section 7.8 shall be determined as follows: (i) If the event giving rise to the Purchaser's rights is one or more issuances of Voting Stock (including any issuance resulting from the conversion or exercise of any security or other right to acquire Voting Stock, but excluding issuance of the Warrant Shares) pursuant to the Company's present or future stock option, stock purchase or other stock plans for the benefit of employees, directors, officers, consultants or others, the price shall be the Average Market Price per share of Voting Stock determined as of the date of the issuance and sale of such Voting Stock. (ii) If the event giving rise to the Purchaser's rights is a sale or issuance of Voting Stock for cash or property, including, without limitation, for securities or assets or by way of merger in connection with the acquisition of another company, and is not treated under paragraph 7.8(b)(i) above, the price shall be the price per share specified in the agreement relating to such issuance or, if no such price is specified, the Average Market Price per share of Voting Stock determined as of the date of issuance and sale of such Voting Stock; (iii) If the event giving rise to the Purchaser's rights is an issuance of Voting Stock upon conversion of any security convertible into or exchangeable for Common Stock or upon exercise of any option, warrant or right to acquire any Voting Stock, but excluding issuance of the Warrant Shares, and is not treated under paragraph 7.8(b)(i) or (ii) above, the price shall be the Average Market Price per share of Voting Stock determined as of the date of such conversion or exercise. (iv) If the event giving rise to the Purchaser's rights is an underwritten public offering or an institutional private placement, the price shall be the price per share at which the Voting Stock was sold by the Company. - 25 -

27 (v) In all other cases, the price shall be the Average Market Price per share of Voting Stock determined as of the date of the issuance and sale of such Voting Stock. (c) The Company shall notify the Purchaser by written, dated notice not later than ten (10) business days after an issuance giving rise to the Purchaser's rights under this Section 7.8 and, if such offer is accepted in writing within thirty (30) days of such offer (except as provided in the next sentence), effect the sale of the securities to the Purchaser in accordance with this paragraph. If the event giving rise to the Purchaser's rights is an underwritten public offering or an institutional private placement of securities by the Company, and if the Company gives the Purchaser notice of such offering at least fifteen (15) days in advance of the effective date of the offering, then unless the Purchaser notifies the Company of its irrevocable acceptance of such offer within the first ten (10) days of such 15-day period (for the purpose of permitting the Company to disclose the fact of the Purchaser's intention in the prospectus relating to such underwritten public offering or institutional private placement), the Company shall be under no obligation to sell securities to the Purchaser under this Section 7.8 as a result of such underwritten public offering or institutional private placement. (d) The purchase and sale of any shares of Voting Stock pursuant to any offer made under this Section 7.8 that is accepted by the Purchaser shall take place at 10:00 a.m. on the third business day following the expiration or early termination of all waiting periods imposed on such purchase and sale by the HSR Act and the receipt of all other applicable regulatory approvals, or, if no waiting period is imposed on such purchase and sale by the HSR Act, on the third business day following the Purchaser's acceptance of such offer and compliance with applicable laws and regulations, at the offices of the Company located at the address set forth in this Agreement, or at such other time and place as the Company and the Purchaser may agree. The purchase price shall be payable by wire transfer in same day funds. The Company and the Purchaser shall comply with all federal and state laws and regulations and requirements of the NASD, or any securities exchange on which the Company's securities may then be listed, applicable to any purchase and sale of shares of Voting Stock under this Section 7.8. (e) Notwithstanding the foregoing, if any issuance of securities requiring the Company to make an offer of Voting Stock to the Purchaser under this Section 7.8 shall be for a number of securities representing less than 2% of the Total Voting Power of the Company immediately following such issuance, the Company shall - 26 -

28 have the right to delay giving the notice otherwise required by Section 7.8(c) until the earlier of (i) the next issuance which, together with all issuances after which notice was delayed pursuant to this sentence, shall represent an aggregate of 2% or more of the Total Voting Power of the Company then in effect or (ii) the 45th calendar day preceding the last day of the Company's fiscal year for accounting purposes, and, thereupon, the Company shall give such notice with respect to all shares of Voting Stock which it shall be obligated to offer to sell to the Purchaser at the price determined in Section 7.8(b) hereof and which shall not have been the subject of a previous notice pursuant to Section 7.8(c); provided, however, that the Purchaser shall have the right to request the purchase of all shares of Voting Stock which the Purchaser has a right to acquire under this Section 7.8 at any time (a) if a bona fide tender or exchange offer is made by another person or group to purchase or exchange for cash or other consideration any Voting Stock from the Company's stockholders generally, or (b) upon the Company's publication or setting of a record date of its stockholders; and, in either such event and upon the receipt of such request, the Company shall use its reasonable efforts to issue all such shares to the Purchaser pursuant to the provisions of this Section 7.8. (f) If Purchaser sells any Voting Stock, or fails to exercise its right to acquire additional Voting Stock as permitted in this Section 7.8 within the time period prescribed, the Threshold Interest which the Purchaser is then entitled to maintain under this Section 7.8 shall be reduced to the Purchaser's percentage ownership that results immediately following such sale or failure to exercise. (g) The Purchaser shall forfeit all rights under this Section 7.8 if at any time the Purchaser's Voting Stock represents less than 5% (inclusive of the shares the Purchaser is entitled to purchase under an outstanding offer pursuant to this Section 7.8) of the Total Voting Power the Company (even if the Purchaser's percentage interest should subsequently increase for any reason to 5% or more). 7.9 Acquisition of Stock. The Purchaser shall advise management of the Company as to the Purchaser's general plans to acquire any additional shares of Voting Stock, or rights thereto, reasonably in advance of any such acquisitions; provided, however, that if advance notice of acquisitions of Voting Stock, or rights thereto, in the open market is not reasonably practicable, notice of any such acquisition shall be made promptly following such acquisition. All of the Purchaser's purchases of Voting Stock - 27 -

29 shall be in compliance with applicable laws and regulations and the provisions of this Agreement. 7.10 Termination of Certain Sections. Notwithstanding any other provision in this Section 7, the provisions of Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.8 and 7.9 shall terminate and be of no further force and effect on the earliest of (i) September 1, 1996, (ii) such time as Purchaser holds less than 5% of the Total Voting Power of the Company, or (iii) such earlier time as may be provided in the relevant section of this Agreement. 7.11 Further Termination. Notwithstanding any other provision in this Section 7, the provisions of Sections 7.1, 7.2, 7.3, 7.4, 7.5 and 7.6 of this Agreement shall terminate upon the commencement of any bankruptcy, insolvency or reorganization action by the Company or against the Company by any other party. 7.12 Repurchase Option. A separate agreement will be negotiated between the Company and the Purchaser covering measures to ensure continuity of core management. As part of this agreement, the Purchaser will offer to the Company the option to repurchase to 300,000 shares of the Shares purchased by the Purchaser under this Agreement at $8.625 per share. SECTION 8 COMPANY RIGHT OF FIRST REFUSAL 8.1 Right of First Refusal. Prior to making any sale or transfer of Voting Stock of the Company pursuant to Section 7.6(v), Purchaser shall give the Company the opportunity to purchase such Voting Stock in the following manner: (a) The Purchaser shall give notice (the "Transfer Notice") to the Company in writing of such intention specifying the names of the proposed purchasers or transferees, the amount of Voting Stock proposed to be sold or transferred, the proposed price per share therefor (the "Transfer Price") and the other material terms upon which such disposition is proposed to be made. (b) The Company shall have the right, exercisable by written notice given by the Company to the Purchaser within twenty (20) days after receipt of such Transfer Notice, to purchase all or any portion of the Voting Stock specified in such Transfer Notice for cash per share equal to the Transfer Price. - 28 -

30 (c) If the Company exercises its right of first refusal hereunder, the closing of the purchase of the Voting Stock with respect to which such right has been exercised shall take place within sixty (60) days after the Company gives notice of such exercise, which period of time shall be extended if necessary to comply with applicable securities laws and regulations. Upon exercise of its right of first refusal, the Company and the Purchaser shall be legally obligated to consummate the purchase contemplated thereby and shall use their best efforts to secure any approvals required in connection therewith. (d) If the Company does not exercise its right of first refusal hereunder within the time specified for such exercise, the Purchaser shall be free, during the period of ninety (90) days following the expiration of such time for exercise, to sell the Voting Stock specified in such Transfer Notice on terms no less favorable to the Purchaser than the terms specified in such Transfer Notice, which period shall be extended, if necessary, to comply with applicable securities laws and regulations. The transferee shall acquire such Voting Stock free from any of the provisions of this Agreement, provided, however, such Voting Stock shall be subject to any restrictions imposed under applicable securities laws and regulations. (e) The right of first refusal granted under this Section 8.1 shall expire on September 1, 1996, subject to the provisions of Sections 4.8 and 7.6 above. 8.2 Tender Offer Sale. Prior to making any sale or exchange of Voting Stock pursuant to Section 7.6(vi)(2) in response to a tender or exchange offer, Purchaser shall give the Company the opportunity to purchase such Voting Stock in the following manner: (a) The Purchaser shall give notice (the "Tender Notice") to the Company in writing of such intention no later than ten (10) days prior to the latest time (as the same may be extended) by which Voting Stock must be tendered in order to be accepted pursuant to such offer or to qualify for any proration applicable to such offer (the "Tender Date"), specifying the amount of Voting Stock proposed to be tendered. For purposes hereof, a tender offer to purchase Voting Stock shall be deemed to be an offer at the price specified therein, without regard to any provisions thereof with respect to proration or conditions to the offeror's obligation to purchase (assuming such conditions are not impossible to fulfill when the offer is made, without giving effect to the Company's right of first refusal). - 29 -

31 (b) If the Tender Notice is given, the Company shall have the right, exercisable by giving notice (the "Purchase Notice") to the Purchaser at least five (5) business days prior to the Tender Date, to purchase all or any portion of the Voting Stock specified in the Tender Notice for cash. If the Company exercises such right by giving such notice, the closing of the purchase of such Voting Stock shall take place on the fifth business day after the tender offer is consummated, or such earlier time as the Company and Purchaser shall agree; provided that the Company's obligation to purchase such shares of Voting Stock following delivery of any Purchase Notice shall be contingent on consummation of the tender offer referred to in the corresponding Tender Notice. As a condition to the effectiveness of any exercise by the Company of its rights to purchase under this Section 8.2, at the time the Company delivers a Purchase Notice, it shall have provided for the payment to the Purchaser of the purchase price for such shares by an escrow of funds, letter of credit facility, bank guarantee or similar arrangement reasonably acceptable to the Purchaser. Upon exercise of this right of first refusal (including provision for payment as described above), the Company and the Purchaser shall be legally obligated to consummate the purchase contemplated thereby and shall use their best efforts to secure any approvals required in connection therewith, subject only to consummation of the tender offer referred to in the corresponding Tender Notice. (c) The purchase price to be paid by the Company pursuant to this Section 8.2, if such tender offer is consummated, shall be the purchase price that the Purchaser would have received if it had tendered the Voting Stock purchased by the Company and all such Voting Stock had been purchased in such tender offer, including any increases in the price paid by the tender offeror after exercise by the Company of its right of first refusal hereunder. If the purchase price paid by the tender offeror includes any property other than cash, the value of such property shall be determined in good faith by the Board of Directors of the Company. The Company and the Purchaser shall use their best efforts to cause any determination of the value of any such property included in the purchase price to be made within two (2) business days after consummation of the tender offer. The Company and the Purchaser shall each share equally the costs of any investment banking firm selected hereunder. (d) If the Company does not exercise such right by giving such notice or fails to complete the purchase, then the Purchaser shall be free to accept the tender offer with respect to which the Tender Notice was given. - 30 -

32 (e) The provisions of this Section 8.2 shall expire on September 1, 1996, subject to the provisions of Sections 4.8 and 7.6 above. 8.3 Assignment of Rights. In the event that the Company elects to exercise a right of first refusal under this Section 8, the Company may specify prior to closing such purchase another person as its designee to purchase all or part of the Voting Stock to which such notice relates. Any such designee shall be subject to the approval of the Purchaser proposing to sell or tender, as the case may be, any of its Shares, which approval shall not unreasonably be withheld. If the Company shall designate another person as the purchaser pursuant to this Section 8, the giving of notice of acceptance of the right of first refusal by the Company shall constitute a legally binding obligation of the Company to complete such purchase if such person shall fail to do so. 8.4 Termination. Notwithstanding any other provision of this Section 8, the provisions of this Section shall terminate and be of no further force and effect if the Total Voting Power then held by the Purchaser becomes less than five percent (5%) of the Total Voting Power of the Company. SECTION 9 INDEMNIFICATION 9.1 Survival of Representations and Warranties. Notwithstanding any right of Purchaser fully to investigate the affairs of the Company and notwithstanding any knowledge of facts determined or determinable by Purchaser pursuant to such investigation or right of investigation, the Purchaser has the right to rely fully upon the representations, warranties, covenants and agreements of the Company contained in this Agreement. All representations and warranties here shall survive the execution and delivery of this Agreement for a period of two and one-half (2 1/2) years after the Closing and all covenants and agreements shall survive until performed or waived. 9.2 Obligation to Indemnify. (a) The Company agrees to indemnify, defend and hold harmless the Purchaser and its Affiliates (and the directors, officers, employees, successors and assigns of each of them) from and against all claims, actions, suits, losses, liabilities, damages, deficiencies, judgments, settlements, costs of investiga- - 31 -

33 tion or other expenses (including but not limited to interest, penalties and reasonable attorneys' fees and disbursements incurred in connection with enforcing this indemnification or otherwise in connection with any of the foregoing) (collectively, the "Losses") based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation or warranty or non- performance or noncompliance of any covenant of the Company contained in this Agreement, the Registration Rights Agreement (except as otherwise provided therein) and the Warrant. (b) The Purchaser agrees to indemnify, defend and hold harmless the Company and its Affiliates (and the directors, officers, employees, successors and assigns of each of them) from and against all Losses based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation or warranty of the Purchaser or nonperformance or noncompliance of any covenant of the Purchaser contained in this Agreement, the Registration Rights Agreement (except as otherwise provided therein) and the Warrant. 9.3 Notice and Opportunity to Defend. (a) In the event that any party hereto shall sustain or incur any Losses in respect of which indemnification may be sought by such person pursuant to Section 9.2, the person seeking such indemnification (the "Indemnitee") shall assert a claim for indemnification by giving prompt written notice thereof (a "Claims Notice") which shall describe in reasonable detail the facts and circumstances upon which the asserted claim for indemnification is based, to the party providing indemnification (the "Indemnitor") and shall thereafter keep the Indemnitor reasonably informed with respect thereto; provided that failure of the Indemnitee to give the Indemnitor prompt notice as provided herein shall not relieve the Indemnitor of any of its obligations hereunder, except to the extent that the Indemnitor is materially prejudiced by such failure. In case any claim, action, suit, hearing or other proceeding (a "Claim") is brought against any Indemnitee, the Indemnitor shall have the right to assume, conduct and control the defense, compromise or settlement thereof, by written notice to the Indemnitee of its intention to do so within ten (10) days after receipt of the Claims Notice, with counsel reasonably satisfactory to the Indemnitee, at the Indemnitor's own expense, and thereupon to prosecute in the name and on behalf of the Indemnitee any available cross-claims, counterclaims or third- party claims arising with respect to the Claim. If the Indemnitor shall assume the defense of such Claim, it shall not settle such Claim unless such settlement includes as an unconditional term thereof the giving by the claimant or the plaintiff of a release of the Indemnitee, satisfactory - 32 -

34 to the Indemnitee, from all liability with respect to such Claim nor shall the Indemnitor settle such Claim without the written consent of the Indemnitee. As long as the Indemnitor is contesting any such Claim in good faith and on a timely basis, the Indemnitee shall not pay or settle any such Claim. Notwithstanding the assumption by the Indemnitor of the defense of any Claim as provided in this Section 9.3.(a) and without limiting the Indemnitor's right to assume, conduct and control the defense, compromise or settlement thereof, the Indemnitee shall be permitted to join in the defense of such Claim and to employ counsel at its own expense, so long as such joining does not interfere with the Indemnitor's right to conduct and control such matter. (b) If the Indemnitor shall fail to notify the Indemnitee of its desire to assume the defense of any such Claim within the prescribed ten (10) day period set forth in Section 9.3.(a), or shall notify the Indemnitee that it will not assume the defense of any such Claim, or if the Indemnitee shall have defenses available to it which conflict with or are different than the defenses of the Indemnitor, then the Indemnitee may assume the defense of any such Claim at the Indemnitor's expense, in which event it may do so in such manner as it may deem appropriate, and the Indemnitor shall be bound by any determinations made in any litigation or other proceeding with respect to such Claim or any settlement thereof effected by the Indemnitee. SECTION 10 MISCELLANEOUS 10.1 Certain Definitions. As used in this Agreement: (a) The term "Total Voting Power of the Company" means the total number of votes which may be cast in the election of directors of the Company at any meeting of stockholders of the Company if all securities entitled to vote in the election of directors of the Company were present and voted at such meeting. (b) The term "Voting Stock" means the Common Stock and any other securities issued by the Company, including the Warrant Shares when issued upon exercise of the Warrant, having the ordinary power to vote in the election of directors of the Company. (c) The term "Significant Event" means (i) any proposed amendment to the Certificate of Incorporation or Bylaws of the Company (other than a proposal to create an authorized class of Preferred Stock or increase the number of authorized shares of - 33 -

