<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1994
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ______________
to ______________
Commission File No. 1-8465
STERLING SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1873956
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8080 North Central Expressway, Suite 1100
Dallas, Texas 75206
(Address of principal executive offices)
(214) 891-8600
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title Shares Outstanding as of July 31, 1994
- - ---------------------------- ----------------------------------------
Common Stock, $.10 par value 20,599,081
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Sterling Software, Inc. Consolidated Balance Sheets at June 30, 1994 and
September 30, 1993...................................................... 3
Sterling Software, Inc. Consolidated Statements of Operations for the
Three and Nine Months Ended June 30, 1994 and 1993....................... 4
Sterling Software, Inc. Consolidated Statements of Stockholders' Equity
for the Nine Months Ended June 30, 1994 and 1993......................... 5
Sterling Software, Inc. Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 1994 and 1993................................. 6
Sterling Software, Inc. Notes to Consolidated Financial Statements........ 7
</TABLE>
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
A S S E T S
<TABLE>
<CAPTION>
June 30 September 30
1994 1993
-------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents...................................................... $106,865 $ 29,752
Marketable securities..................................................... 34,710 51,354
Accounts and notes receivable, net........................................ 113,616 112,174
Deferred income taxes..................................................... 10,158 8,790
Prepaid expenses and other current assets................................. 10,676 12,764
-------- --------
Total current assets.................................................... 276,025 214,834
Property and equipment, net of accumulated depreciation of $42,716 at
June 30, 1994 and $37,930 at September 30, 1993........................... 32,752 27,124
Computer software, net of accumulated amortization of $88,271 at
June 30, 1994 and $74,720 at September 30, 1993........................... 60,303 59,539
Excess cost over net assets acquired, net of accumulated amortization of
$18,112 at June 30, 1994 and $16,188 at September 30, 1993................ 52,398 54,273
Noncurrent deferred income taxes............................................ 3,734 19,958
Other assets................................................................ 25,173 21,933
-------- --------
$450,385 $397,661
======== ========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
Current liabilities:
Current portion of long-term debt......................................... $ 9,043 $ 3,980
Accounts payable and accrued liabilities.................................. 75,461 88,847
Deferred revenue.......................................................... 66,582 70,709
-------- --------
Total current liabilities............................................. 151,086 163,536
Long-term debt.............................................................. 116,267 116,817
Other noncurrent liabilities................................................ 27,602 20,095
Stockholders' equity:
Preferred stock, $.10 par value; 10,000,000 shares authorized; 200,000
shares issued and outstanding........................................... 20 20
Common stock, $.10 par value; 50,000,000 shares authorized; 22,019,000
and 19,610,000 shares issued at June 30, 1994 and September 30, 1993,
respectively............................................................ 2,202 1,961
Additional paid-in capital................................................ 191,174 169,855
Accumulated deficit....................................................... (18,748) (55,065)
Less treasury stock, at cost: 1,805,000 and 1,837,000 shares at
June 30, 1994 and September 30, 1993, respectively..................... (19,218) (19,558)
-------- --------
Total stockholders' equity........................................... 155,430 97,213
-------- --------
$450,385 $397,661
======== ========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30 Ended June 30
-------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Products....................................................... $ 40,285 $ 37,829 $122,148 $109,561
Product support................................................ 33,445 30,624 98,065 89,520
Services....................................................... 41,594 36,020 117,913 102,020
-------- -------- -------- --------
115,324 104,473 338,126 301,101
Costs and expenses:
Cost of sales:
Products and product support................................. 13,418 17,488 46,886 50,362
Services..................................................... 27,326 26,559 79,360 76,431
-------- -------- -------- --------
40,744 44,047 126,246 126,793
Product development and enhancement............................ 8,831 6,915 23,439 19,479
Selling, general and administrative............................ 41,826 44,077 123,461 127,237
-------- -------- -------- --------
91,401 95,039 273,146 273,509
-------- -------- -------- --------
Income before other income (expense), income taxes,
extraordinary item and cumulative effect of a change
in accounting principle........................................ 23,923 9,434 64,980 27,592
Other income (expense):
Interest expense............................................... (1,606) (2,028) (4,905) (6,049)
Investment income.............................................. 1,141 1,491 2,545 2,875
Other.......................................................... 397 (127) 556 175
-------- -------- -------- --------
(68) (664) (1,804) (2,999)
-------- -------- -------- --------
Income before income taxes, extraordinary item and
cumulative effect of a change in accounting principle.......... 23,855 8,770 63,176 24,593
Provision for income taxes....................................... 8,707 3,422 23,650 9,314
-------- -------- -------- --------
Income before extraordinary item and cumulative effect
of a change in accounting principle............................ 15,148 5,348 39,526 15,279
Extraordinary item - loss on early extinguishment of
debt, net of applicable income taxes (Note 5).................. (1,481)
Cumulative effect of a change in accounting principle,
net of applicable income tax benefit (Note 6).................. (2,774)
-------- -------- -------- --------
Net income....................................................... 15,148 5,348 39,526 11,024
Preferred stock dividends........................................ 49 318 147 954
-------- -------- -------- --------
Income applicable to common stockholders......................... $ 15,099 $ 5,030 $ 39,379 $ 10,070