35 Common Stock or Preferred Stock), (ii) disposition of the Company (by way of merger, sale of stock or disposition of all or substantially all assets or otherwise), (iii) recapitalization, (iv) liquidation or dissolution, (v) any vote pursuant to any provision of law or the Company's Certificate of Incorporation or Bylaws requiring or permitting stockholders to approve any business combination proposed by or with another person or its affiliates which have acquired a certain percentage of the Company's shares or to grant voting rights to such person or to waive or adopt provisions requiring such a vote, or (vi) any action, including a change in the size, structure or membership of the Company's Board of Directors which the Purchaser, in its sole discretion, determines would be materially adverse to the Purchaser's interest in the Company (other than actions contemplated by this Agreement). (d) "Average Market Price" of the Voting Stock at any date shall be the average, based on the ten (10) consecutive trading days ending on the trading date last preceding the date of determination of such price (the "Average"), of the closing prices for a share of such security on the principal national securities exchange on which such security is listed, or, if such security is not listed on any national securities exchange, the Average of the closing prices for a share of such security on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or, if such closing prices shall not be reported on NASDAQ, the Average of the mean between the closing bid and asked prices of a share of such security in such case as reported by The Wall Street Journal, or, if such prices shall not be so reported, as the same shall be reported by the National Quotation Bureau Incorporated, or, in all other cases, the value as determined by a single nationally recognized investment banking firm jointly selected by the Company and the Purchaser. For this purpose, the parties shall use their best efforts to cause any determination of the value to be made within ten (10) business days after the date on which the value is to be measured. The determination by the investment banking firm selected in the manner set forth above shall be conclusive. (e) The terms "beneficial ownership" or "beneficial owner" refer to the meaning of such terms as provided in Rule 13d-3 promulgated under the Exchange Act. References to the acquiring, holding or ownership of Voting Stock hereunder mean beneficial ownership. (f) The term "group" shall have the meaning comprehended by Section 13(d)(3) of the Exchange Act and the rules and regulations promulgated thereunder. - 34 -

36 (g) The term "person" shall mean any person, individual, corporation, partnership, trust or other nongovernmental entity or any governmental agency, court, authority or other body (whether foreign, federal, state, local or otherwise). (h) The term "Total Potential Voting Power," as it relates to Purchaser's equity position in the Company shall mean Purchaser's percentage of Total Voting Power after taking into account the exercise by Purchase of the Warrant and any other securities or other instruments held by Purchaser which are convertible into Voting Stock. (i) The term "Affiliate" shall mean any person that controls, is controlled by or is under common control with the referenced person. 10.2 Termination of Agreement. This Agreement may be terminated: (a) by either party prior to the Closing if the other party violates or fails to perform any of the material covenants or agreements of the other party under this Agreement; provided, however, that neither party shall be entitled to terminate this Agreement pursuant to this sentence unless it shall have delivered written notice of such default to the other party and such default shall not have been cured within thirty (30) days after delivery of such notice; (b) by Purchaser or the Company if the Closing shall not have taken place on or before October 31, 1994; or (c) upon mutual consent of Purchaser of the Company. 10.3 Effect of Termination. From and after the termination of this Agreement, the covenants, obligations and agreements of the parties set forth herein shall be of no further force or effect and the parties shall be under no further obligation with respect thereto; provided, however, that in the event of such termination, to the extent the terms thereof continue to be applicable, the covenant of the Purchaser contained in Section 7.7 shall continue in full force and effect. 10.4 Best Efforts. The Company and Purchaser shall use their respective best efforts to take all actions required under the HSR Act and under any law, rule or regulation adopted subsequent to the date hereto in order that the Company may sell the Shares and the Warrant to the Purchaser and the Purchaser may purchase the Shares and the Warrant and any Voting Stock it may wish to purchase in the - 35 -

37 future and to ensure that the conditions to the Closing set forth herein are satisfied on or before the scheduled date of such Closing. 10.5 Governing Law; Disputes. This Agreement is made subject to and shall be construed under the laws of the State of Delaware as applied to contracts entered into solely between residents of, and to be performed entirely within, such state. The parties agree that the state and federal courts situated in the State of Delaware shall have exclusive jurisdiction to resolve any disputes with respect to this Agreement, with each party irrevocably consenting to the jurisdiction thereof for any actions, suits or proceedings arising out of or relating to this Agreement. The parties hereto irrevocably waive trial by jury. In the event of any litigation hereunder, the prevailing party shall be entitled to costs and reasonable attorneys' fees. In the event of any breach of the provisions of this Agreement, the parties shall be entitled to equitable relief, including in the form of injunctions and orders for specific performance, where the applicable legal standards for such relief in such courts are met, in addition to all other remedies available to the parties with respect thereto at law or in equity. Notwithstanding anything to the contrary herein or which may be based on facts or circumstances pertaining to this Agreement, the Company hereby irrevocably and unconditionally waives and releases all rights and claims that it may now or hereafter have that Purchaser's parent, Siemens Aktiengesellschaft or any of Purchaser's Affiliates organized outside the United States (including Siemens Nixdorf Informationssysteme AG, ("SNI")), is subject to the jurisdiction of the federal or state courts of the United States with respect to this Agreement, provided that nothing in such waiver and release shall affect the Company's rights, if any, to pursue any claim whatsoever against Siemens Aktiengesellschaft or SNI in the courts of the Federal Republic of Germany. In addition, Purchaser hereby irrevocably and unconditionally waives and releases all rights and claims that it may now or hereafter have that the Company is subject to the jurisdiction of the courts of the Federal Republic of Germany with respect to this Agreement, provided that nothing in such waiver and release shall affect Purchaser's rights, if any, to pursue any claim whatsoever against the Company in the federal or state courts of the United States. 10.6 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by a party without the prior written consent of the other party; provided, however, that the Purchaser shall have the right, upon prior notice to the Company, to assign this Agreement - 36 -

38 to any Wholly-Owned Subsidiary of the Purchaser, the principal offices of which are located in the United States. 10.7 Entire Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof and supersede all prior agreements and understandings among the parties relating to the subject matter hereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 10.8 Notices and Dates. Any notice or other communication given under this Agreement shall be sufficient if in writing and sent by registered, certified mail or facsimile, return receipt requested, postage prepaid, to a party at its address set forth below (or at such other address as shall be designated for such purpose by such party in a written notice to the other party hereto): (a) if to the Company, to it at: Pyramid Technology Corporation 3860 North First Street San Jose, CA 95134 Attn: General Counsel (408) 428-8820 (fax) with a copy to: Larry W. Sonsini, Esq. Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304-1050 (415) 496-4084 (fax) (b) if to Purchaser, to it at: Siemens Nixdorf Information Systems, Inc. c/o Siemens Nixdorf Informationssysteme AG Postcach 2160 Furstenalle 7W-4790 Paderborn, Germany Attn: Mr. G. Schulmeyer 011-4989-636-2519 (fax) - 37 -

39 with a copy to: Siemens Corporation 1301 Avenue of the Americas, 42nd Floor New York, NY 10019 Attn: E. Robert Lupone, Esq., Legal Department (212) 258-4945 (fax) All such notices and communications shall be effective when received by the addressee. In the event that any date provided for in this Agreement falls on a Saturday, Sunday or legal holiday, such date shall be deemed extended to the next business day. 10.9 Brokers. (a) The Company has not engaged, consented to or authorized any broker, finder or intermediary, except Smith Barney Inc. ("Smith Barney"), to act on its behalf, directly or indirectly, as a broker, finder or intermediary in connection with the transactions contemplated by this Agreement. All fees, commissions and other payments owing to Smith Barney as a result of its or its employees' participation, negotiations, or other actions, taken in connection with this Agreement are the sole responsibility and obligation of the Company. The Company hereby agrees to indemnify and hold harmless the Purchaser from and against all fees, commissions or other payments owing to Smith Barney or any other party acting on behalf of the Company hereunder. (b) The Purchaser has not engaged, consented to or authorized any broker, finder or intermediary to act on its behalf, directly or indirectly, as a broker, finder or intermediary in connection with the transactions contemplated by this Agreement. The Purchaser hereby agrees to indemnify and hold harmless the Company from and against all fees, commissions or other payments owing to any party acting on its behalf. 10.10 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restriction of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 10.11 Injunctive Relief. Purchaser, on the one hand, and the Company, on the other, acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that - 38 -

40 the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specific performance of the terms and provisions hereof in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which they may be entitled at law or equity. 10.12 Attorneys' Fees. The prevailing party in any litigation between Purchaser and the Company involving this Agreement, the Registration Rights Agreement or the Warrant shall be entitled to recover from the other party its reasonable attorneys' fees and costs. 10.13 Costs and Expenses. Each party hereto shall pay its own costs and expenses incurred in connection herewith, including the fees of its counsel, auditors and other representatives, whether or not the transactions contemplated herein are consummated. 10.14 No Third Party Rights. Nothing in this Agreement shall create or be deemed to create any rights in any person or entity not a party to this Agreement. 10.15 Publicity. Purchaser and the Company shall not, without the prior approval of each other party hereto, make or cause to be made any press release or other public statement concerning the transactions contemplated from time to time by this Agreement, except as and to the extent that any party hereto is so obligated by law or the regulations of any stock exchange or the NASD (but only after the Company or the Purchaser, as the case may be, shall have consulted with the other party in advance regarding the form and substance of such press release or public statement). 10.16 Counterparts. This Agreement may be executed in counterpart copies, each of which shall be deemed as original and all of which, when taken together, shall constitute one instrument. - 39 -

41 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers as of the date aforesaid. - 40 -

42 "COMPANY" PYRAMID TECHNOLOGY CORPORATION By: /s/ Richard H. Lussier ----------------------------- Name: Richard H. Lussier Title: Chairman & CEO "PURCHASER" SIEMENS NIXDORF INFORMATION SYSTEMS, INC. By: /s/ Gerhard Schulmeyer ----------------------------- Name: Gerhard Schulmeyer Title: Chairman By: /s/ Robert F. Hoogstraten ----------------------------- Name: Robert F. Hoogstraten Title: Member of the Board - 41 -

1 EXHIBIT 10.52 Software and Hardware License Agreement with Siemens Nixdorf Informationssysteme AG dated August 25, 1994

2 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG This Software and Hardware License Agreement (hereinafter referred to as the "Agreement"), by and between Pyramid Technology Corporation, a corporation duly incorporated in the State of Delaware, United States of America, and with a principal place of business at 3860 North First Street, San Jose, CA 95134 (hereinafter referred to as "PTC"), and Siemens Nixdorf Informationssysteme AG, a German business association whose address is Heinz Nixdorf Ring 1, 33106 Paderborn, Federal Republic of Germany (hereinafter referred to as "SNI"). WITNESSETH: WHEREAS, PTC is the sole owner or licensor of the computer components today named MESHine and MILE and directly related software products such as MESH SSI; and WHEREAS, SNI desires to obtain the right to manufacture and sublicense in object code form, for use under its own name and mark, such computer software programs owned by PTC and to obtain certain support and maintenance services from PTC with respect to such programs; and WHEREAS, PTC offers to grant to SNI a license to use internally, copy and modify the source code for such software programs that will be the subject of this Agreement, as well as the right to copy and modify such software for distribution in object code form; and WHEREAS, SNI desires to obtain the right to manufacture for use under its own name and mark, such computer hardware components owned by PTC and to obtain certain support and maintenance services from PTC with respect to such computer components; and WHEREAS, PTC is willing to grant such rights and provide such services to SNI on the terms and conditions set forth in this Agreement; and WHEREAS, PTC and SNI hold valid source and distribution licenses for UNIX SYSTEM V Rel. 4; and Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 1

3 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG WHEREAS, PTC and SNI have entered into several contracts in the past, that are not amended, modified or superceded by this Agreement and remain in full power and effect; and WHEREAS the parties have entered into a contract entitled "Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG OEM-Agreement", dated at the Effective Date hereof (hereinafter referred to as the "OEM-Agreement"), NOW, THEREFORE, PTC and SNI, in consideration of the promises and covenants set forth herein, do hereby agree as follows: 1. DEFINITIONS For purposes of this Agreement, the following words and phrases, whether used in the singular or plural, shall be defined as follows: a. The term "Acceptance Criteria" shall be defined as the criteria set forth in Article 7.e on Page 17. b. The term "Affiliate" shall mean each and all business associations 50% or more owned or controlled directly or indirectly by either SNI or PTC, as is apparent from the context of its usage. c. The term "Agreement" shall mean this Software and Hardware License Agreement as defined on Page 1 of this document, including all the Exhibits which are referenced in this Agreement, and are attached hereto, all of which Exhibits are incorporated herein by reference. d. The term "Base System" shall mean a basic entry configuration of a particular computer system model. Such configuration must include processor (or in case of a multi-processor system the amount of processors included in the specific configuration), random access memory, fixed disk and removable disk or tape storage device (except for diskless workstations, where the network connection is included instead). e. The term "Binary Copy" shall mean a copy of a computer software program in machine readable form suitable for execution directly on computer hardware. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 2

4 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG f. The term "Component" shall mean a part or element of a computer software program or hardware unit which performs a separately identifiable function or which is marketed as a distinct computer software product. g. The term "Derivative Work" shall mean the recasting, transforming, or adapting of a prior existing work such that the succeeding work includes more than a trivial addition, although the addition or additions may or may not be substantial in nature when compared to the underlying work as a whole. h. The term "Distributor" shall mean any non-employee representative of SNI or any Affiliates of SNI, which has been granted the right by SNI or any of SNI's Affiliates to use and grant sublicenses to a Product. i. The term "Documentation" shall mean technical, programming, maintenance and support manuals, user guides and other documentation, including modifications, updates, Derivative Works thereof, and translations relating to the Products, whether in written, graphical, human readable or machine readable form and in any media. j. The term "Effective Date" shall have the meaning as defined on Page 42 of this Agreement. k. The term "End-User" means any end-user licenses of Product supplied by SNI, an Affiliate of SNI or a Distributor. l. The term "Enhancement" shall mean a change or changes to a version of a computer software program or a hardware unit incorporating one or more new functions or features compared to the last prior version. m. The term "Extended Software License" shall have the meaning set forth in Article 2.c on Page 8 of this Agreement. n. The term "Hardware Product" shall mean the computer units specified in Exhibit A. o. The term "Improvement" shall mean a change or changes to a version of a computer software program or a hardware unit incorporating upgrades to existing functions or which improves performance compared to the last prior version. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 3

5 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG p. The term "Maintenance Fee" shall have the meaning set forth in Article 12.d on Page 24 of this Agreement. q. The term "Maintenance Procedures" shall have the meaning set forth in Article 12.b on Page 21 of this Agreement. r. The term "Major Default by PTC" shall have the meaning set forth in Article 23.a on Page 34 of this Agreement. s. The term "Major Default by SNI" shall have the meaning set forth in Article 23.b on Page 35 of this Agreement. t. The term "Manufacturing License" shall be defined as the irrevocable, worldwide and perpetual right, license and interest to, directly or indirectly, including through any Affiliates, market, promote, display, manufacture, distribute, use, support, develop, enhance, improve, modify, produce Derivative Works, or integrate with any other products, the subject computer hardware component in any form; any Component thereof; any Enhancement, Improvement and Modification thereto; any technology incorporated therein; and includes a license under PTC's patents, copyrights and proprietary rights related to the subject computer hardware component, and a license to use Trademarks. u. v. w. The term "Modification" means the bug fixes, error corrections and minor functional changes in the computer software program or hardware unit developed by or for or provided by PTC, and intended to correct errors or instances of nonconformity with technical specifications in the functionality. x. The term "NILE" shall mean the PTC computer systems currently known as "NILE" and future versions and generations thereof based on the micro processors MIPS R4X00 and T5. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 4

6 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG y. The term "Object Code" means the form of computer software programs resulting from the translation or processing of Source Code by a computer into machine language or intermediate code, and which is in a form of computer software programs that would not be convenient to human understanding of the program logic, but which is appropriate for execution or interpretation by a computer. z. The term "OEM-Agreement" shall have the meaning as set forth on Page 1 of this Agreement. aa. The term "Product" shall mean Software Product and/or Hardware Product. ab. The term "Product Release(s)" shall mean, as is apparent from the context of its usage, one or more current editions of a Product distributed for the purposes of codification of all previously created Enhancements, Modifications and Improvements. ac. The term "Protected Parties" shall have the meaning set forth in Article 13.a on Page 25 of this Agreement. ad. The term "PTC" shall refer to PTC Technology Corporation, the named party to this Agreement. ae. The term "PTC Group" shall refer to PTC and the Affiliates of PTC. af. The term "PTC Price List" shall mean PTC's United States standard commercial end user price list (today named Corporate Price List). ag. The term "Reference System(s)" shall mean, as is apparent from the context of its usage, one or more computer systems on which PTC has delivered and thereafter supports, and SNI has accepted, one or more of the Products. ah. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 5 .

7 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG ai. The term "Royalty Fee" shall mean the payments owed to PTC and SNI for sublicenses of Product as set forth in Article 17 on Page 28 in this Agreement. aj. The term "Royalty Report" shall have the meaning set forth in Article 17.g on Page 31 of this Agreement. ak. The term "Rules" shall have the meaning set forth in Article 24.1 on Page 39 of this Agreement. al. The term "Selected Components" shall mean the Software Products specified in Exhibit A. am. The term "Siemens" shall mean the German business association named Siemens AG, whose address is Wittelsbacher Platz 2, 80XXX Munich, Federal Republic of Germany. an. The term "SNI" shall refer to Siemens Nixdorf Informationssysteme AG, the named party to this Agreement. ao. The term "SNI Group" shall refer to SNI and the Affiliates of SNI. ap. . aq. . ar. The term "Engineering Support" shall mean the resource provided to support personnel and development personnel to assist them in their diagnostic work by providing design, specification information, back ground materials; in case of any computer software program Source Code changes, Object Code changes and change/fix testing; and in case of computer hardware units schematics and logic design. as. The term "Software Product" shall mean the computer software programs specified in Exhibit A, attached hereto and incorporated herein by reference; and all Enhancements and Improvements of such Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 6

8 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG computer software program, which the PTC Group includes in its standard operating systems for MESHine and MILE; and all Modifications of the computer software programs listed above; and all related documentation to such computer software programs listed above. at. The term "Source Code" shall mean a copy of a computer software program in a form convenient for reading and review by an individual, such as a printed or written listing of the programs, but which is not in a form that would be suitable for execution directly on computer hardware. au. The term "Term" shall have the meaning set forth in Article 22.a on Page 34 of this Agreement. av. The term "Trademark" means any of PTC's trademarks and service marks for the Products which PTC may adopt from time to time, either alone or in association with other words, names or symbols. aw. The term "User Documentation" shall mean Documentation designed for End-Users and not confidential to PTC. Other terms used in this Agreement are defined in the context in which they are used and shall have the respective meanings there indicated. 2. GRANT OF LICENSE a. Software License on MESHine and MILE Systems Subject to the limitation expressed in Article 2.f, PTC grants to the SNI Group . Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 7

9 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG b. Software License on SNI Systems for Selected Components Subject to the limitation expressed in Article 2.f, . c. Extended Software License on SNI Systems Subject to the limitation expressed in Article 2.f, PTC grants to the SNI Group . The term as used in this Article 2.c, . d. Hardware License for the PTC grants to the SNI Group a . e. Distribution Exclusivity . . Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 8

10 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG Notwithstanding the above grant, SNI understands and recognizes that PTC will have to honor any other PTC worldwide re-marketing agreements in effect at the Effective Date hereof. f. Source Sublicense Limitation Any sublicense granted by the SNI Group to any third party pursuant to this Agreement for the use of the Source Code of the Product shall be limited in scope Source Code sublicenses shall be granted pursuant to this Agreement only to third parties holding and maintaining a valid UNIX System V Rel. 4 Source License. g. Source License for Support PTC grants to the SNI Group a . h. Documentation PTC grants to the SNI Group a . i. User Documentation PTC grants to the SNI Group a . j. Distributors Each member of the SNI Group subject only to the limitations of this Article 2. . Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 9

11 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG pursuant to agreements that substantially comply in all applicable respects with the terms and conditions of this Agreement. k. Use of Trademarks PTC hereby consents and grants to the SNI Group the solely or in connection with the Trademarks, trademarks, service marks, trade names, logos and brand names other than any of the Trademarks in association with the marketing, promotion, licensing, sublicensing, displaying and distribution of the Products, such that, except for the inclusion in the Product and documentation of PTC's proprietary rights notice, the Products and all Documentation may be identified by other than the Trademarks. l. Third Party Rights PTC shall inform SNI of all portions of any Software Product generated by third parties. PTC shall assist SNI, as required, in obtaining from these third parties such rights as will allow SNI to exercise fully its rights granted under this Agreement or grant such rights to SNI directly, if PTC is authorized to do so by such third party. m. Technology Licenses in the Event of Default PTC hereby grants to SNI, a for all intellectual property rights (including patents and copyrights), technology, technical information (including Documentation, Source Code), and know-how related to Products which PTC now or any time during the Term of this Agreement (including any renewals or extensions) owns or has rights to license and/or use, upon the following terms and conditions: In the event of any SNI Group under this Agreement or any other agreement between SNI and PTC relating to the Products, for any reason including by reason of insolvency, force majeure, any filing for protection under the bankruptcy or insolvency laws or commencmenet of bankruptcy proceedings, appointment of any trustee or receiver over any matrial portion of business or assets of PTC, or as a Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 10

12 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG result of the occurrence of any material event or condition where the same, maintenance and support, and performing SNI Groups's obligation to third parties; such license may be used to dispose of inventories, and is not in lieu of any other rights or remedies SNI Group may have at law, in equity or other wise. n. Surviving Rights in Bankruptcy The Rights and License granted under this Agreement are intended to survive any proceedings in bankruptcy as per Section 365(n) of the U.S. Bankruptcy Code. o. Extending Rights to Future Affiliates 3. TERMS FOR NEW PRODUCTS AND SNI PRODUCTS a. Information about New Products Each party hereto agrees to keep the other party informed about its development and marketing plans for any new software product including software products which will or might significantly or functionally replace any Product, or which will or might be com- Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 11

13 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG petitive with any Product or any horizontal or vertical applications marketed on Products during the Planning Meetings. b. Terms for New Products This Agreement and its Exhibits specify terms and conditions for Products. Terms and conditions, including licensing and pricing, for future products and developments will be negotiated in good faith from time to time to reach agreement. c. License for SNI Computer Software Programs the parties agree to enter into good faith negotiations on the agreement intended to accomplish such result. The parties agree that such negotiations shall be conducted as expeditiously as possible. , the parties agree to enter into good faith negotiations on the agreement intended to accomplish such a result. The parties agree that such negotiations shall be conducted as expeditiously as possible. d. Licensing of Applications 4. DEVELOPMENT PLAN. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 12

14 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG a. The development plan is a finalized plan for the development of the Products. b. Each future Product Release shall be delivered to SNI on or before such scheduled delivery date. PTC shall provide to SNI notice of any anticipated delay in any scheduled delivery date of any Product Release as soon as PTC is aware that such delay is likely to occur. c. Planning Meetings shall be held on a periodic basis as set forth in Article 5.a, to discuss and mutually agree upon any necessary change to the then-current development plan. If the parties mutually agree upon changes, such changes shall be added to and become part of the development plan. 5. PLANNING MEETING a. Product Planning Meetings PTC and SNI agree to conduct Product Planning Meetings on a periodic and regular basis, for the primary purposes of reviewing the development status and progress, modifying and changing the then current Development Plan, if necessary, and discussing other areas of mutual interest. b. Product Managers The product manager of the Products for SNI and the product manager of the Products for PTC shall serve as focal points for liaison between the parties for the purpose of product planning, requirements, specifications and delivery. To resolve day to day issues between the parties both product managers will meet at . These meetings shall include an assessment of unresolved errors as defined in Article 12.b. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 13

15 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG 6. DELIVERY a. Delivery Commitment PTC agrees that for each Software Product on a Product Release basis for all then-current Reference Systems, to deliver to SNI PTC agrees that for each Hardware Product on a Product Release basis for all then-current Reference Systems, to deliver to SNI These deliveries of Products shall include, without limitation, the development environment and tools used to develop the Products, only to the extent that PTC has the right to deliver such materials and is not limited due to third party obligation, and any other information which PTC has created or has been created on behalf of PTC relating to any Product Release or such other Reference System related releases. b. Product Deliverables In each delivery of each Product Release by PTC to SNI, PTC shall include at least the following deliverables: (1) (2) (3) (4) only to the extent that PTC has the right to deliver such materials and is not limited due to third party obligation. (5) Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 14

16 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG (6) c. Documentation Deliverables With the delivery of any Product Release by PTC to SNI, PTC shall provide to SNI at least the following Documentation: (1) (2) (3) (4) (5) All class and training materials including instructor and student materials. d. The copies of the Software Product(s), as such exists on the Effective Date of the Agreement, shall be delivered by PTC specified above, upon execution of this Agreement. Thereafter, each new version of the of each Product Release shall be delivered to specified above, no later then when such Product Release is generally available to any other licensee of PTC or of any Affiliate of PTC. e. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 15

17 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG 7. ACCEPTANCE a. Certificates SNI shall use its reasonable efforts after receipt by SNI of any Product Release to verify whether any such Product Release meets the Acceptance Criteria. If any such Product Release, either initially or following a cure within a cure period of a maximum of , meets the Acceptance Criteria, SNI shall promptly, but no later than after receipt of the Product Release by SNI, provide PTC with an acceptance certificate, or, if any such Product Release does not meet the Acceptance Criteria, then SNI shall promptly, provide PTC with a non-acceptance certificate. On failure to issue a non-acceptance certificate within said the Product Release shall be deemed accepted. b. Acceptance c. Non-Acceptance Any such failures that cannot be, upon request of PTC, reproduced by SNI Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 16

18 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG d. Payment Reduction as a Remedy for Non-Acceptance If one or more Products do not meet every element of the Acceptance Criteria, e. Acceptance Criteria Each Product Release which is delivered to SNI much meet the Acceptance Criteria. The Acceptance Criteria are set forth in Exhibit C. Furthermore each Product Release, in order to meet the Acceptance Criteria, shall be of high quality. The high quality of subsequent Product Releases shall be considered to be achieved if such subsequent Product Release meets the following criteria: (1) (2) (3) (4) Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 17

19 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG 8. DOCUMENTATION If requested by SNI, PTC shall provide SNI with machine readable copies of Documentation as described in Article 6.c. During the Term of this Agreement, PTC shall supply SNI with materials reflecting any changes to be made in the machine readable copies of documentation to keep them current. 9. TRADEMARKS Other than as expressly provided herein, nothing in this Agreement shall be deemed to grant one party any right, title or interest in the trademarks, tradenames or service marks of the other party. Any use by one party of the other's trademarks, tradename or service marks shall be subject to and be strictly in accordance with this Agreement. 10. SUBLICENSING AGREEMENTS a. SNI agrees that each recipient of any Source Code or Binary Copy of the Product(s) from SNI, its Affiliates or a Distributor shall be bound by a sublicense agreement that requires compliance by the recipient in accordance with the same terms and conditions of this Agreement that are applicable to such sublicense. b. Any sublicense may allow for a transfer of any sublicensed Source Code or Binary Copy of the Product(s) to another computer system or location of the sublicensee, provided that the terms on which such transfer may occur shall adequately protect against continued use of one sublicensed Source Code or Binary Copy of the Product(s) on more than one computer system, except as is technically necessary to support the use of a Product on a network of computers of an end-user. 11. PROTECTION OF PROPRIETARY RIGHTS Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 18

20 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG a. PTC hereby represents and SNI recognizes and agrees that the Product and Documentation (i) is considered by PTC to contain trade secrets of PTC or PTC's licensors, (ii) is furnished by PTC to SNI, and through SNI to Affiliates of SNI and Distributors, in confidence, and (iii) contains propietary and confidential information of PTC. Title to, ownership of, and all proprietary rights in the Product and Documentation are reserved to and will at all times remain with PTC. PTC's placement of a copyright notice on any portion of the Product and Documentation will neither be construed to mean that such portion has been published, nor derogate from any claim that such portion is a trade secret or contains proprietary and confidential information of PTC. b. SNI will (i) maintain the Product and Documentation in confidence, (ii) use at least the same degree of care to maintain its secrecy as it uses in maintaining the secrecy of its own proprietary and confidential information, (iii) always use at least a reasonable degree of care in maintaining its secrecy, (iv) use it only to perform its obligations and in exercising rights under this Agreement. SNI will properly reproduce on each copy it makes of the Product or Documentation all notices of the patent, copyright, trademark or trade secret rights of PTC in the Product or Documentation. c. Other than as contemplated by this Agreement SNI will not disclose, furnish, transfer or otherwise make available any portion of Product or Documentation to any person except to its Affiliates and to Distributors, End-Users and to those of its and their employees, agents or contractors whose access is necessary for use of the Product or Documentation in accordance with this Agreement. SNI, its Affiliates or Distributors will by instruction, agreement and otherwise with each of its Distributors and its End-User or its contractors, inform them of the proprietary and confidential nature of the Product or Documentation and obtain their compliance with the terms of this Article 11. SNI will be liable for any non-compliance with the provisions of this Article 11 by its Affiliates. d. Notwithstanding anything in this Article 11 to the contrary, SNI will not have any obligation with respect to that portion of the Product and Documentation that (i) was known to it prior to receipt from PTC, (ii) is lawfully obtained from a third party under no obligation of confidentiality, or (iii) is or becomes publicly Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 19

21 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG available other than as a result of any act or failure to act of SNI, (iv) the disclosure of which is required to enforce this Agreement, or (v) the disclosure of which is required by a governmental authority of competent jurisdiction. e. Each of the parties shall at all times use reasonable care to avoid disclosure to third parties of any information during the Term of this Agreement that is received from the other party to this Agreement, which information is considered confidential and identified by the disclosing party, such as the terms and conditions of this Agreement, marketing plans, financial information, price lists and information contained in the Royalty Report and in the Development Plan. 12. SUPPORT AND MAINTENANCE a. PTC's Support Obligations PTC agrees to provide the following support for the Products: (1) (2) (3) (4) (5) Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 20

22 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG (6) PTC shall inform SNI of PTC's educational contact who shall assist SNI in educational issues, such as development of classes, class content, class presentation, and knowledge transfer to facilitate the teaching of classes for the Product. (7) (8) (9) PTC shall provide to SNI telephone support from PTC to SNI personnel with respect to Product during PTC's normal business hours. (10) PTC shall provide reasonable additional Engineering Support, marketing support, educational support and beta test support to SNI upon SNI's request at PTC's then current rates. (11) Such Product Release shall be of at least the same workmanlike quality as the preceding Product Release. (12) PTC shall make reasonable efforts to offer the necessary training for each Product Release to enable SNI: to develop the expertise required to market, promote, license, support, develop, and integrate with other products, the Products and to provide End-User training for the Products. All available student material shall be provided by PTC and hands-on practice and exercises will be utilized. b. Maintenance Procedure As used in this Agreement, the term "Maintenance Procedure" means that procedure PTC shall institute in order to avoid and correct any errors in the most recent and next prior general Product Releases delivered to SNI, but at least for all Product Releases Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 21

23 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG which were accepted by SNI during the This procedure shall meet the following requirements: (i) (ii) Upon receipt by PTC of a report of an error, PTC shall confirm or adjust the severity reported by SNI for the error and shall respond to the error in the manner described below. If an adjustment is made from the severity stated by SNI for an error, that adjustment and the underlying reason for the adjustment shall be immediately reported by PTC to SNI. If SNI disagrees with PTC's decision, SNI will notify PTC and the parties shall in good faith negotiate so as to agree to the correct severity of the reported error. (iii) PTC shall respond to reported errors as follows: After said period and until a code Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 22

24 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG correction is delivered to SNI, PTC shall fully report to SNI in writing PTC's continuing efforts and progress in producing a code correction. PTC shall use reasonable efforts to provide a code correction with the next scheduled release. After said period and until a code correction is delivered to SNI, PTC shall fully report to SNI in writing PTC's continuing efforts and progress in producing an avoidance or a code correction. c. Default PTC agrees to respond to all reported errors in the Product as specified in Article 12.b above. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 23

25 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG d. Maintenance Fee In consideration of the support and maintenance services supplied by PTC to SNI as specified in Articles 12.a and 12.b above, SNI shall pay a quarterly fee (herinafter referred to as "Maintenance Fee") for such services. SNI may terminate the support and maintenance services by notice to be received at least before the beginning of the calendar quarter the termination shall become effective. Such fee may be adjusted annually to reflect changes in engineering labor rate as determined by good faith negotiations between SNI and PTC. e. Additional Assistance In the event that SNI requires assistaance from PTC in addition to the maintenance adn support services set forth above with respect to the configuration, lusage or presentation of operation of a Product, then PTC shall provide such assistance, on mutually agreeable dates, subject to the availability of necessary PTC per- sonnel, Such charges will be payable by SNI within of receipt of an invoice covering the servies, which invoice shall not be forwarded to SNI prior to the end of the month in which services are rendered. f. Support Period PTC shall provide support and maintenance services for each Pro- duct to SNI as provided in Articles 12.a and 12.b above, for a following the announcement of discontinuation of such Product to SNI by PTC unless such support and maintenance is explicitly discontinued pursuant to Article 23. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 24