======== ======== ======== ========
Income per common share:
Income before extraordinary item and cumulative
effect of a change in accounting principle:
Primary........................................................ $ .66 $ .26 $ 1.75 $ .75
======== ======== ======== ========
Fully diluted.................................................. $ .60 $ .26 $ 1.60 $ .75
======== ======== ======== ========
Income before cumulative effect of a change in
accounting principle:
Primary........................................................ $ .66 $ .26 $ 1.75 $ .67
======== ======== ======== ========
Fully diluted.................................................. $ .60 $ .26 $ 1.60 $ .67
======== ======== ======== ========
Net income:
Primary........................................................ $ .66 $ .26 $ 1.75 $ .53
======== ======== ======== ========
Fully diluted.................................................. $ .60 $ .26 $ 1.60 $ .53
======== ======== ======== ========
Average common shares outstanding................................ 20,127 17,510 19,251 17,031
======== ======== ======== ========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended June 30, 1994 and 1993
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock
----------------- ---------------- -------------------
Number Number Additional Retained Number Total
of Par of Par Paid-in Earnings of Stockholders'
Shares Value Shares Value Capital (Deficit) Shares Cost Equity
-------- ------- -------- ------- ---------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1992.. 200 $20 18,330 $1,833 $149,448 $(13,657) 1,884 $(20,060) $117,584
Net income................... 11,024 11,024
Preferred stock dividends.... (954) (954)
Issuance of common stock
pursuant to stock options,
warrants and employee
benefit plans.............. 447 45 4,118 4,163
Issuance of common stock
pursuant to conversion of
8% debentures (Note 5)..... 636 64 13,675 13,739
Issuance of common stock
to retirement plan......... 196 (30) 322 518
Other........................ (12) (1,136) (3) 37 (1,111)
-------- ------- -------- ------- ---------- --------- -------- -------- ------------
Balance at June 30, 1993....... 200 $20 19,413 $1,942 $167,425 $ (4,723) 1,851 $(19,701) $144,963
======== ======= ======== ======= ========== ========= ======== ======== ============
Balance at September 30, 1993.. 200 $20 19,610 $1,961 $169,855 $(55,065) 1,837 $(19,558) $ 97,213
Net income................... 39,526 39,526
Preferred stock dividends.... (147) (147)
Issuance of common stock
pursuant to stock options
and warrants............... 2,409 241 20,878 21,119
Issuance of common stock
to retirement plan......... 346 (29) 306 652
Other........................ 95 (3,062) (3) 34 (2,933)
-------- ------- -------- ------- ---------- --------- -------- -------- ------------
Balance at June 30, 1994....... 200 $20 22,019 $2,202 $191,174 $(18,748) 1,805 $(19,218) $155,430
======== ======= ======== ======= ========== ========= ======== ======== ============
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended June 30
--------------------
1994 1993
--------- --------
<S> <C> <C>
Operating activities:
Income before extraordinary item and cumulative effect of a change in
accounting principle....................................................... $ 39,526 $ 15,279
Adjustments to reconcile income before extraordinary item and cumulative
effect of a change in accounting principle to net cash provided by
operating activities:
Depreciation and amortization.......................................... 25,154 23,687
Provision for losses on accounts receivable............................ 4,126 2,918
Provision for deferred income taxes.................................... 16,542 4,547
Foreign currency transaction loss (gain)............................... (735) 128
Other.................................................................. 1,309
Changes in operating assets and liabilities:
Decrease (increase) in accounts and notes receivable................ (14,175) 2,378
Increase in prepaid expenses and other assets....................... (2,115) (2,494)
Decrease in accounts payable and accrued liabilities................ (12,907) (4,694)
Increase (decrease) in deferred revenue............................. 5,918 (1,431)
Other............................................................... (2,538) 923
-------- --------
Net cash provided by operating activities......................... 60,105 41,241
Investing activities:
Purchases of property and equipment....................................... (12,641) (8,586)
Purchases and capitalized cost of development of computer software........ (16,609) (19,243)
Purchases of investments.................................................. (47,968) (62,661)
Proceeds from sales of investments........................................ 61,942 12,760
Other..................................................................... 1,514 (534)
-------- --------
Net cash used in investing activities............................. (13,762) (78,264)
Financing activities:
Retirement and redemption of debt and capital lease obligations........... (12,824) (54,164)
Proceeds from issuance of debt, net of issuance costs..................... 17,597 123,697
Proceeds from issuance of common stock pursuant to stock options, warrants
and employee benefit plans.............................................. 21,119 4,163
Proceeds from sales of installment and lease contracts receivable......... 7,389 1,469
Other..................................................................... (2,806) 711
-------- --------
Net cash provided by financing activities.......................... 30,475 75,876
Effect of foreign currency exchange rate changes on cash..................... 295 (1,765)
-------- --------
Increase in cash and equivalents............................................. 77,113 37,088
Cash and equivalents at beginning of period.................................. 29,752 41,713
-------- --------
Cash and equivalents at end of period........................................ $106,865 $ 78,801
======== ========
Supplemental cash flow information:
Interest paid............................................................. $ 3,684 $ 4,019
-------- --------
Income taxes paid......................................................... $ 3,299 $ 3,403
-------- --------
Income tax refunds........................................................ $ 1,110 $ 137
-------- --------
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Sterling
Software, Inc. and its wholly owned subsidiaries (the "Company") after
elimination of all significant intercompany balances and transactions. The
Company's quarterly financial data should be read in conjunction with the
consolidated financial statements of the Company for the year ended September
30, 1993.