26 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG g. Reference System The which are available to SNI under the OEM Agreement. For the purpose of support, maintenance, error verification and acceptance, the specific configuration shall be used as defined in Exhibit C. Such systems shall be current with the latest versions available to PTC's End-User. At least one Reference System of each type shall be maintained during the Term of this Agreement. Subject to the rights granted to the SNI Group in Article 2, SNI is free to determine to which and for how many computer systems will port the Products. Additional or replacement Reference Systems may be defined by mutual written agreement. SNI will not unreasonably withhold such agreement. 13. INDEMNIFICATION AND LIMITATIONS OF RELATED LIABILITIES a. PTC shall defend, save and hold harmless from, and indemnify SNI, Affiliates of SNI, Distributors and End-Users (hereinafter the "Protected Parties") against, any and all claims, demands, losses, costs, damages, suits, judgments, penalties, expenses and liabilities of any kind or nature whatsoever, including reasonable attorneys' fees and arising directly or indirectly out of any provided that the SNI shall give PTC prompt notice within of any such claim and shall provide reasonable cooperation in the defense of any such claim. PTC shall have no liability arising under this Article 13.a for damages which accrue on or after following an appropriate notice and delivery by PTC to SNI of a subsequent Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 25

27 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG b. PTC shall indemnify the Protected Parties against, any and all direct damages of any kind or nature whatsoever, including reasonable attorneys' fees, and the payment of legal judgments and reasonable settlements, provided that SNI shall give PTC prompt notice following SNI's actual knowledge of any such claim that would constitute c. For claims under this article 13, whether in contract, tort or otherwise, for any damages arising out of this Agreement shall be limited to Should PTC acccept a higher liability than specified above in any other contract with a third party, PTC shall offer the same coverage to SNI. Should PTC purchase insurance protection to cover its liability under this Article 13, PTC shall offer SNI to be name beneficiary under such insurance policy. 14. LIMITATION OF LIABILITY OTHER THAN PURSUANT TO THE PRECEDING ARTICLE 13 OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR (i) SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR (ii) ANY DAMAGES RESULTING FROM LOSS OF USE, DATA OR PROFITS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE USE OR PERFORMANCE OF ANY PRODUCT. THIS EXCLUSION WILL APPLY REGARDLESS OF THE CAUSE OF ACTION, WHETHER BASED ON CONTRACT OR TORT, INCLUDING NEGLIGENCE. FURTHER, OTHER THAN PURSUANT TO THE PRECEDING ARTICLE 13 OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY'S TOTAL LIABILITY FOR ANY DAMAGES IN ANY ACTION BASED ON CONTRACT OR TORT ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT EXCEED THE Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 26

28 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG 15. WARRANTY a. PTC represents and warrants to SNI that PTC has full power and authority to grant all Right And Licenses and all other rights granted or conveyed to SNI under this Agreement and has full power and authority to enter into this Agreement. b. PTC further warrants that the Products and the use of the Products as delivered to SNI shall not c. PTC further warrants to SNI that the Products shall conform to the functional specifications as described in Exhibit A and in the Documentation for the Products, and shall be free of problems or errors which would materially affect its performance in accordance with such functional specifications. d. e. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, PTC AND SNI MAKE NO OTHER WARRANTIES AND HEREBY EXPRESSLY DISCLAIM ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE PRODUCTS, INCLULDING ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 16. EXPORT CONTROL a. This Agreement is made subject to any laws, regulations, orders or other restrictions on the export of Product, Documentation or related information which may be imposed at any time or from time to time by the government of the United States of America. Both parties (i) will comply with all such laws, regulations, orders and other restrictions to the extent that they are applicable to Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 27

29 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG such party, and (ii) will not, directly or indirectly, export or re-export such items to any country for which the U.S. government or any agnecy thereof requires an export license or other governmental approval, without first obtaining the same. b. PTC shall obtain any necessary licenses to export or re-export Product, Documentation and related information from the United States. This commitment by PTC does not constitute a guarantee that a favorable classification for Product will be available. 17. ROYALTIES AND FEES a. License Fee In consideration of the rights granted pursuant to Article 2 to SNI by PTC, SNI will pay a license fee of which Upon payment of the license fee the Right And Licenses granted to SNI under this Agreement except the Extended Software License as described in Article 2.c shall be This license fee is due upon execution of this Agreement and receipt by SNI of an appropriate invoice referencing this Agreement and shall be paid by SNI within following its receipt of such invoice by SNI. b. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 28

30 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG This option is valid until December 31, 1996. The license fee for the Extended Software License is due following notice by SNI of its election of this option by SNI and receipt by SNI of an appropriate invoice referencing this Agreement. c. Third Party Fees Should a third party, except for the product listed above, duly request royalties and/or other fees to be paid, PTC shall be responsible for these fees. * * * Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 29

31 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG d. Royalty Fees Notwithstanding the above, for sublicenses granted pursuant to this Agreement for Modifications, Enhancements and Improvements of a Product for the use on a computer system, e. Royalty Fee Calculation The Royalty Fee for a Binary Copy sublicense granted according to Article 2.c pursuant to this Agreement for a Software Product The Royalty Fee for a Source Code sublicese granted pursuant to this Agreement shall be as specified in Exhibit B. The Royalty Fee for a Binary Copy sublicense grated according to Article 2.c pursuant to this Agreement for a Software Product f. Due Dates The payment of Royalty Fees due to PTC for a calendar quarter shall accompany the Royalty Report for such calendar quarter. SNI shall pay all valid invoices under this Agreement within from date of receipt of such invoice. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 30

32 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG g. Royalty Reports For so long as SNI is required to pay Roylaty Fees to PTC under this Agreement, SNI shall, following the Effective Date, delivered to PTC a written statement calculating the Royalty Fees for such calendar quarter (herein referred to as "Royalty Report"). Each Royalty Report shall identify the name and address of any Source Code sublicensee granted a Source Code sublicense during the preceding calendar quarter. h. Non-Delivery / Non-Acceptance Rememdy PTC shall meet all scheduled delivery dates as specified in the Development Plan as specified in Exhibit C and meet the specified Acceptance Criteria. The parties hereby recognize and agree that in the event that of which will be difficult or impossible to ascertain. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 31

33 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG i. Price List PTC shall provide SNI with a copy of the relevant sections of each new PTC Price List upon availabilty. SNI shall provide PTC with a copy of the relevant sections of each new SNI Price List upon availability. 18. PAYMENT METHOD a. Transfer of Payments Payments shall be to a bank in the United States designated by the party which is to receive them, or to such other location as such party shall reasonably direct the other party to make such payments. All Royalty Fees and payments shall be made in dollars. b. Payment Set Off Neither party shall, at any time, set off amounts owed by it to the other party under this Agreement, against any amounts owed to it by the other party under this Agreement, except as specified in Article 19.b. if not explicitly stated in this Agreement otherwise and if not used to reduce Royalty Fees due, and are not c. Exchange Rates For the purpose of determining the Royalty Fees due to PTC based on the as of the last working day of the calendar quarter for which payments are due, to dollars by using the Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 32

34 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG 19. AUDITS a. No more than once each during the Term of this Agreement, PTC shall, at its cost, have the right to have an independent certified public accountant not used by PTC to audit its financial records, and report to PTC on the amount of payments that should have been made for the period audited. Such audit shall take place at such location as SNI will designate as the location of its such records, during SNI's regular business hours and upon not less that Such audit shall not be scheduled to occur during the time that SNI's own outside auditing firm is auditing SNI's records and, subject to Article 19.b below, by SNI. Each certified public accountant shall execute for SNI a confidentiality agreement requiring that no information obtained during the audit other than that permitted in this provision of the Agreement shall be disclosed to PTC or any third party. b. Any underpayment or overpayment by SNI disclosed to PTC by such audit shall, as applicable, be paid in full by SNI or reimbursed in full by PTC after the notification to PTC and SNI of such underpayment or overpayment. Nevertheless SNI may set off any overpayment from its next quarterly Royalty Fee payment(s) due to PTC, if not reimbursed by PTC. If an underpayment disclosed as a result of an audit exceeds of all royalty payments due to PTC for the audited period. 20. TAXES All taxes shall be owed by the party against which those taxes are assessed by the applicable governmental authority. According to the double taxation agreement between the Federal Republic of Germany and the United States of America, German withholding tax payments for Royalty Fees will not be levied. PTC will apply for a Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 33

35 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG certificate of tax exemption in respect of Royalty Fees from the German government. Unless such certificate is submitted, SNI will be entitled to postpone or withhold payments under this Agreement in accordance with the double taxation agreement. 21. In the event that PTC or it Affiliates provide any third party for the Product(s), or any service of PTC, including equal or lower prices, which writing shall provide a full and detailed explanation of the same. SNI may thereafter obtain, at its option, 22. TERM a. The term of this Agreement (herein referred to as "Term") shall commence on the Effective Date and shall continue as long as this Agreement is not terminated in accordance with the terms and conditions contained in this Agreement. b. All sublicenses issued by SNI, Affiliates of SNI or Distributors during the Term of this Agreement, that by their terms, remain in effect beyond the Term of this Agreement shall remain in effect according to their provisions. 23. TERMINATION a. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 34

36 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG immediately upon further notice given by SNI to PTC after the end of any such b. Any such termination shall be effective immediately upon further notice given by PTC to SNI after the end of any such c. Termination by PTC In the event PTC gives notice of its intent to voluntarily terminate this Agreement, such termination shall be effective In the event of a termination under this Article 23.c, PTC shall perform all the obligations set out in Article 12, for so long as Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 35

37 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG those obligations would otherwise continue to exist d. Termination by SNI In the event SNI gives notice of its intent to voluntarily terminate this Agreement, such termination shall be effective. e. Surviving Rights and Obligations (1) The following shall survive and continue without any limi- tation as to time after any termination of this Agreement: the Rights and Licenses and any other rights granted to SNI in Articles 2.a, 2.b, 2.c, 2.d, 2.f, 2.g, 2.h, 2.i, 2.j, 2.k, 2.m, 2.n, 2.o; and the terms and conditions of Articles 8, 9, 10, 13, 14, 15.a, 15.b, 16, 18, 23, 24.b, 24.g, 24.k, 24.1. In all events, the obligations as set forth in Article 11 shall survive and continue for after any termination of this Agreement. (2) The following shall survive termination so long as SNI is obligated to pay to PTC any Royalty Fees: Articles 17, 18, 19, and 20. 24. MISCELLANEOUS a. Assignment and Successors Neither party hereto may assign any of its rights nor delegate any of its duties under this Agreement, without the express prior written consent of the other party, except that SNI may assign its rights and delegate their attendant duties under this Agreement in whole or in part to any Affiliates of SNI or to Siemens. All terms and conditions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their succes- sors in interest. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 36

38 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG b. Notices Wherever under this Agreement one party is required or permitted to give notice to the other, such notice shall be in writing and deemed given when delivered by hand, by registered or certified mail, return receipt requested, postage prepaid, or by telex or facsimile, receipt of which is confirmed by telex or facsimile and addressed as follows: In the case of SNI: Siemens Nixdorf Informationssysteme AG Heinz Nixdorf Ring 1 33106 Paderborn Attn: Rechtsabteilung (Legal Department) CC: Midrange Systems Unit In the case of PTC: Pyramid Technology Corporation 3860 North First Street San Jose, CA 95134 Attention: General Counsel Either party hereto may from time to time change its address for notification purposes by giving the other prior notice hereunder, duly acknowledged by the other in writing, of the new address and the date on which it will become effective. c. Headings The article and section headings used herein are for reference and convenience only and shall not enter into the interpretation hereof. d. Language of Agreement The official language of the Agreement is English. e. Relationship of Parties Either party, in furnishing services to the other party hereunder, is acting only as an independent contractor. Neither party Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 37

39 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG undertakes by this Agreement or otherwise to perform any obligation of the other party whether regulatory or contractual, or to assume any responsibility for the others party's business or operations. f. Representations Each of the parties agree that it shall not, without the prior, express, written permission of the other party, make any representations, statements, or suggestions to any third party which purport to be or might reasonably be construed to be on behalf of the other party. g. Severability If any provision of this Agreement is declared or found to be illegal, unenforceable or void, then both parties shall be relieved of all obligations arising under such provision, but only to the extent that such provision is illegal, unenforceable or void. If the remainder of this Agreement shall not be affected by such declaration or finding and is capable of substantial performance, then each provision not so affected shall be enforced to the extent permitted by law. If the elimination of such provision(s) materially affects this Agreement, the Agreement shall be renegotiated so that any change in the rights and obligations hereunder is shared as equitably as is feasible. h. Waiver No delay or omission by either party hereto exercise any right or power hereunder shall impair such right or power or be construed to be a waiver thereof. A waiver by either of the parties hereto of any of the covenants to be performed by the other or any breach thereof shall not be construed to be a waiver of any succeeding breach or of any other covenant herein. i. Force Majeure If the performance of this Agreement or any obligation hereunder is prevented, restricted or interfered with by reason of fire or other casualty or accident; strikes or labor disputes; war or other violence; any law, order, proclamation, regulation, ordinance, demand or requirement of any governmental agency; or any Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 38

40 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG other act or condition whatsoever beyond the reasonable control of the party required to perform, excluding weather conditions other than catastrophic weather conditions, the party whose performance is so affected, upon giving prompt notice to the other party, shall be excused from such performance to the extent of such prevention, restriction or interference; provided, however, that the part so affected shall take all reasonable steps to avoid or remove such causes of non-performance and shall immediately continue performance hereunder whenever such causes are removed. j. Entire Agreement and Amendment Amendments and modifications to this Agreement or to the Development Plan shall be valid only if in writing and signed by duly authorized representatives of PTC and SNI. Certificates as set forth in Exhibit D shall be valid only if in writing and signed by duly authorized representatives of either PTC or SNI, as the certificate may require. This Agreement supersedes all prior agreements and understandings and reflects the entire agreement between the parties with respect to the matters contained herein. k. Governing Law / Choice of Venue This Agreement shall be governed by and construed in accordance with the laws of the . The "Convention Relating to a Uniform Law on the International Sale of Goods" is not intended by the parties to apply to this Agreement and shall not apply to this Agreement. All action, suits and proceedings instituted by the parties and arising out of, related to or concerning this Agreement shall be instituted and maintained in the Federal District Court l. Arbitration SNI and PTC agree that all disputes arising out of or in connection with this Agreement, Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 39

41 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG shall be decided by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (hereafter referrred to as "Rules"). Either party may submit such matter to arbitration. The parties agree that the arbitration proceedings shall be held and determined by impartial arbitrators. The decision of a majority of the arbitrators shall be binding upon the parties. Said arbitrators shall be appointed pursuant to the Rules and all arbitrators must be familiar with computer systems, and two of which shall have at least five (5) years of work experience in the computer industry, and one of which shall hold a legal degree and all shall have no prior work experience with either SNI or PTC or their Affiliates. The cost of the arbitration proceedings shall be shared equally by the parties. All arbitration proceedings shall be in English and take place in . The findings of such arbitration may be enforced by either party in a court of competent jurisdiction. m. Publicity PTC and SNI hereby agree that each of them and their Affiliates shall not announce or disclose the existence of this Agreement, its terms and conditions and the relationship described herein to any third parties without the prior, written consent of PTC and SNI, which consent shall not be unreasonable withheld, particularly as such disclosure is required by the financial or securities rules and laws governing a party. The parties will jointly agree on the form and content of any public announcement, including press releases, of the existence of this Agreement, its terms and conditions and the relationship described herein and the method by which such announcement is made. n. EEC Approval The parties will give appropriate notice of this Agreement to the EEC-Commission for anti-trust clearance. The parties will assist each other with respect to the EEC-procedure and provide each other with all information requested by the EEC-Commission. Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 40

42 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG parties shall use their best efforts to submit the notification to the EEC-Commission as soon as possible. 25. EXHIBITS The following Exhibits are attached to and incorporated by reference into this Agreement. Exhibit A Products Specifications Exhibit B Pricing Exhibit C Development Plan Exhibit D Certificates Exhibit E Countries Version: PSSHLAGR.END Date: August 25, 1994 (22:55) PTC: SNI: ---- ---- 41

43 Software and Hardware License Agreement between Pyramid Technology Corporation and Siemens Nixdorf Informationssysteme AG IN WITNESS WHEREOF, PTC and SNI have each caused this Agreement to be signed and delivered by its duly authorized officers, all as of September 1, 1994 ("Effective Date"): PYRAMID TECHNOLOGY CORP. SIEMENS NIXDORF INFORMATIONSSYSTEME AG By: By: /s/ Klaus Gewald ------------------------- ------------------------- Name: Name: Klaus Gewald ----------------------- ----------------------- (print or type) (print or type) Title: Title: Vice President ---------------------- ---------------------- By: /s/ Dr. Heinrich Spatz ------------------------- Name: Dr. Heinrich Spatz ----------------------- (print or type) Title: Vice President ----------------------

1 EXHIBIT 10.53 $10,000,000 Revolving Credit Agreement (letter) with Comerica dated October 20, 1994

2 [LETTERHEAD,COMERICA] October 20, 1994 Kent Robertson Senior Vice President Pyramid Technology Corporation 3860 North First Street San Jose, CA 95134 Dear Kent, Comerica Bank - California ("Bank") is pleased to commit to Pyramid Technology Corporation ("Borrower") the following credit facility: TYPE/AMOUNT: $10,000,000 revolving line of credit including a within line facility for standby and documentary letters of credit up to $5,000,000. FOREIGN EXCHANGE: Availability for spot and forward foreign exchange contracts in addition to the revolving line of credit. PURPOSE: To provide cash for short term operating needs, letters of credit and foreign exchange transactions. ADVANCES: Advances are subject to being in compliance with all the terms and conditions of the Loan Agreement. PRICING: Interest Rate: Prime rate. Labor and Fixed rate options are available. Facility fee: .3% p.a. on the commitment amount due upon acceptance. ($35,000,000 for 14 months). Standby letter of credit fees vary on the maturity and the dollar amount. Standard documentary letter of credit fees. REPAYMENT: Interest is to be paid monthly. EXPIRATION: December 31, 1995. Documentary Letters of Credit up to 120 days and Standby Letters of Credit up to 1 year with no letter of credit to letter of credit to extend beyond 120 days after line expiration. Letters of credit expiring beyond the line expiration without a line renewal will be cash secured. SECURITY: First security interest in Borrower's Domestic Accounts Receivable and Domestic Inventory. The security interest would be released upon the Borrower (a) achieving two consecutive quarters of increasing revenues and positive increasing operating and after tax profitability of at least $500,000 per quarter and

3 Page 2 $2,000,000 on a cumulative basis beginning with the first quarter in Borrower's fiscal year 1995 evidenced by 10 Q reports and (b) being in compliance with the terms and conditions of the loan agreement and (c) meeting the unsecured financial covenants. Utilization of the unsecured facility (including letters of credit) will be governed by a certificate being required with each advance and at least monthly indicating that the borrower maintains a minimum of $10 million of money market funds, commercial paper or other money market instruments. OTHER CONDITIONS: This credit facility will be subject to a satisfactory pre-loan accounts receivable audit (limited to a $750 cost) and execution of documentation including a loan agreement which will include but will not be limited to the following conditions: 1) Borrower is to maintain the following financial covenants when secured: a) Minimum quick ratio of 1.0. b) Maximum debt to tangible net worth of 1.0. c) Minimum tangible net worth of $90,000,000 increasing by 75% of quarterly profits and 90% of new equity raised after 6-30-94. d) Borrower is not to lose in excess of $1,500,000 on an operating and after tax basis for the quarter ending December 31, 1994. Borrower is to be profitable on a quarterly operating and after tax basis with the exception of any one quarter in a fiscal year which may be a loss of up to $1,500,000. Borrower is not to have two consecutive loss quarters with the exception of the first and second quarters of fiscal year 1995. e) Borrower is to be profitable for fiscal year 1995. 2) Borrower is to maintain the following financial covenants when unsecured: a) Minimum quick ratio of 1.25. b) Maximum debt to tangible net worth of .75. c) Minimum tangible net worth covenant is the same as 1 c). d) Quarterly profitability covenant is the same as 1 d). e) Annual profitability is the same as 1 e). 3) Borrower to provide Bank with: a) Quarterly 10Q and the company prepared consolidated and consolidating financial statements the sooner of when they are publicly available or within 45 days of quarter end.

4 Page 3 b) Annual unqualified CPA audited consolidated financial statements and 10K within ninety (90) days of fiscal year end. c) Copies of all SEC reports. d) Budgets, sales projections or other financial exhibits which Bank may reasonably request. e) Quarterly Accounts Receivable and Payable agings within 15 days of quarter end. Monthly within 15 days of month end when borrowing. f) Quarterly Covenant Compliance Certificate. g) "Minimum Money Market Investment" certificate with each advance and at least monthly when borrowing under the unsecured facility. 4) Without Bank's prior written approval, Borrower will not: a) Pledge assets other than to Bank except for purchase money transactions for capital equipment. When Borrower is unsecured no lien is to exist on current assets. Borrower is not to grant a non-pledge agreement to any other party. b) Enter into direct borrowings except for normal trade credit for purchase money transactions. Guarantees are not to exceed $3,000,000 or those mutually agreed upon. c) Enter into any merger or acquisition except with company stock. In addition to company stock the Borrower may use cash not to exceed $5,000,000 on a cumulative basis. d) Declare or pay cash dividends or repurchase company stock. e) Make capital expenditures in excess of $18,000,000 per fiscal year. f) Create indebtedness for financing of specific capital assets in excess of $18,000,000 per fiscal year. 5) Bank shall have the right to audit Borrower's financial records. Audit costs are for the account of the Borrower. Audits will be annual if there is no utilization and semi-annual when borrowing. Audit costs are to be limited to $750 per audit. 6) Borrower is to provide evidence of full risk insurance covering all assets pledged to the Bank with the Bank named as loss payee. 7) There shall be a cross default and secured provision between this credit and any existing or future credit arrangements. 8) Out of pocket costs, documentation costs including legal fees are for the account of the Borrower. Legal costs for loan agreement preparation are to be limited to $5,000. 9) Borrower is to maintain its primary depository accounts with the Bank.

5 Page 4 If the above credit facility meets with your approval, acknowledge your acceptance by signing and returning this letter along with a check for the facility fee to Comerica Bank - California by the close of business on Monday, October 31, 1994. This commitment will expire unless it is accepted in writing by October 31, 1994. We appreciate the opportunity of being able to provide this credit facility to Pyramid Technology Corporation and hope this will be a solid foundation for the beginning of a growing relationship. Sincerely, /s/ Alan Sepsen ------------------------------- Alan Jepsen Vice President and Assistant Manager High Technology Division Comerica Bank - California Agreed to and accepted by Pyramid Technology Corporation - - -------------------------------------- Kent Robertson Senior Vice President Pyramid Technology Corporation Date: -------------------------------

1 EXHIBIT 11.1 PYRAMID TECHNOLOGY CORPORATION STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE Year ended September 30, (In thousands except for per share amounts) <TABLE> <CAPTION> 1994 1993 1992 -------- -------- -------- PRIMARY: <S> <C> <C> <C> Weighted average common shares outstanding 13,467 12,405 11,962 Dilutive common stock equivalents: Common stock options, using treasury stock method - 485 - -------- -------- -------- Shares used in computing net income (loss) per share 13,467 12,890 11,962 ======== ======== ======== Net income (loss) ($22,413) $8,634 ($59,707) ======== ======== ======== Net income (loss) per share ($1.66) $0.67 ($4.99) ======== ======== ======== FULLY DILUTED: Weighted average common shares outstanding 13,467 12,405 11,962 Dilutive common stock equivalents: Common stock options, using treasury stock method - 485 - -------- -------- -------- Shares used in computing net income (loss) per share 13,467 12,890 11,962 ======== ======== ======== Net income (loss) ($22,413) $8,634 ($59,707) ======== ======== ======== Net income (loss) per share ($1.66) $0.67 ($4.99) ======== ======== ======== </TABLE>

1 EXHIBIT 13.1 Annual Report to Shareholders for the fiscal year ended September 30, 1994

2 [LOGO] PYRAMID TECHNOLOGY 1994 Annual Report SERVING INTERNATIONAL MARKETS WITH THE RIGHT PEOPLE, THE RIGHT PRODUCTS, THE RIGHT TECHNOLOGIES, AND THE RIGHT PARTNERS [PHOTO]

3 FINANCIAL HIGHLIGHTS <TABLE> <CAPTION> Year ended September 30, (in thousands) 1994 1993 1992 - - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Total revenues $218,515 $233,698 $192,226 Investment in research and development activities: Research and development expenses 25,488 27,831 28,371 Additions to capitalized software development costs 9,223 8,695 6,051 - - ---------------------------------------------------------------------------------------------------------- 34,711 36,526 34,422 Net income (loss)* (22,413) 8,634 (59,707) Cash and short-term investments 42,209 31,358 26,458 Working capital 81,917 76,780 50,116 Total assets 190,713 191,658 176,191 Shareholders' equity $136,038 $137,616 $117,729 - - ---------------------------------------------------------------------------------------------------------- </TABLE> *Fiscal 1992 includes restructuring charges of $41,180,000. CORPORATE PROFILE Founded in 1981, Pyramid Technology Corporation delivers mid-range to high-end open enterprise servers that provide the performance required to run very large databases, critical on-line transaction processing applications, complex decision support programs, and corporate-wide messaging systems. Pyramid's business-critical solutions, comprising hardware platform technology, software solutions, and strategic professional services, enable large cor-porations worldwide to migrate from proprietary data centers to open systems. Some of the world's largest UNIX(R) relational databases run on Pyramid's fault-resilient systems, based on a symmetric multiprocessing (SMP) architecture that combines an enhanced UNIX operating system with RISC processor technology. A leader in scalable, open systems that provides top price/performance and increased system throughput, Pyramid is committed to delivering reliability, availability, and serviceability across its products and services. Unix is a registered trademark of UNIX System Laboratories, Inc. in the U.S.A. and other countries.

4 Pyramid Technology: 1994 Annual Report 1 THE RIGHT DIRECTION. Pyramid Technology closed fiscal year 1994 with strong forward momentum, evidence that our strategies for the open enterprise client/server market continue to be on target. Pyramid's strategy to address the computing needs of the global market center on four key objectives: aggressively increasing our direct sales force to address the business issues faced by our customers; strengthening our focus on global business opportunities by securing global partnerships; placing greater resources and emphasis on specific vertical markets; and refining our support services to encompass project management, system integration, and training to ensure our customers' success. In our three key regions -- the Americas, Europe, and Asia-Pacific -- this strategic focus should help us balance the business cycle fluctuations and competitive pressures of conducting business in a multinational setting. THE RIGHT PEOPLE. We believe that bringing together the right people -- employees, customers, and partners -- is vital to our continued success. This year, we focused on strengthening the Pyramid team by recruiting seasoned management professionals to our executive staff and adding an experienced base of direct sales and professional service employees. Existing customers continued to validate our direction, product strategy, and service offering through repeat business, while new customers chose Pyramid systems to run their business critical, enterprise-wide applications. Our partnerships with Siemens Nixdorf Informationssysteme AG (Siemens Nixdorf), and International Computers Limited (ICL), and our joint venture with Fujitsu Australia Limited (FAL) broadened our resources and reach, while our existing partnerships with Oracle, Informix, Sybase, and Ingres helped distin-guish our product offering. THE RIGHT TECHNOLOGY Pyramid continues to develop and deliver products -- based on the very latest technologies -- to meet the evolving information management challenges faced by today's global 2000 companies. In fiscal year 1994, we introduced the Pyramid Nile 100 and Pyramid Nile 150 scalable, enterprise servers targeting the mid-range and high-end open enterprise server market. THE RIGHT TIME Pyramid offers powerful solutions that support very large databases running critical on-line transaction processing applications (OLTP), and more recently, enterprise-wide messaging and decision support for essential business operations. In addition, we are continuing to extend our technology with massively parallel architecture for future product generations that will complement our existing offering. With the right customers and the right partners, Pyramid continues to move in the right direction.

5 Pyramid Technology: 1994 Annual Report 2 LETTER TO SHAREHOLDERS Despite a difficult year, Pyramid Technology closed fiscal year 1994 with strong forward momentum, evidence that our strategies for the open enterprise client/server environment are on target. In the past 12 months, Pyramid forged important strategic part-nerships that strengthened our financial outlook and extended our global business operations and reach. We introduced and received broad acceptance for our new enterprise server family, the Pyramid Nile Series.(TM) We further bolstered our direct sales force and won business from a number of new and repeat customers around the world. Most significantly, in fiscal year 1994 we concentrated on strengthening our overall offering by bringing together the right people, the right products, and the right services - - -- all at the right time. FINANCIAL PERFORMANCE While we are encouraged by this progress, fiscal year 1994 proved to be a challenging year for Pyramid. As part of a long-term strategy to reduce costs and improve operating efficiencies over the past five years, we had been reticent to invest significant resources in our direct sales force. In ramping up to introduce our Pyramid Nile Series last fiscal year, we re-evaluated this strategy and made a substantial commitment to grow our sales organization by adding seasoned sales management and personnel to our worldwide staff. This growth in staff, however, did not keep pace adequately with our needs, particularly in light of declining business with Pyramid's traditional OEM partners. In addition, we discovered that because of the complexity and number of partners involved in selling more sophisticated systems to global 2000-class companies, the typical sales cycle extended to 9 to 12 months, longer than Pyramid had experienced in the past. Our financial performance for the year fell short of expectations as a result of these and other develop-ments, but we are encouraged by the progress made in the last two quarters to revitalize our operations and to return the Company to a growth position. For the year ended September 30, 1994, revenues were $218,515,000 compared with $233,698,000 for fiscal year 1993. Net loss for fiscal 1994 was $22,413,000, or $1.66 per share, compared with net income of $8,634,000, or $0.67 per share, in fiscal 1993. INDUSTRY-LEADING TECHNOLOGY Indications that we are on the right track involve our leadership on the technology front, and our corre-sponding ability to win new and repeat business at major corporations worldwide. We introduced a powerful new family of enterprise servers with the high-end Pyramid Nile 150 in October 1993. As one of the industry's highest performance open enterprise servers, it was met with enthusiastic acceptance. We have sold an increasing number of very large Nile 150 configurations in multi-system clusters running Oracle Parallel Server -- validation that our systems are used to run the most critical business applications. We are already receiving repeat orders from our existing Nile customers, which is extremely gratifying this early in the product life. In May, we expanded the breadth of Pyramid Nile solutions with the introduction of the Pyramid Nile 100. Designed and priced for mid-range customers, the Nile 100 allows customers to run business-critical applications without investing in a large-scale system. In the first full quarter following introduction, we shipped as many Nile 100 servers as we did Nile 150 systems. The Nile 150 and Nile 100 are fully compatible and can operate on the same network for distributed data sharing and easy migration. We have continued to expand our Customer Services organization to include a broader comple-ment of services required to support mission-critical systems -- from standard hardware maintenance to project management, capacity planning, and training. We believe that Customer Services will play an increasingly important role in our offering and will contribute to our revenue in the future. BROAD CUSTOMER ACCEPTANCE We continued to focus our sales, service, and support activities on a select group of vertical markets, including finance, telecommunications, hospitality, government, healthcare, and manufacturing, winning significant new and repeat business in these markets. In the telecommunications field, where we have long held a leadership role, we now count a number of the

6 Pyramid Technology: 1994 Annual Report 3 world's premier telecommunications companies as our customers, including Ameritech, Telecom Australia, Bell Atlantic, British Telecom, DACOM, Korea PC Telecom, Southwestern Bell, US West, and Vodafone. Key among our new customers in fiscal year 1994 were Chrysler Corporation, Morgan Grenfell & Co. Ltd., Standard & Poor's, and the Stock Holding Corporation of India Limited (SHCIL). A growing number of existing customers also validated our technology direction, product strategy, and commitment to customer service with additional orders. Key among these were Fidelity Investments, which is now one of our largest and most complex installations, and Sharp Electronics, a Pyramid customer from our earliest days. STRATEGIC ALLIANCES Forging strong alliances and partnerships is crucial to our business. During fiscal year 1994, we made significant progress in extending our partnerships around the world. One of our most significant new transactions involves an expansion to our cooperative agreement with Siemens Nixdorf. The new arrangement, completed in September 1994, is a critically important corporate development for Pyramid -- cementing an already significant OEM relationship, endorsing our next-generation massively parallel processing (MPP) technology direction, strengthening the Company's financial position through an equity sale, and extending our global business operations and reach. Another important alliance involves our ongoing relationship with Fujitsu Limited. In May, we formed a joint venture between Pyramid Technology Australia PTY, Ltd. and Fujitsu Australia Limited, called Pyramid Data Centre Systems, that allows us to deliver targeted, scalable, enterprise solutions to large Australian companies migrating to open systems. This is the first joint venture of this magnitude in Australia. To provide strategic direction in key areas of our business, we are continuing to add selectively to our worldwide management team. In September 1994, S. Boyd Pearce Jr., a veteran of IBM and more recently of the Teradata/NCR/AT&T Corporation's, Development Center, joined Pyramid as Vice President of Marketing. In addition, David Koch was named Vice President of European Sales, based in the United Kingdom, and Raymond Chiu was named General Manager for Asia, based in Hong Kong. Finally, Kent L. Robertson, Pyramid's former Chief Financial Officer, rejoined the Company as Senior Vice President, Chief Financial Officer, and Secretary. According to market analysts, the market for high-end open systems, selling for $350,000 or more, is expected to be one of the fastest growing segments of the computer industry. At no time in our history has the market opportunity appeared so strong. Our commitment to introduce new technologies every 12 to 18 months to meet evolving market needs -- as we did with the Pyramid Nile Series - - -- is on track. Development is progressing for the introduction of our next generation of servers -- based on a massively parallel processing architecture - - -- that will complement our symmetric multiprocessing family. While fiscal year 1994 was a challenging year for the Company, we are confident we have taken the necessary short-term and long- term measures to position Pyramid for future growth by bringing together the right people, the right products, and the right services -- all at the right time. [PHOTO] /s/ Richard H. Lussier ------------------ RICHARD H. LUSSIER Chairman and Chief Executive Officer

7 Pyramid Technology: 1994 Annual Report 4 The Americas region remains one of the most dynamic markets for Pyramid's scalable, enterprise-wide servers. Pyramid's strong list of satisfied North American customers validates our technology strength. We are successfully developing and introducing products and services to meet our customers' evolving needs -- from on-line transactions processing (OLTP) to decision support and data warehousing, to enterprise-wide messaging. We believe the company we keep says a great deal about our commitment to meeting the mission-critical information processing needs of major corpo-rations. Corporations such as Chrysler, MCI, Oxford Health Plans, and Standard & Poor's have joined Allied Signal, Chemical Bank, EDS, Fidelity Investments, First Boston, John Hancock, Private Healthcare Systems, Southwestern Bell, Toronto Stock Exchange, and US West as Pyramid customers. By relying on Pyramid's fault- resilient, scalable, enterprise-wide servers, these industry-leading companies have increased the responsiveness and profitability of their operations.