2. Unaudited Interim Financial Statements
The interim consolidated financial information contained herein is unaudited
but, in the opinion of management, includes all adjustments, which are of a
normal recurring nature, necessary for a fair presentation of the financial
position and results of operations for the periods presented. Results of
operations for the periods presented herein are not necessarily indicative of
results of operations for the entire year.
3. Business Combinations
Effective July 31, 1994, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") providing for a business combination of the
Company and KnowledgeWare, Inc. ("KnowledgeWare"), a software and services
company based in Atlanta, Georgia which designs, develops, markets and supports
application development tools, business process reengineering products, data
access and warehousing software and services, in a merger (the "KWI Merger") to
be accounted for as a pooling of interests. The Merger Agreement was approved by
the Boards of Directors of both the Company and KnowledgeWare. Upon satisfaction
or waiver of the conditions set forth in the Merger Agreement, including
approval by the stockholders of both companies, and the consummation of the
transactions contemplated thereby, KnowledgeWare will become a wholly owned
subsidiary of the Company and each issued and outstanding share of
KnowledgeWare's common stock will be converted into the right to receive .2893
of a share of the Company's $0.10 par value Common Stock ("Common Stock"). In
addition, the Company has agreed to assume all outstanding options granted under
the stock option plans maintained by KnowledgeWare and any outstanding warrants
issued by KnowledgeWare, provided that (a) each such option or warrant shall
become exercisable for that whole number of shares of Common Stock (to the
nearer whole share) equal to the product of (i) the number of shares of
KnowledgeWare common stock subject to such option or warrant immediately prior
to the consummation of the KWI Merger times (ii) .2893 and (b) the exercise
price of such option or warrant shall be equal to the quotient given by dividing
(i) the exercise price of such option or warrant in effect prior to the
consummation of the KWI Merger by (ii) .2893.
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<PAGE>
If the transactions contemplated by the Merger Agreement are consummated, the
Company will issue approximately 4,213,000 shares of Common Stock (based on
KnowledgeWare's shares outstanding as of June 30, 1994) and reserve
approximately 720,000 shares of Common Stock for issuance upon exercise of
KnowledgeWare's options and warrants (based on KnowledgeWare's options and
warrants outstanding as of June 30, 1994). The Company anticipates closing the
KWI Merger on or about November 1, 1994.
The Company anticipates it will incur a charge to operations in the quarter
in which the KWI Merger is consummated to reflect the combination of
the Company and KnowledgeWare, including charges related to elimination of
duplicate facilities, severance costs, the write-off of property and equipment,
certain transaction costs and similar items. The Company and KnowledgeWare will
conform accounting policies upon consummation of the KWI Merger.
Effective August 1, 1994, the Company acquired all the outstanding common
stock of American Business Computer Company, a provider of UNIX-based electronic
data interchange software, in a merger to be accounted for as a pooling of
interests. The Company issued approximately 300,000 shares of Common Stock as a
result of the transaction.
4. Segment Information
The Company acquires, develops, markets and supports a broad range of
computer software products and services in three major markets classified as
Enterprise Software, Electronic Commerce and Federal Systems. Each major market
is represented through decentralized business groups. The Enterprise Software
Group provides enterprise-wide systems management and applications management
software for large computing environments. The Electronic Commerce Group
provides software and services to facilitate electronic commerce, defined by the
Company as the worldwide electronic interchange of business information,
including electronic data interchange software and services, data communications
software and electronic payments software for financial institutions. The
Federal Systems Group provides highly technical services to the federal
government, generally under multi-year, cost-based contracts, primarily in
support of National Aeronautics and Space Administration aerospace research
projects and secure communications systems for the Department of Defense. A
fourth business group, International, is responsible for sales and telephone
support of the Company's products outside the United States. International Group
operating results are included, as applicable, in the Company's Enterprise
Software and Electronic Commerce segments in the business segment tables
contained herein. International Group revenue of $28,210,000 and $25,584,000 and
operating profit (loss) of $4,417,000 and $(1,514,000) for the three months
ended June 30, 1994 and 1993, respectively, has been allocated to these business
segments. International Group revenue of $84,646,000 and $80,543,000 and
operating profit (loss) of $12,646,000 and $(224,000) for the nine months ended
June 30, 1994 and 1993, respectively, has been allocated to these business
segments.
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<PAGE>
Financial information concerning the Company's operations, by business
segment, for the three and nine months ended June 30, 1994 and 1993 follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30 Ended June 30
------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Enterprise Software....... $ 45,110 $ 44,979 $139,373 $136,698
Electronic Commerce....... 40,868 31,679 111,844 83,354
Federal Systems........... 27,296 25,700 78,959 74,252
Corporate and other....... 2,050 2,115 7,950 6,797
-------- -------- -------- --------
Consolidated totals..... $115,324 $104,473 $338,126 $301,101
======== ======== ======== ========
Operating Profit:
Enterprise Software....... $ 13,907 $ 6,006 $ 43,197 $ 25,523
Electronic Commerce....... 12,947 8,234 30,515 15,488
Federal Systems........... 2,391 1,370 5,699 4,607
Corporate and other....... (5,322) (6,176) (14,431) (18,026)
-------- -------- -------- --------
Consolidated totals....... $ 23,923 $ 9,434 $ 64,980 $ 27,592
======== ======== ======== ========
</TABLE>
The amounts presented for "Corporate and other" include corporate expense,
inter-segment eliminations and the results of operations of the Company's retail
software division.
5. Long-Term Notes Payable
In February 1993, the Company issued $115,000,000 principal amount of 5 3/4%
Convertible Subordinated Debentures Due 2003 ("5 3/4% Debentures"). The 5 3/4%
Debentures are unsecured general obligations of the Company and are convertible
into Common Stock at any time prior to maturity at a conversion price of $28.35.
Interest is payable semiannually. At the option of the Company, the 5 3/4%
Debentures are redeemable, in whole or in part, at a premium after February 12,
1996. Upon a Change in Control (as defined), holders of the 5 3/4% Debentures
will have the right, subject to certain restrictions and conditions, to require
the Company to purchase all or any part of the 5 3/4% Debentures at the
principal amount, plus accrued interest. The 5 3/4% Debentures are subordinated
to all existing and future Senior Indebtedness (as defined) of the Company.
In February 1993, the Company also called for redemption its 8% Convertible
Senior Subordinated Debentures ("8% Debentures") at a price equal to 103.2% of
the principal amount. Holders of $13,739,000 principal amount of 8% Debentures
elected to convert their 8% Debentures into 636,054 shares of Common Stock. The
remaining $38,894,000 principal amount of 8% Debentures were redeemed on March
4, 1993 for $40,165,000, including interest of $26,000. The conversion and
redemption of the 8% Debentures resulted in an extraordinary loss of $1,481,000,
net of applicable income taxes of $987,000. If the conversion of $13,739,000
principal amount of 8% Debentures was assumed to have been consummated on
October 1, 1992, the pro forma net income per common share amount for the nine-
month period ended June 30, 1993 would have been $.53 per share on a fully
diluted basis.
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<PAGE>
6. Change in Accounting for Postretirement Benefits
During the fourth quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS No. 106"), which requires
that the expected cost of postretirement benefits be charged to expense during
the years the employee renders service. The effect of adopting the new standard
as of October 1, 1992 was a charge of $2,774,000, representing the accumulated
benefit obligation existing at that date, net of related income tax benefit of
$1,813,000. This charge is shown as the cumulative effect of a change in
accounting principle. The results for the nine months ended June 30, 1993 have
been restated for the cumulative effect of the adoption of the new standard and
the ratable portion of the 1993 effect of the adoption of the new standard.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Merger with Systems Center, Inc.
On July 1, 1993, Sterling Software, Inc. ("Sterling Software") acquired
Systems Center, Inc. ("Systems Center"), a Delaware corporation based in Reston,
Virginia which developed, marketed and supported systems software products, in a
merger (the "SCI Merger") accounted for as a pooling of interests, resulting in
the combined company, hereafter defined as the "Company." The merger of the
equity interests has been given retroactive effect and the Company's financial
statements for periods prior to the SCI Merger represent the combined financial
statements of the previously separate entities adjusted to conform Systems
Center's fiscal years and accounting policies to those used by Sterling
Software.