8 Pyramid Technology: 1994 Annual Report 5 [PHOTO] THE AMERICAS REMAIN A PRIMARY FOCUS FOR PYRAMID HIGH-END SYSTEMS. DURING FISCAL 1994, WE ADDED A NUMBER OF IMPRESSIVE NEW CUSTOMERS TO OUR GROWING PORTFOLIO OF MULTINATIONAL BUSINESSES.

9 Pyramid Technology: 1994 Annual Report 6 [PHOTO] PHOTO CAPTION: AMERICAS' PARTNER: ORACLE CORPORATION Pyramid's advanced platform for Oracle technology continues to lead the industry in scalability, performance, and functionality. "Our mutual customers demand seemless integration with their mainframe systems and mission-critical support needed to implement large-scale solutions. The technology exchange between Oracle and Pyramid this past year has resulted in the successful delivery of highly available production business systems," says Ray Lane, President, Worldwide Operations, Oracle Corporation. BUILDING A STRONG CUSTOMER BASE WITH PARTNERSHIPS US West Mass Markets Organization, located in Phoenix, Arizona, provides all sales, service, product development, and marketing throughout US West's 14 state region. US West needed to build a comprehensive decision support system to understand the needs of their customers and to create new products to address those needs. "At US West our decision support system will ultimately span the globe. Pyramid gives us the open environment, performance, and configuration flexibility that we needed to implement a very large data warehouse. Oracle reduces our in-house development effort by providing many of the application tools and database management components that we need to complete the solution," says Stephen A. Archuleta, Director of Systems, US West Mass Market Service Delivery. Private Healthcare Systems, a major player in the managed health care industry, is responsible for providing accurate and timely decision support information to member insurance companies. To help them maintain their leadership position, Private Healthcare Systems chose the combined power of the Pyramid Nile 150 and the flexibility of Oracle's relational database technology. According to Chris Carreira, Director of Operations and Technical Support, Private Healthcare Systems, "There were few tools on the market that could handle both the growth and diversity of Private Healthcare. The new health care scenario required both a high-capacity and scalable hardware platform and a powerful database." Private Healthcare Systems had already selected Oracle as its database vendor. "We needed a hardware platform that would complement Oracle and would give us an integrated solution," states Carreira. "Pyramid's partnership with Oracle and cooperation on Oracle7 and the Oracle Parallel Server played an important role in our decision to go with Pyramid." This is further evidence that we are not only attracting customers with our leading platform technology, but also with complete system solutions that address specific market requirements. Our partnerships with Information Builders Incorporated, Informix Software, Oracle, Prism Solutions, SAS, and others allow us to provide very high-performance solutions for a wide range of business needs. JOINT SUCCESS WITH CUSTOMERS "We provide solutions to our customers that help them gain a competitive advantage, and therefore become more successful in their marketplace," says Mitch Mandich, Senior Vice President, North American

10 Pyramid Technology: 1994 Annual Report 7 Sales. By greatly expanding the direct sales force, Pyramid is reaching new customers more effectively and efficiently than ever in the Company's history. "We are proud of our customers, and our joint success has resulted in strong customer endorsement for Pyramid's capabilities," adds Mandich. [PHOTO] PHOTO CAPTION: AMERICAS' PARTNER: EDS EDS -- both customer and partner to Pyramid -- installed five Pyramid Nile systems to run several of its business-critical applications. Marty McGuinness, EDS Vice President of Manufacturing, Strategic Business Unit, sees "tremendous interest in migrating business-critical applications to open systems platforms -- particularly on the Pyramid platform." EDS AND PYRAMID: A PLATFORM OF CHOICE The relationship between Pyramid and EDS paid off in business advantages for both companies and our mutual customers. EDS -- both a Pyramid customer and partner -- is a world leader in the application of information technology to improve business performance. EDS delivers a broad range of services -- from initial consulting through system integration to outsourcing of the finished installation. EDS's Corporate Information Services (CIS) group plays a vital role in the development and delivery of these services. Recently, the EDS CIS group chose Pyramid Nile servers to run several of its business-critical applications. Additionally, EDS has partnered with Pyramid in accounts such as Detroit Diesel, National Car Rental, and BlueCross BlueShield. PYRAMID AND ORACLE: KEY TECHNOLOGY EXCHANGE Global market demands are shaping our customers needs for information services today. The combined resources of Oracle's advanced relational database management systems and Pyramid's enterprise-level servers, give customers access to leading-edge technology and a distinct competitive advantage. Both companies maintain a full staff of engineers dedicated to collaborative engineering, rapid development, delivery, and support of products for Pyramid platforms. Pyramid's advanced platform for Oracle technology continues to lead the industry in scalability, performance, and functionality. "Our mutual customers demand seemless integration with their mainframe systems and mission-critical support needed to implement large-scale solutions. The technology exchange between Oracle and Pyramid this past year has resulted in the successful delivery of highly available production business systems," says Ray Lane, President, Worldwide Operations, Oracle Corporation. CUSTOMER SERVICES ADVANTAGE Customer services are a key element of our corporate strategy. The past year's emphasis has strengthened our Customer Services organization putting the customer at the core of our business. Our support centers use the latest technologies to diagnose and correct system problems. Pyramid's commitment to superior customer satisfaction is backed by our large support staff, which is available 24 hours per day, seven days per week, to help resolve customer issues quickly. At Pyramid, excellence in customer service is more than a slogan, it is part of an overall philosophy of total customer satisfaction that we promote and protect.

11 Pyramid Technology: 1994 Annual Report 8 No single company can address all the information processing demands of large corporations in today's fast-changing, multi-vendor computing world. In no region is this more true than in Europe. Accordingly, Pyramid's strategy for building our business in Europe focused on two key objectives: strengthening our direct sales force to better respond to our European customers' business issues and challenges, and establishing strong partnerships to broaden our reach and resources. This strategy is paying off. We added a number of key European customers to our roster, stepped up our direct channel, and established strong partnerships with two key European companies: International Computers Limited (ICL), one of Europe's leading computer systems and services companies, and Siemens Nixdorf Informationssysteme AG (Siemens Nixdorf), the largest supplier of information technology of European origin. These alliances made enormous product and service resources available to our customers. The level of involvement sought by each of these partners affirmed the strength of Pyramid's offerings in general and especially our Pyramid Nile Series.

12 Pyramid Technology: 1994 Annual Report 9 [PHOTO] GIVEN THE COLLABORATIVE NATURE OF THE EUROPEAN ECONOMIC COMMUNITY, PARTNERSHIPS ARE KEY TO OUR SUCCESS IN EUROPE. IN FISCAL 1994, WE EXPANDED TWO KEY PARTNERSHIPS -- WITH SIEMENS NIXDORF AND ICL -- THAT BROADENED OUR REACH AND RESOURCES.

13 Pyramid Technology: 1994 Annual Report 10 "At Pyramid, we understand that our products must incorporate both technology and service. Pyramid's employees and Customer Services organization have made a contribution to the delivery of business-critical solutions to the European marketplace," explains David Koch, Vice President of European Sales. Designing solutions is especially challenging within European vertical markets because of factors such as government control of certain industries, including telecommunications and health care services. However, Pyramid is finding increased opportunities with key vertical markets in Europe including hospitality, local government, telecommunications, leisure, and manufacturing. [PHOTO] PHOTO CAPTION: EUROPEAN CUSTOMER: BRITISH SHOE As part of its corporate-wide re-engineering plan, British Shoe took delivery of two Nile 150 servers to run its new merchandising application. "Our business development plans require accurate, timely management of our supply chain. Pyramid has been able to demonstrate its expertise in providing systems which will handle the large amount of data involved in operating our enterprise." John Wheeler, IS Director at British Shoe. PYRAMID HELPS ITS CUSTOMERS RE-ENGINEER THEIR ENTERPRISES The increased activity through sales channels added new large customers to the region. One of our new European customers was the British Shoe Corporation (BSC), which sells 50 million pairs of shoes per year in the U.K. through 1,700 retail outlets. As part of its corporate-wide, re-engineering plan, BSC took delivery of two Pyramid Nile 150 servers to run its new supply chain and merchandising applications. The Nile cluster is replacing the existing mainframe application that delivers critical merchandise information to the company's head office. The flexibility of the Pyramid system provides BSC instant access to inventory and supply requirements at each branch which ensures that the right quantities and styles are delivered to the correct branches to suit the needs of its customers. Forte Hotels, headquartered in London with facilities in the United Kingdom and North America, chose Pyramid enterprise servers as the foundation for its entire reservation system. A pace-setter in the hospitality industry, Forte Hotels needed a system that would allow reservations agents to query the database quickly in numerous ways -- by location, price, facilities, nearby attractions, upcoming events and more -- depending on the caller's requirements. "Pyramid is helping us meet our goal," said Eric Unruh, Vice President of Management Information Systems, Forte Hotels. "We wanted to convert a greater rate of calls to reservations by having the most accurate information available as fast as possible." Competition was fierce for the Forte Hotels business. After intensive comparative studies, Forte Hotels chose a Pyramid Reliant(R) Cluster as the only server solution on the market at the time that could provide the processing power they required. A Pyramid Reliant cluster solution provides for the automatic recovery of applications and computing resources to functional 'nodes' during system maintenance or system failure. "This is truly a global project," Unruh says. "Having the same software on both sides of the Atlantic is easier and more cost-effective for software support, training, and cross-selling." British Shoe and Forte Hotels are only two of the many European customer relationships that help

14 Pyramid Technology: 1994 Annual Report 11 Pyramid reinforce our leadership position within the client/server marketplace. [PHOTO] PHOTO CAPTION: EUROPEAN PARTNER: SIEMENS NIXDORF "We expect that new application areas, such as decision support, will generate performance requirements that can only be satisfied with massively parallel architectures. Pyramid will provide us with leading-edge MPP technology on a MIPS processor platform, complementing our existing UNIX line." Dr. Rudolf Bodo, Vice President and General Manager of the Midrange Systems Unit, Siemens Nixdorf. STRONG PARTNERSHIPS THAT BROADEN OUR REACH In addition to Pyramid's direct sales channel in Europe, we have also developed strong partnerships with ICL and Siemens Nixdorf to respond to major growth in the telecommunications industry and to the emergence of intelligent networks. Pyramid's partnership with Siemens Nixdorf provides a complete solution for network operators and system suppliers across Europe. Pyramid's Customer Services complement the combined efforts of direct sales and partner relationships to deliver a complete solution to customers. ICL: A STRONG RELATIONSHIP BASED ON MUTUAL SUPPORT In Austria, France, Italy, Spain, and Switzerland, we rely on our distribution partners to provide customers with the broadest range of products and services. Our new OEM alliance with ICL is just such an agreement. ICL, which operates in more than 80 countries worldwide, specializes in systems integration for selected markets. Our new OEM alliance allows ICL to sell the Pyramid Nile Series as part of its high-end, open systems solution for enterprise customers outside North America. "Pyramid and ICL have developed a strong relationship based on mutual support for our respective technologies and strategies," says John Chen, President and Chief Operating Officer of Pyramid. "ICL has extensive experience in selling and servicing customers in mainframe environments and will be a powerful ally." Tom Hinchliffe, Managing Director of ICL Corporate Systems added, "Ewe see the Pyramid Nile Series as an important complement to our existing product offerings." SIEMENS NIXDORF: EXPANDING A KEY PARTNERSHIP An extension of the cooperative agreement between Pyramid and Siemens Nixdorf in August expanded another critically important OEM alliance. Siemens Nixdorf's German operation is the largest supplier of information technology of European origin, and has a work force of more than 40,000 people and representation in 45 countries. Under the new technology licensing and OEM agreements, Siemens Nixdorf will license Pyramid's enhanced UNIX operating system for massively parallel processing (MPP) architecture and will purchase the related MPP hardware product under the OEM agreement. Siemens Nixdorf will thus expand its existing range of UNIX systems, to include MPP technology. The alliance further expands Pyramid's business operations and reach, and significantly endorses Pyramid's MPP technology. The relationship with Siemens Nixdorf exemplifies the increasing shift to cross-cultural partnering between multinational technology corporations as an aid to gaining entry to new markets.

15 Pyramid Technology: 1994 Annual Report 12 The Asia-Pacific region is one the most dynamic business regions in the world, with fast economic growth projected for many of the countries Pyramid has targeted for business. Pyramid currently operates in Australia, Korea, Japan, Hong Kong, People's Republic of China, Malaysia, India, and Taiwan. Providing a sound business solution is the primary requirement for success in Asia-Pacific, but pre and post-sales support are a close second. As Pyramid grows within this region, alliances with Fujitsu, Fujitsu ICIM, Tatung, Olivetti, and Hyundai have supplied the name recognition necessary to gain market share for Pyramid's enterprise servers. In line with corporate strategy, Pyramid's Asia-Pacific region has focused on specific vertical markets. Although the industry sectors are less clearly defined within this region, Pyramid continues to succeed in telecommunications, with systems installed at Telecom Australia, Korea PC Telecom, NOWCOM, and DACOM. Pyramid and Fujitsu Australia Limited broke new ground on July 2, 1994, when we formed Pyramid Data Centre Systems.

16 Pyramid Technology: 1994 Annual Report 13 [PHOTO] PYRAMID WAS ONE OF THE FIRST HIGH-END UNIX SYSTEMS COMPANIES TO RECOGNIZE THE HUGE POTENTIAL OF THE ASIA-PACIFIC MARKETPLACE. WE HAVE ESTABLISHED RELATIONSHIPS WITH KEY PLAYERS TO BETTER SELL, SERVICE AND SUPPORT OUR HIGH-END ENTERPRISE SERVERS IN THESE FAST-DEVELOPING MARKETS.

17 Pyramid Technology: 1994 Annual Report 14 The new operation will market the Pyramid Nile Series of scalable enterprise servers along with complementary Fujitsu and ICL hardware and mainframe connectivity software. This joint venture represents a significant channel expansion for Pyramid into the Australian mainframe market. No other computer company has undertaken such a venture in Australia. International Data Corporation recently identified Pyramid as the number two mid-range open systems UNIX supplier in Australia. PYRAMID'S THREE-WAY BUSINESS RELATIONSHIPS The three-way relationship among Pyramid, our customers, and our partners has been uniquely successful in Australia. As the deregulated telecom business moved from government control to a commercial enterprise, Pyramid's solutions helped Telecom Australia develop a competitive profile and revamp its telephone business. On the partnership side, Fujitsu not only brought its reputation, size, and leadership to the agreement, but also added its knowledge of mainframe technology and Pyramid's client/server technology - - providing a comprehensive solution to Telecom Australia. [PHOTO] PHOTO CAPTION: ASIA-PACIFIC CUSTOMER. STOCK HOLDING CORPORATION OF INDIA, LIMITED Pyramid scored a major win in India in 1994 at the Stock Holding Corporation of India, Limited (SHCIL). Established and funded by seven of India's major financial institutions, SHCIL provides a range of services to these and other institutions for financial dealings in the secondary market. Working with our partner Fujitsu ICIM, Pyramid won the SHCIL business by demonstrating the Nile's high performance as well as showcasing our understanding of -- and commitment to -- mainframe-class customer support. PYRAMID SCORES A MAJOR WIN IN INDIA In fiscal year 1994, Pyramid developed a strong partnership with Fujitsu ICIM, India's fourth largest computer systems company. Fujitsu ICIM has supplied information, technology, and services to the Indian market for decades. In addition to manufacturing for local and international sales, Fujitsu ICIM developed a substantial software organization for localized solutions and services and began marketing services such as turnkey development, project management, and consulting. A Fujitsu ICIM software-oriented joint venture in Australia, Fujitsu ICIM Software Technology (FIST), will soon market Indian software development services in Australia, Japan, and throughout the Asia-Pacific region. Our partnership with Fujitsu ICIM was instrumental in attracting and winning business with the Stock Holding Corporation of India, Limited (SHCIL). Established and funded by seven of India's major financial institutions, SHCIL provides a range of services to these and other institutions for financial dealings in the secondary market. To run its operations, SHCIL needed a powerful and reliable SMP-based platform that could grow with their business throughout the '90s. In keeping with Asian business philosophy, SHCIL put weight on the vendor relationship as a major criterion for awarding the contract. Working with our partner, Fujitsu ICIM, we demonstrated the Pyramid Nile's high performance and our commitment to mainframe-class customer support.