In connection with the SCI Merger, the Company eliminated duplicate
facilities and equipment, reduced its workforce and wrote off certain software
products which would not be actively marketed by the Company. There were no
restructuring charges incurred in the first nine months of 1994 in excess of the
restructuring charges accrued in the fourth quarter of 1993. Since September
30, 1993, there has been no significant increase in operating expenses as a
result of the restructuring of the Company and the Company does not expect there
to be any material increase in costs and expenses in the remainder of 1994 as a
result of the SCI Merger. Approximately $22,500,000 of cash was expended in the
first nine months of 1994 relating to restructuring charges accrued in the
fourth quarter of 1993. Future cash expenditures related to the restructuring
are anticipated to be made from cash generated from operations.
Three Months Ended June 30, 1994 and 1993
Effective with the SCI Merger, Sterling Software changed Systems Center's
fiscal year-end from December 31 to September 30, affecting the timing of sales
incentives and changing the revenue pattern for products previously marketed by
Systems Center. Accordingly, the Company believes that the revenue for the
three months ended June 30, 1994 is not directly comparable to revenue for the
three months ended June 30, 1993.
Revenue increased $10,851,000, or 10%, in the third quarter of 1994 over
the same period of 1993 due to increases in all three of the Company's markets.
Electronic Commerce Group ("ECG") revenue increased $9,189,000, or 29%, on
the strength of a $4,030,000, or 41%, increase in network services revenue, a
$2,198,000, or 17%, increase in product revenue and a $2,961,000, or 35%,
increase in product support revenue. The increased network services revenue was
due to an increase in the network services customer base, primarily in the
hardlines, retail and grocery vertical markets, and increases in the network
processing volume for existing customers. ECG product revenue increased
primarily as a result of increased international software sales of
communications software products, but was partially
-11-
<PAGE>
offset by decreased domestic software sales of communications software products
due to strong sales of the former Systems Center products in the third quarter
of 1993, Systems Center's final quarter before the SCI Merger. ECG product
support revenue increased primarily as a result of an increase in the installed
customer base and price increases for some products. Federal Systems Group
("FSG") revenue increased $1,596,000, or 6%, due to higher contract billings in
the Information Technology, Scientific Systems and NASA Ames divisions. Revenue
from outside of the United States, which represented approximately 24% of the
Company's total revenue in the third quarters of 1994 and 1993, was negatively
impacted approximately $765,000 by changes in exchange rates during the third
quarter of 1994, as compared to the same period of 1993.
Total costs and expenses decreased $3,638,000, or 4%. Total cost of sales
decreased $3,303,000, or 7%, primarily due to a 40% decrease in Enterprise
Software Group's ("ESG") cost of sales as a result of decreased amortization of
software and due to decreased headcount; offset by a $607,000, or 3%, increase
in federal contract costs, commensurate with the increase in FSG revenue; and a
$849,000, or 11%, increase in ECG's cost of sales due to increased amortization
of capitalized software and due to increased costs, commensurate with the
increase in ECG revenue. Product development expense for the third quarter of
1994 of $8,831,000, net of $5,668,000 of costs capitalized pursuant to Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("FAS No. 86"), increased
$1,916,000, or 28%, compared to the third quarter of 1993 product development
expense of $6,915,000, net of $6,232,000 costs capitalized pursuant to FAS No.
86. The increase is due to increased gross product development expense, coupled
with a decrease in the capitalization of software development costs. Product
development expense and the capitalization rate may fluctuate from period to
period depending in part upon the number and status of software development
projects. Selling, general and administrative expense decreased $2,251,000, or
5%, primarily due to decreased headcount.
Income before extraordinary item and cumulative effect of an accounting
change increased $9,800,000, or 183%, primarily due to higher operating profits
in ECG, up 57%, and ESG, up 132%, partially offset by an increase in federal
income tax expense due to higher pretax profit. Also contributing to this
increase was a decrease of $422,000 in interest expense primarily for interest
accrued in the third quarter of 1993 on the unpaid dividends on previously
outstanding Systems Center Series A 9% Convertible Redeemable Preferred Stock
("Systems Center Preferred Stock"). Investment income decreased $350,000 due to
lower yields, despite higher average balances of interest bearing cash
equivalents and investments. Other income and expense includes foreign currency
exchange gains of approximately $390,000 in the third quarter of 1994 versus
foreign currency exchange losses of approximately $45,000 in the third quarter
of 1993.
Nine Months Ended June 30, 1994 and 1993
Effective with the SCI Merger, Sterling Software changed Systems Center's
fiscal year-end from December 31 to September 30, affecting the timing of sales
incentives and changing the revenue pattern for products previously marketed by
Systems Center. Accordingly, the Company believes that the revenue for the nine
months ended June 30, 1994 is not directly comparable to revenue for the nine
months ended June 30, 1993.
Revenue increased $37,025,000, or 12%, in the first nine months of 1994 over
the same period of 1993 due to increases in all three of the Company's markets.
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<PAGE>
ESG revenue increased $2,675,000, or 2%, due to increases in product revenue.
ECG revenue increased $28,490,000, or 34%, on the strength of a $11,226,000, or
42%, increase in network services revenue, a $9,135,000, or 28%, increase in
product revenue and a $8,129,000, or 34%, increase in product support revenue.
The increased network services revenue was due to an increase in the network
services customer base, primarily in the hardlines, retail and grocery vertical
markets, and increases in the network processing volume for existing customers.
ECG product revenue increased primarily as a result of increased worldwide
software sales of communications software, interchange software and banking
systems products. ECG product support revenue increased primarily as a result
of an increase in the installed customer base and price increases for some
products. FSG revenue increased $4,707,000, or 6%, primarily due to higher
contract billings in the Information Technology, Scientific Systems and NASA
Ames divisions. Revenue from outside of the United States, which represented
approximately 25% and 27% of the Company's total revenue in the first nine
months of 1994 and 1993, respectively, was negatively impacted approximately
$3,770,000 by changes in exchange rates during the first nine months of 1994, as
compared to the same period of 1993.
Total costs and expenses decreased $363,000. Total cost of sales decreased
$547,000, primarily due to a $8,080,000, or 26%, decrease in ESG's cost of
sales, due to decreased amortization of software and due to decreased headcount;
offset by a $2,573,000, or 4%, increase in federal contract costs, commensurate
with the increase in FSG revenue; and a $5,145,000, or 24%, increase in ECG's
cost of sales due to increased amortization of capitalized software and due to
increased costs, commensurate with the increase in ECG revenue. Product
development expense for the first nine months of 1994 of $23,439,000, net of
$14,984,000 of costs capitalized pursuant to FAS No. 86, increased $3,960,000,
or 20%, compared to the first nine months of 1993 product development expense of
$19,479,000, net of $18,507,000 of costs capitalized pursuant to FAS No. 86.
The increase is primarily due to the decrease in capitalization of software
development costs and, to a lesser extent, to increased gross product
development expense. Product development expense and the capitalization rate
may fluctuate from period to period depending in part upon the number and status
of software development projects. Selling, general and administrative expense
decreased $3,775,000, or 3%, primarily due to decreased headcount.
Income before extraordinary item and cumulative effect of an accounting
change increased $24,247,000, or 159%, primarily due to higher operating profits
in ECG, up 97%, and ESG, up 69%, partially offset by an increase in federal
income tax expense due to higher pretax profit. Also contributing to this
increase was a decrease of $1,144,000 in interest expense primarily for interest
accrued in the first nine months of 1993 on the unpaid dividends on previously
outstanding Systems Center Preferred Stock. Investment income decreased
$330,000 due to lower yields, despite higher average balances of interest
bearing cash equivalents and investments. Other income and expense includes
foreign currency exchange gains of approximately $735,000 in the first nine
months of 1994 versus foreign currency exchange losses of approximately $128,000
in the first nine months of 1993.
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" as of
October 1, 1992 and recorded a charge of $2,774,000, net of related income tax
benefit of $1,813,000. This charge is
-13-
<PAGE>
shown as the cumulative effect of a change in accounting principle. See Note 6
to the Consolidated Financial Statements.
Liquidity and Capital Resources
The Company maintained a strong liquidity and financial position with
$124,939,000 of working capital at June 30, 1994, which includes $106,865,000 of
cash and equivalents and $34,710,000 of marketable securities. Net cash flows
from operations increased $18,864,000 in the first nine months of 1994 as
compared to the first nine months of 1993 primarily due to higher operating
profits before noncash charges. Cash flows from operations and available cash
balances were used to fund operations and capital expenditures, including
software additions.
Cash equivalents consist primarily of highly liquid investments in repurchase
agreements backed by U.S. Treasury securities and investment-grade commercial
paper of various issuers, with maturities of three months or less when
purchased. The Company invests excess cash in a diversified portfolio
consisting of a variety of securities of both domestic and foreign issuers
including medium term notes, U.S. government obligations, investment fund
partnerships and certificates of deposit, which may include both investment
grade and non-investment grade securities. All marketable securities and long-
term investments are classified as available-for-sale securities. Securities
totaling $7,728,000 that the Company intends to hold for more than one year are
included in "Other Assets."
During the first nine months of 1994, software expenditures, the majority of
which were costs capitalized pursuant to FAS No. 86, were $16,609,000 compared
to $19,243,000 in the first nine months of 1993. ECG represented $9,626,000 of
the total software expenditures during the first nine months of 1994, primarily
for enhancements of communications software products, interchange software
products and costs to add new network services features. ESG represented
$6,983,000 of the total software expenditures during the first nine months of
1994, primarily for the development of systems management, storage management
and applications management products and product enhancements. Property and
equipment purchases of $12,641,000 in the first nine months of 1994 include
purchases made in ECG for equipment upgrades for network processing systems and
computer equipment purchases to support the continuing growth in ECG. ESG's and
FSG's property and equipment additions were primarily computer equipment
purchases. Property and equipment purchases were $8,586,000 in the first nine
months of 1993. Net proceeds of $13,974,000 from sales of marketable securities
and long term investments in the first nine months of 1994 were reinvested in
cash equivalents.