18 Pyramid Technology: 1994 Annual Report 15 [PHOTO] PHOTO CAPTION: ASIA-PACIFIC PARTNER: FUJITSU ICIM In 1994, Pyramid developed a strong partnership with Fujitsu ICIM, India's fourth largest computer systems company. Fujitsu ICIM has long been a leader in supplying information, technology, and services to the Indian market, and for many years has sold ICL's proprietary mainframes, mid-range SPARC-based servers, and Intel PCs. SUCCESSFUL VERTICAL SEGMENTATION -- KOREA'S ON-LINE DATABASE PROVIDERS Fiscal year 1994 also saw marked success in Korea, the installed base of Pyramid systems grew from over 150 systems to more than 200. We dominated the telecommunications on-line database provider marketplace, having all three providers, Korea PC Telecom, NOWCOM, and DACOM as customers. Korea PC Telecom, the leading on-line database company in Korea, has more than 160,000 subscribers. Pyramid also completed an application migration project for DACOM this year, preparing for a projected one million future users by 1996. In this application, 10 Pyramid systems were linked in a client/server configuration serving approximately 5,000 concurrent users with the capability to extend to over 10,000 users. Pyramid's strategic partner, Hyundai, is one of the largest corporations in Korea; Hyundai shipped more than $10 million of Pyramid's MIServer ES Series(TM) and Pyramid Nile Series systems in this past fiscal year. In addition to the telecommunications market, universities, hospitals, and newspapers have proven also to be strong vertical markets for Pyramid's products in Korea. PYRAMID SPEEDS DECISION The People's Republic of China (PRC) is emerging as a strong marketplace for Pyramid. Chinese govern-ment and business entities are adopting the latest technologies in networking, communications, and open computing systems. The past year's successes include some branches of the People's Construction Bank of China (PCBC), which put its front office business on Pyramid MIS-ES clusters. According to the PCBC branches, Pyramid performance exceeds proprietary performance by 300 to 400 percent. The China Joint Liaison Office, a government body, uses a Pyramid MIS-2ES as a departmental server, and plans expansion into a nationwide network. The Joint Chiefs' Department, part of PRC's Army, uses a Pyramid cluster system for mapping and survey analysis applications. After a difficult start, Japan also shows promise. The slumping Japanese economy brought deflation, low-priced competition, and a rising yen. Through it all, however, plans for a national information system developed opportunities for UNIX open systems providers. Among Pyramid's first successes in this market was the installation of a Pyramid MIServer system to run a mission- critical accounting application for Sharp. The Pyramid implementation is one of the biggest UNIX systems in Japan. Such successes help to introduce Pyramid's solutions to the broader market, to project a strong company image, and play a critical role in helping us to expand our presence in Asia-Pacific.

19 Pyramid Technology: 1994 Annual Report 16 Pyramid Product Review PYRAMID MISERVER ES SERIES AND NILE SERIES Pyramid Technology's MIServer ES Series offers a complete entry-level solution for fast-growing data centers. From small work groups to large corporate environments, our scalable, high-performance servers provide all the power and dependability needed to enhance productivity while preparing for future growth. Our Pyramid Nile Series expands our recognized leadership in mid-range computing into the high-end, open-systems market. Meeting the requirements of enterprise-wide support, our scalable, high-performance series provides the capacity and accessibility needed to move forward in today's mission-critical markets. Designed with the latest technology, these products provide: - - - Superior mainframe-class performance based on MIPS RISC. - - - Unsurpassed scalability for flexible future expansion. - - - Unparalleled support of large mission-critical OLTP environments via the enhanced DC(TM)/OSx(R) operating system and system clustering. - - - Dependable data center support with a broad range of value-added services. - - - Comprehensive partner programs and third party solutions optimized for DC/OSx. - - - Innovative service offerings to support business-critical environments. <TABLE> <CAPTION> MIS-2ES MIS-4ES MIS-12ES NILE 100 NILE150 <S> <C> <C> <C> <C> <C> CPUs 2 - 4 2 - 8 2 - 24 2 - 8 2 - 16 CACHE 9 - 18 MB 9 - 36 MB 9 - 108 MB 2 - 32 MB 16 - 64 MB MIPS 64 - 128 64 - 256 64 - 768 270 - 1080 540 - 2160 PROCESSOR MIPS R3000 MIPS R3000 MIPS R3000 MIPS R4400 MIPS R4400 MEMORY (MIN-MAX) 32 - 256 MB 32 - 512 MB 32 - 1024 MB 64 MB - 2 GB 128 MB - 4 GB DISK 1 GB - 23 GB 1 GB - 250+ GB 1 GB - 250+ GB 2 GB - 250+ GB 2GB - 1+ TB ETHERNET CONNECTIONS 4 8 8 8 8 NO. OF SYSTEM BAYS 1 - 2 1 - 3 1 - 3 1 - 2 2 - 5 ENVIRONMENT Office Computer Computer Office & Computer Room Room Computer Room Room OPERATING SYSTEM DC/OSx DC/OSx DC/OSx DC/OSx DC/OSx I/O SLOTS 5 - 14 XTEND(R) 10 - 36 XTEND 18 - 36 XTEND 26 XTEND 72 XTEND POWER 115/208V 208V 208V 220V 220V </TABLE>

20 Pyramid Technology: 1994 Annual Report 17 SELECTED FINANCIAL DATA <TABLE> <CAPTION> Year ended September 30, (in thousands, except per share amounts) 1994 1993 1992 1991 1990 - - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Total revenues $218,515 $233,698 $192,226 $227,948 $179,728 Total cost of products sold and services 138,583 132,121 123,529 121,367 83,303 Research and development 25,488 27,831 28,371 24,277 20,269 Net income (loss)* (22,413) 8,634 (59,707) 12,042 16,835 Net income (loss) per share $ (1.66) $ 0.67 $ (4.99) $ 1.02 $ 1.61 Shares used in computing net income (loss) per share 13,467 12,890 11,962 11,864 10,436 BALANCE SHEET DATA: Cash and short-term investments $ 42,209 $ 31,358 $ 26,458 $ 31,589 $ 16,729 Working capital 81,917 76,780 50,116 89,590 94,878 Total assets 190,713 191,658 176,191 222,212 194,333 Long-term obligations 1,563 487 1,878 2,776 715 Shareholders' equity $136,038 $137,616 $117,729 $174,819 $154,316 - - --------------------------------------------------------------------------------------------------------------------- </TABLE> * Fiscal 1992 includes restructuring charges of $41,180,000.

21 Pyramid Technology: 1994 Annual Report 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto. OVERVIEW Fiscal 1994 results reflect the impact on revenues of lengthening sales cycles and declining sales to traditional OEM partners, the impact on profit margins of competitive pressures and a shortfall in revenues, and the impact on expenses of an increase in direct sales and marketing personnel. The Pyramid Nile Series 150 and 100, which incorporate MIPS R4400 RISC technology and an enhanced UNIX System V Release 4 operating system, contributed the majority of the Company's product revenues during fiscal 1994 and the MIServer S and ES Series product lines, which incorporate MIPS R3000 RISC technology and an enhanced UNIX System V Release 4 operating system, contributed to a lesser extent. During the fourth quarter of fiscal 1993, the Company began shipping its Pyramid Nile 150. This product is designed to run business-critical, transaction-oriented applications, is scalable from two to sixteen processors, and supports up to four gigabytes of main memory and one terabyte of disk subsystem capacity. The Nile 150 supports up to 2,160 MIPS, thousands of transactions per second, and thousands of concurrent users. In May 1994, Pyramid formally introduced the Pyramid Nile 100. This product, targeted at the mid-range, open systems server market, expands the breadth of solutions that Pyramid offers to companies reengineering their applications and is designed as a scalable entry point for fault-resilient computing for business critical on-line transaction processing (OLTP), decision support, and data warehouse information management. The Nile 100 is fully compatible with the Nile 150. RESULTS OF OPERATIONS Total revenues for fiscal 1994 decreased 7% from fiscal 1993 to $218,500,000. The decline in product revenues for fiscal 1994 was the result of the lengthening of sales cycles experienced in selling larger, more sophisticated systems to global 2000 class companies and declining sales to traditional OEM partners. Direct product revenues as a percentage of total product revenues remained at 62% for fiscal 1994, the same as in fiscal 1993. Total nonrecurring operating system and manufacturing license fees were $5,000,000 in fiscal 1994 compared to $9,600,000 in fiscal 1993. Offsetting the decrease was an increase in service revenues which continued to benefit from the increasing base of installed Pyramid systems. Total revenues increased 22% from fiscal 1992 to fiscal 1993 as a result of the October 1992 introduction of the Company's MIServer ES products and increases in the direct revenue channels, especially to commercial end-user customers in the United States. Direct product revenues as a percentage of total product revenues were 45% in fiscal 1992. Additionally, total nonrecurring operating system and manufacturing license fees were $4,900,000 in fiscal 1992. Domestic product revenues as a percentage of total product revenues were 61%, 60%, and 54% in fiscal 1994, 1993, and 1992, respectively. The dollar value of domestic revenues decreased 11% from fiscal 1993 to fiscal 1994 as decreases in revenues from the AT&T, Telecom, Government, and Western business units were partially offset by increases in revenues from Canada and the Eastern business units. Total revenues from AT&T were $38,400,000, $40,700,000, and $39,300,000 or 18%, 17%, and 20% of total revenue in fiscal 1994, 1993, and 1992, respectively. The dollar value of domestic revenues increased 39% from fiscal 1992 to fiscal 1993 as increases in revenues from the AT&T, Telecom, Canada, Eastern, and Western business units were partially offset by a decrease in revenues from the Government business unit. International product revenues as a percentage of total product revenues were 39%, 40%, and 46% in fiscal 1994, 1993, and 1992, respectively. The dollar value of international revenues decreased 15% from fiscal 1993 to fiscal 1994 as decreases in revenues from Hyundai, Sharp, Olivetti Systems and Networks (Olivetti), Siemens Nixdorf Informationssysteme AG (Siemens Nixdorf), and United Kingdom direct customers were partially offset by an increase in revenues from International Computers Limited (ICL) and Australia direct customers. Revenues from

22 Pyramid Technology: 1994 Annual Report 19 Olivetti, Siemens Nixdorf, and ICL were each less than 10% of total revenues in fiscal 1994, 1993, and 1992. The dollar value of international revenues increased 10% from fiscal 1992 to fiscal 1993 as increases in revenues from Hyundai and ICL were partially offset by a decrease in revenues from Olivetti. Gross profit as a percentage of revenues was 37%, 43%, and 36% in fiscal 1994, 1993, and 1992, respectively. The decrease in gross profit in fiscal 1994 compared to fiscal 1993 was due to lower than anticipated product revenues which resulted in lower overhead absorption, lower nonrecurring operating system and manufacturing license fees which historically have yielded higher margins, growing competitive pressures, and a higher proportion of service revenues which historically have had lower margins than product revenues. The increase in gross profit in fiscal 1993 compared to fiscal 1992 was due to increased direct revenues and nonrecurring operating system and manufacturing license fees which historically have yielded higher margins, improved margins on service revenues, and lower manufacturing and service overhead costs resulting from fiscal 1992 restructurings. In the future, gross profit as a percentage of revenue may be adversely affected by a decrease in nonrecurring operating system and manufacturing license fees, significant fluctuations in currency exchange rates, and intensified competitive pressures. Research and development expenses as a percentage of revenues were 12%, 12%, and 15% in fiscal 1994, 1993, and 1992, respectively. Research and development expenses and capitalized software development costs amounted to approximately $34,700,000, $36,500,000, and $34,400,000 in fiscal 1994, 1993, and 1992, respectively. In accordance with Statement of Financial Accounting Standards No. 86, the Company capitalized software development costs of approximately $9,200,000, $8,700,000, and $6,100,000 in fiscal 1994, 1993, and 1992, respectively. During fiscal 1994, the majority of the capitalized software development costs related to the porting of Locus Computing technology to the UNIX System V Release 4 operating system and to the development of high availability and scalable high performance software, data center applications, and distributed storage devices and services. During fiscal 1993, the majority of the capitalized software development costs related to the development of data center and distributed computing environment features. During fiscal 1992, the majority of the capitalized software development costs related to the development of data center software features. Aggregate research and development costs combined with capitalized software development costs decreased in fiscal 1994 compared to fiscal 1993 primarily due to a decrease in research and development personnel. The dollar increase in aggregate research and development costs combined with capitalized software development costs in fiscal 1993 compared to fiscal 1992 was due to increased personnel and equipment costs. The Company believes the enhancement of existing products and the development of new products is essential to maintaining a competitive position. Accordingly, the Company is committed to a high level of research and development expenditures. However, because of the inherent uncertainties of product development projects in the Company's technology-intensive industry, there can be no assurance that research and development efforts will result in successful product enhancements or introductions, or, ultimately in increased revenues. Sales, marketing, and general and administrative expenses as a percentage of revenues were 34%, 28%, and 34% in fiscal 1994, 1993, and 1992, respectively. In absolute dollars, these expenses increased $9,300,000 from fiscal 1993 to fiscal 1994 due primarily to the increase in the number of revenue-producing direct sales people and marketing personnel who were added to enhance the Company's direct sales capacity. From fiscal 1992 to fiscal 1993, these expenses decreased $330,000 in absolute dollars due primarily to the benefits of the restructuring actions taken during fiscal 1992. These benefits were partially offset by increases in sales and marketing personnel, and commission expense resulting from higher revenue. Interest income in fiscal 1994 was less than that of fiscal 1993 due to a lower average monthly cash balance. The slight decrease in interest income in fiscal 1993 compared to fiscal 1992 was due to lower interest rates available during fiscal 1993. The decrease was partially offset by a higher level of invested funds during fiscal 1993. The Company intends to continue investing its available funds in short-term, highly-liquid income producing obligations. Interest expense increased in fiscal 1994 compared to fiscal 1993 as a result of increased debt obligations. Interest expense decreased in fiscal 1993 compared to fiscal 1992 as a result of significantly lower capital lease obligations.

23 Pyramid Technology: 1994 Annual Report 20 The Company recorded an income tax provision of $2,935,000 for fiscal 1994 based on a pretax loss of $19,478,000. The fiscal 1994 tax provision was due primarily to a $2,523,000 charge for a write-off of the Company's deferred tax assets. The Company recorded an income tax provision of 10%, or $959,000, for fiscal 1993 based on pretax income of $9,593,000. The fiscal 1993 tax provision was less than the statutory rate of 34% primarily due to the benefit of net operating loss and tax credit carryovers. The Company recorded an income tax benefit of 10.4%, or $6,929,000, for fiscal 1992 based on a pretax loss of $66,636,000. The fiscal 1992 tax benefit was less than the statutory rate of 34% primarily due to tax losses incurred in foreign jurisdictions without offsetting tax benefits and limitations on the benefit of United States loss carrybacks due to the alternative minimum tax and prior year tax credits. The Company expects its fiscal 1995 effective income tax rate to be approximately 15%; however, this rate could change based on the Company's results during fiscal 1995. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 109 ''Accounting for Income Taxes,'' which establishes a new method of accounting for income taxes. The Company adopted the statement in its fiscal year ended September 30, 1994. Adoption of SFAS 109 had no material effect on the Company's financial position and results of operations. The Company's agreements with its OEM partners and distributors, including the Treasury Multiuser Acquisition Contract ''TMAC'' agreement through AT&T, do not require minimum purchase quantities and, therefore, there can be no assurance that the Company will receive future revenues under these agreements. A substantial portion of the Company's revenues in each quarter generally results from shipments during the last month of that quarter, and principally for that reason, the Company's revenues are subject to quarterly fluctuations. In addition, the Company establishes its expenditure-level targets based on expected revenue. If anticipated orders and shipments in any quarter do not occur when expected, expenditure levels could be disproportionately high and the Company's operating results for that quarter could be adversely affected. The Company's operating results may also be subject to quarterly fluctuations as a result of a number of factors including the timing of orders from and shipments to major customers, product mix, availability of product components, variations in product costs, the mix of revenue, nonrecurring license fees, increased competition, customer acceptance of new products, and general economic conditions. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operating expenses and working capital needs primarily through a combination of internally generated cash and cash balances, and an equity issuance. Net cash provided by operating activities was $15,700,000, $16,400,000, and $16,100,000 in fiscal 1994, 1993, and 1992, respectively. Net cash used for investing activities was $45,800,000, $21,500,000, and $22,500,000 in fiscal 1994, 1993, and 1992, respectively. Net cash provided by financing activities was $20,200,000, $10,000,000, and $1,300,000 in fiscal 1994, 1993, and 1992, respectively. In fiscal 1994, financing activities providing cash consisted of a $17,250,000 issuance of common stock and a warrant to Siemens Nixdorf and a $3,150,000 loan under a capital equipment financing agreement with a lending company. Cash and cash equivalents were $21,600,000 at September 30, 1994 and short-term investments in commercial paper with original maturities of approximately four months were $20,700,000. For purposes of hedging its foreign currency exposures, the Company has available a bank facility which provides for up to $70,000,000 of foreign exchange contracts. At September 30, 1994, $61,300,000 was available under the foreign exchange line of credit as $8,700,000 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 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

24 Pyramid Technology: 1994 Annual Report 21 December 31, 1995. The above facilities do not permit the Company to pay cash dividends and they set limitations on the Company with regard to other indebtedness, pledging of assets, guarantees, mergers and acquisitions, and annual capital expenditure levels as well as requiring the Company to maintain certain financial requirements. 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 move-ments 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 $1,800,000, which approximates fair value, in Japanese and Swedish currencies, and to buy the equivalent of $6,900,000, which approximates fair value, in Australian, British, and German currencies. Based upon its current operating plan, the Company anticipates that internally generated funds and cash balances, together with existing credit facilities, capital leases, and loan agreements, will be sufficient to satisfy capital requirements through fiscal 1995. However, the Company may raise additional capital through debt or equity financing to take advantage of market opportunities.

25 Pyramid Technology: 1994 Annual Report 22 CONSOLIDATED STATEMENT OF OPERATIONS <TABLE> <CAPTION> Year ended September 30, (in thousands, except per share amounts) 1994 1993 1992 - - --------------------------------------------------------------------------------------------------------------------- <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 venture (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 income (loss) per share 13,467 12,890 11,962 ===================================================================================================================== </TABLE> The accompanying notes are an integral part of these financial statements.

26 Pyramid Technology: 1994 Annual Report 23 CONSOLIDATED BALANCE SHEET <TABLE> <CAPTION> September 30, (in thousands, except par value and number of shares) 1994 1993 - - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 21,558 $ 31,358 Short-term investments 20,651 - Accounts receivable, net of allowance for doubtful accounts of $1,660 in 1994 and $2,020 in 1993 49,310 51,392 Inventories 25,840 35,712 Prepaid expenses and deposits 15,270 11,873 - - --------------------------------------------------------------------------------------------------------------------- Total current assets 132,629 130,335 Property and equipment, at cost: Machinery and equipment 85,825 79,675 Furniture and fixtures 6,546 5,674 Leasehold improvements 9,627 9,924 - - --------------------------------------------------------------------------------------------------------------------- 101,998 95,273 Less accumulated depreciation and amortization 74,386 60,686 - - --------------------------------------------------------------------------------------------------------------------- 27,612 34,587 Capitalized software development costs 18,381 15,959 Service spare parts and other assets 12,091 10,777 - - --------------------------------------------------------------------------------------------------------------------- $190,713 $191,658 ===================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 16,398 $ 20,312 Accrued payroll and related liabilities 4,493 7,043 Accrued commissions 2,424 2,419 Deferred revenue 8,272 7,197 Other accrued liabilities 10,932 8,764 Restructuring accruals 3,075 4,464 Income taxes payable 3,678 1,561 Current portion of long-term debt 1,440 1,795 - - --------------------------------------------------------------------------------------------------------------------- Total current liabilities 50,712 53,555 Noncurrent portion of long-term debt 1,563 487 Deferred income taxes payable 2,400 - Commitments SHAREHOLDERS' EQUITY: Common stock - $.01 par value; 30,000,000 shares authorized, 15,567,000 issued and outstanding in 1994 and 13,177,000 in 1993 156 132 Additional paid-in capital 174,652 155,078 Accumulated deficit (37,927) (15,514) Accumulated translation adjustment (843) (2,080) - - --------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 136,038 137,616 - - --------------------------------------------------------------------------------------------------------------------- $190,713 $191,658 ===================================================================================================================== </TABLE> The accompanying notes are an integral part of these financial statements.

27 Pyramid Technology: 1994 Annual Report 24 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY <TABLE> <CAPTION> Common Stock Additional Retained Accumulated Total ------------ Paid-In Earnings Translation Shareholders' (in thousands) Shares Amount Capital (Deficit) Adjustment Equity - - ---------------------------------------------------------------------------------------------------------------------- <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.

28 Pyramid Technology: 1994 Annual Report 25 CONSOLIDATED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> Year ended September 30, (in thousands) 1994 1993 1992 - - --------------------------------------------------------------------------------------------------------------------- <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 obligations 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.

29 Pyramid Technology: 1994 Annual Report 26 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 foreigncurrency 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 mar-ketable 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. 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, (in thousands) 1994 1993 - - ----------------------------------------------------- <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>

30 Pyramid Technology: 1994 Annual Report 27 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 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

31 Pyramid Technology: 1994 Annual Report 28 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 Company's 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, 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 customer's 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, (in thousands) 1994 1993 - - ------------------------------------------------------------------------- <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>

32 Pyramid Technology: 1994 Annual Report 29 Minimum future payments under all capital and operating lease agreements as of September 30, 1994 are as follows: <TABLE> <CAPTION> Year ending September 30, Operating Capital (in thousands) Leases Leases - - ---------------------------------------------------------------------------------------------- <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. 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.

33 Pyramid Technology: 1994 Annual Report 30 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 --------------------------------- (in thousands, except share and per share amounts) Number of Shares Per Share Total - - ---------------------------------------------------------------------------------------------------------------- <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 Officers' 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 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.

34 Pyramid Technology: 1994 Annual Report 31 <TABLE> <CAPTION> Price -------------------------------- (in thousands, except share and per share amounts) Number of Shares Per Share Total - - -------------------------------------------------------------------------------------------------------------- <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 employee's salary deferral contribution. Employee contributions are fully vested, whereas vesting in matching Company contributions occurs at a rate of 331/3% 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, 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

35 Pyramid Technology: 1994 Annual Report 31 INCOME TAXES The provision (benefit) for income taxes consists of the following: <TABLE> <CAPTION> Year ended September 30, (in thousands) 1994 1993 1992 - - -------------------------------------------------------------------------------- <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, (in thousands) 1994 1993 1992 - - ---------------------------------------------------------------------------------------------- <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.

36 Pyramid Technology: 1994 Annual Report 33 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, (in thousands) 1994 - - ---------------------------------------------------------------------- <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, (in thousands) 1993 1992 - - --------------------------------------------------------------------------- <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>

37 Pyramid Technology: 1994 Annual Report 34 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. Dur-ing 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- (in thousands) States Kingdom Pacific Eliminations Consolidated - - --------------------------------------------------------------------------------------------------------------------- <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.

38 Pyramid Technology: 1994 Annual Report 35 FINANCIAL INFORMATION BY QUARTER (unaudited) <TABLE> <CAPTION> First Second Third Fourth (in thousands, except per share amounts) Quarter Quarter Quarter Quarter - - --------------------------------------------------------------------------------------------------------------------- <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> 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 signifi-cant 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. /s/ Ernst & Young ----------------- Palo Alto, California October 25, 1994

39 Pyramid Technology: 1994 Annual Report 35 REPRESENTATIVE CUSTOMERS <TABLE> <S> <C> <C> TELECOMMUNICATIONS INSURANCE AND HEALTH CARE MAJOR COMMERCIAL Ameritech Services, Inc. BlueCross BlueShield of AFG Management Limited AT&T Massachusetts Ahlsell Bell Atlantic Corporation Great-West Life Assurance Arnold Clark Bell Communications Company British Shoe Corporation Research, Inc. H. Lee Moffitt Cancer Center & BSkyB BellSouth Telecommunications Research Institute Chrysler Corporation British Telecommunications Health Information Designs, Inc. Cott Corporation C&P Telephone John Hancock Mutual Life Damark International Connect, Inc. Insurance Co. Datapoint DACOM Corporation Nottingham City Hospital Trust Detroit Diesel Integretel Oxford Health Plan Electronic Data Systems Corp. Korea PC Telecom Private Healthcare Systems, Inc. Equitable Resources Korea Telecom Value Rx Pharmacy Program, Inc. Fujitsu Australia Limited MCI Western National Warranty Fujitsu ICIM Limited NOWCOM, LTD Corporation G. Heileman Brewing NTT Corporation Company, Inc. Southwestern Bell Telephone HOSPITALITY & TRANSPORTATION Geac Computer, Inc. Company Granada Television Telecom Australia Choice Hotels International Hyundai Electronics US West Communications Dallas/Fort Worth International Industries Co., LTD Vodafone, Ltd. Airport International Computers Limited Forte Hotels Jennings House FINANCIAL SERVICES Hospitality Franchise Kuwait Petroleum Systems, Inc. London Weekend Television AE Sharp National Car Rental Olivetti Systems & Networks Chemical Bank Qantas Airways Oracle Corporation Churchill Management Services Red Lion Hotels & Inns Pacific Dunlop Corporation Commonwealth Bank Yellow Technology Services Rothman Tobacco Australia Ernst & Young LLP Sharp Corporation Fidelity Investments GOVERNMENT Siemens Nixdorf Hewitt Associates Informationssysteme AG M&G Carlton University Software AG Morgan Grenfell & Co. Ltd. City of Mississauga Space Systems/Loral National & Provincial Building Employment Services (UK) SurfAir Society London Borough of Haringey Swedish Air Novus Financial Corporation Metropolitan Water District Tilney PKA of Southern California TSMS ScotiaMcLeod, Inc. Public Works Department (AUST) Vernons Pools Standard & Poor's Compustat Texas Natural Resources Stock Holding Corporation of Conservation Commission India, Ltd. United States Air Force Toronto Stock Exchange United States Army Trimark Investment United States Department of Management, Inc. Agriculture United States Department of Treasury United States Department of Veteran Affairs Nile and DC are trademarks and Reliant, OSx, and MIServer are registered trademarks of Pyramid Technology Corp. All other trademarks are the property of their respective owners. </TABLE>

40 CORPORATE DIRECTORY <TABLE> <S> <C> <C> BOARD OF DIRECTORS Mitchell Mandich OTHER INFORMATION Richard H. Lussier Senior Vice President Independent Auditors Chairman & Chief Executive Officer Dr. Raj Nathan Ernest & Young LLP John S. Chen Senior Vice President Palo Alto, California President & Chief Operating Officer Kent L. Robertson Donald E. Guinn (1) (2) Senior Vice President, Chief OUTSIDE LEGAL COUNSEL Chairman Emeritus Financial Officer & Secretary Wilson, Sonsini, Goodrich, & Rosati, P.C. Pacific Telesis Group S. Boyd Pearce Palo Alto, California Clarence W. Spangle (1) (2) Vice President Retired Computer Executive Allan D. Smirni TRANSFER AGENCY AND REGISTRAR George D. Wells (2) (3) Vice President & General Counsel Chemical Trust Company President & Chief Executive Officer William M. Wishart Securityholder Relations Department Exar Corporation Vice President 50 California Street, 10th Floor John L. Hancock (1) (3) San Francisco, California 94111 Retired OTHER OFFICERS Executive Vice President S. Joseph Bookataub FORM 10-K Pacific Bell Vice President A copy of the Pyramid Technology Paul J. Chiapparone (1) (2) Richard J. D'Angelo Corporation Form 10-K as filed Senior Vice President Vice President with the Securities and Exchange Electronic Data Systems Catherine A. Fitzgerald Commission is available without Dr. Rudolf Bodo (3) Vice President charge upon written request to: Vice President & General Manager, H. William Gimple Midrange Systems Unit Vice President Shareholder Relations Siemens Nixdorf Robert E. Howells Pyramid Technology Corporation Informationssysteme AG Vice President 3860 N. First Street David J. Koch San Jose, California 95134-1702 (1) Member of Audit Committee Vice President (2) Member of Compensation Committee Richard J. Moore ANNUAL MEETING (3) Member of Nominating Committee Vice President The annual meeting of shareholders James J. Nelson will be January 26, 1995 at EXECUTIVE OFFICERS Vice President 9:00 A.M. at the Westin Hotel Richard H. Lussier Pete E. Pappanastos 5101 Great America Parkway Chairman & Chief Executive Officer Vice President Santa Clara, California John S. Chen Stephen S. Weller President & Chief Operating Officer Vice President Edward W. Scott, Jr. Executive Vice President </TABLE> STOCK INFORMATION Pyramid Technology Corporation's Common Stock is quoted on the NASDAQ National Market System under the symbol PYRD. The following table sets forth the range of high and low closing sales prices for the quarters indicated: <TABLE> <CAPTION> Fiscal 1994 Fiscal 1993 --------------------------------------------------------- High Low High Low - - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> First Quarter $21 1/4 $12 3/4 $11 $6 Second Quarter 16 1/4 7 7/8 17 9 3/4 Third Quarter 9 5 5/8 20 3/4 11 1/4 Fourth Quarter 9 3/16 5 1/2 23 1/4 17 1/2 - - ------------------------------------------------------------------------------------------- </TABLE> The Company had 830 shareholders of record as of September 30, 1994. The Company has not paid cash dividends on its Common Stock and is restricted from doing so by agreements with its lenders and presently intends to continue to retain its earnings for the development of its business.

41 [LOGO] PYRAMID TECHNOLOGY Pyramid Technology Corporation 3860 North First Street San Jose, California 95134-1702

1 EXHIBIT 21.1 LIST OF SUBSIDIARIES SUBSIDIARIES <TABLE> <CAPTION> COUNTRY OF INCORPORATION NAME ADDRESS OR ORGANIZATION - - ---- ------- --------------- <S> <C> <C> Pyramid Technology Japan Co. Ltd. Shinkawa M Bldg. JAPAN 1-5-17 Shinkawa Chuo-Ku, Tokyo 104 JAPAN Pyramid Technology Corporation PTY. Ltd. 173 Pacific Highway AUSTRALIA North Sydney, NSW 2059 AUSTRALIA Pyramid Technology Ltd. Pyramid House UNITED KINGDOM Solartron Road Farnborough, Hants. GU14 7QL UNITED KINGDOM Pyramid Technology GmbH Technopark GERMANY Bretonischer Ring 11 D-85630 Grasbrunn GERMANY Pyramid Technology Asia Limited 20/F Tower I HONG KONG (Government sales only) Suite 2001-4, The Gateway 25-27 Canton Road Kowloon HONG KONG Pyramid Technology (Canada) Corporation 2235 Sheppard Avenue East CANADA (Inactive) Suite 1501 Willowdale, Ontario M2J 5B5 CANADA </TABLE>

2 BRANCHES <TABLE> <CAPTION> NAME ADDRESS - - ---- ------- <S> <C> Pyramid Technology Corporation 20/F Tower I Suite 2001-4, The Gateway 25-27 Canton Road Kowloon HONG KONG Pyramid Technology Corporation 4F, 200, Sec. 1 KeeLung Road Taipei, Taiwan R.O.C. Pyramid Technology Corporation Room 2020, New Century Hotel No. 6 Southern Road, Capital Gym Beijing CHINA Pyramid Technology Corporation Torshamnsgatan 23 164 40 Kista SWEDEN Pyramid Technology Corporation 2235 Sheppard Avenue East Suite 1501 Willowdale, Ontario M2J 5B5 CANADA </TABLE>

1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Pyramid Technology Corporation of our report dated October 25, 1994, included in the 1994 Annual Report to Shareholders of Pyramid Technology Corporation. Our audits also included the financial statement schedules of Pyramid Technology Corporation listed in item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements of Pyramid Technology Corporation (Form S-8 Nos. 33-3806, 33-7820, 33-11439, 33-13673, 33-17001, 33-19169, 33-27983, 33-40276, 33-50184, and 33-59102) with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of Pyramid Technology Corporation. Palo Alto, California December 22, 1994

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<EXTRAORDINARY>                                      0
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</TABLE>