At June 30, 1994, after the utilization of $2 million for standby letters of
credit, $33 million was available for borrowing on the Company's $35 million
revolving credit and term loan agreement ("Loan Agreement"). Borrowings, if
any, outstanding on December 31, 1994 will be payable in eight equal quarterly
payments. There were no amounts borrowed or outstanding on the Loan Agreement
during the nine months ended June 30, 1994; however, the Company's international
operations borrowed $17,597,000 during the first nine months of 1994 on separate
lines of credit, primarily for foreign exchange exposure management and working
capital requirements. Payments of $11,894,000 were made during the first nine
months of 1994 on these lines of credit. Other debt payments related to capital
leases.
-14-
<PAGE>
Proceeds from the exercise of stock options and warrants were $21,119,000
during the first nine months of 1994, compared to $4,163,000 during the first
nine months of 1993.
Effective July 31,1994, the Company entered into an Agreement and Plan of
Merger providing for a business combination of the Company and KnowledgeWare,
Inc., a software and services company based in Atlanta, Georgia which designs,
develops, markets and supports application development tools, business process
reengineering products, data access and warehousing software and sercices, in a
merger to be accounted for as a pooling of interests. See Note 3 to the
Consolidated Financial Statements.
Effective August 1, 1994, the Company acquired the outstanding common stock
of American Business Computer Company, a provider of UNIX-based electronic data
interchange software, in a merger to be accounted for as a pooling of interests.
The Company issued approximately 300,000 shares of Common Stock as a result of
the transaction.
At June 30, 1994, the Company's capital resource commitments consisted of
commitments under lease arrangements for office space and equipment. The Company
intends to meet such obligations primarily from internally generated funds. No
significant commitments exist for future capital expenditures. The Company
believes available balances of cash, cash equivalents and marketable securities
combined with cash flows from operations and amounts available under credit and
term loan agreements are sufficient to meet the Company's cash requirements for
the foreseeable future.
Other Matters
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("FAS No. 112"), which requires employers to recognize
the cost of postemployment benefits on an accrual basis, if certain defined
conditions are met. Postemployment benefits are all types of benefits provided
to former or inactive employees, their beneficiaries, and covered dependents.
The Company will be subject to the provisions of FAS No. 112 beginning in the
fiscal year ending September 30, 1995. However, the Company does not believe
the provisions of FAS No. 112 will have significant impact on the Company's
financial position and results of operations in the year of adoption, as the
majority of the postemployment benefits are a result of certain employment
contracts. Payments under these contracts are contingent upon future events,
the occurrence of which is not presently contemplated.
-15-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this Quarterly Report on
Form 10-Q:
<TABLE>
<S> <C>
2(a) - Agreement and Plan of Merger dated as of March
31, 1993 among the Company, Systems Center,
Inc. and SSI Acquisition Corporation
("Agreement and Plan of Merger") (1)
2(b) - First Amendment to Agreement and Plan of Merger(11)
2(c) - Agreement and Plan of Merger dated as of July
31, 1994, among the Company, KnowledgeWare,
Inc. and SSI Corporation (2)
4(a) - Certificate of Incorporation of the Company (3)
4(b) - Certificate of Amendment of Certificate of
Incorporation of the Company (11)
4(c) - Certificate of Amendment of Certificate of
Incorporation of the Company (4)
4(d) - Restated Bylaws of the Company (5)
4(e) - Form of Common Stock Certificate (6)
4(f) - Form of Certificate of Designation,
Preferences, Rights and Limitations with
respect to Series B Junior Preferred Stock (11)
4(g) - Form of Indenture between the Company and Bank
of America Texas, National Association, as
Trustee, including the form of 5 3/4%
Convertible Subordinated Debenture attached as
Exhibit A thereto (7)
4(h) - Preferred Stock and Warrant Purchase Agreement
dated June 25, 1991 among Systems Center, Inc.
and the Investors named therein (8)
10(a) - Stock Option Agreement dated as of July 31,
1994 between the Company and KnowledgeWare,
Inc. (2)
10(b) - Form of Stockholder Agreement dated as of July
31, 1994 between the Company and certain
stockholders of KnowledgeWare, Inc. (16)
10(c) - Amended Incentive Stock Option Plan of the
Company (16)
10(d) - Amended Non-Statutory Stock Option Plan of the
Company (16)
10(e) - Supplemental Executive Retirement Plan II of
Informatics General Corporation (11)
10(f) - Form of Supplemental Executive Retirement Plan
II Agreement (the "SERP II Agreement") (11)
10(g) - Amendment to SERP II Agreement (11)
10(h) - Form of Employment Agreement with Jeannette P.
Meier, George H. Ellis and Phillip A. Moore (11)
10(i) - Form of Amendment No. 1 to Employment Agreement
with Jeannette P. Meier, George H. Ellis and
Phillip A. Moore (11)
10(j) - Employment Agreement with Sam Wyly (11)
10(k) - Employment Agreement with Charles J. Wyly, Jr. (11)
10(l) - Employment Agreement with Sterling L. Williams (11)
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C>
10(m) - Form of Amendment No. 1 to Employment Agreement
with Charles J. Wyly, Jr. and Sterling L. Williams (11)
10(n) - Amendment No. 1 to Employment Agreement with Sam Wyly (11)
10(o) - Amendment No. 2 to Employment Agreement with Sam Wyly (11)
10(p) - Consultation Agreement with REC Enterprises, Inc. (11)
10(q) - Employment Agreement with William D. Plumb (11)
10(r) - Employment Agreement with William D. Plumb (11)
10(s) - Form of Employment Agreement with Edward J.
Lott, Warner C. Blow, Werner L. Frank and Geno
P. Tolari (11)
10(t) - Employment Agreement with Sterling L. Williams (1)
10(u) - Form of Employment Agreement with Jeannette P.
Meier, George H. Ellis, Phillip A. Moore,
Warner C. Blow and Geno P. Tolari (1)
10(v) - Employment Agreement with Werner L. Frank (1)
10(w) - Form of Series B Warrant Agreement (11)
10(x) - Form of Amendment to Series B Warrant Agreement
(January 1988) (11)
10(y) - Form of Amendment to Series B Warrant Agreement
(May 1989) (11)
10(z) - Form of Series E Warrant Agreement (11)
10(aa) - Form of Amendment to Series E Warrant Agreement
(May 1989) (11)
10(bb) - Form of Series F Warrant Agreement (11)
10(cc) - Form of Amendment to Series F Warrant Agreement
(May 1989) (11)
10(dd) - Amended and Restated Revolving Credit and Term
Loan Agreement dated June 8, 1990 between the
Company and The First National Bank of Boston
and BankOne Texas N.A. ("Loan Agreement") (11)
10(ee) - First Amendment to Loan Agreement dated as of
October 16, 1990 (11)
10(ff) - Second Amendment to Loan Agreement dated as of
September 19, 1991 (11)
10(gg) - Third Amendment to Loan Agreement dated as of
December 31, 1991 (11)
10(hh) - Fourth Amendment to Loan Agreement dated as of
June 15, 1992 (11)
10(ii) - Fifth Amendment to Loan Agreement dated as of
July 31, 1992 (11)
10(jj) - Sixth Amendment to Loan Agreement dated as of
August 31, 1992 (11)
10(kk) - Seventh Amendment to Loan Agreement dated as of
September 9, 1992 (11)
10(ll) - Eighth Amendment to Loan Agreement dated as of
September 30, 1992 (11)
10(mm) - Ninth Amendment to Loan Agreement dated as of
October 13, 1992 (11)
10(nn) - Tenth Amendment to Loan Agreement dated as of
December 17, 1992 (1)
10(oo) - Form of Eleventh Amendment to Loan Agreement
dated as of March 29, 1993 (11)
10(pp) - Twelfth Amendment to Loan Agreement dated as of
June 30, 1993 (11)
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10(qq) - Form of Thirteenth Amendment to Loan Agreement
dated as of November 10, 1993 (11)
10(rr) - Form of Fourteenth Amendment to Loan Agreement
dated as of November 22, 1993 (11)
10(ss) - Fifteenth Amendment to Loan Agreement dated as
of December 21, 1993 (12)
10(tt) - Sixteenth Amendment to Loan Agreement dated as
of December 30, 1993 (12)
10(uu) - Seventeenth Amendment to Loan Agreement dated
as of January 31, 1994 (12)
10(vv) - Eighteenth Amendment to Loan Agreement dated as
of March 15, 1994 (13)
10(ww) - Nineteenth Amendment to Loan Agreement dated as
of May 17, 1994 (16)
10(xx) - 1992 Executive Compensation Plan for Group
Presidents (11)
10(yy) - 1993 Executive Compensation Plan for Group
Presidents (1)
10(zz) - 1994 Executive Compensation Plan for Group
Presidents (11)
10(aaa) - Form of Series G Warrant Agreement (11)
10(bbb) - Amended 1992 Non-Statutory Stock Option Plan
(14)
10(ccc) - 1994 Non-Statutory Stock Option Plan (15)
10(ddd) - Form of Indemnity Agreement between the Company
and each of its directors and officers (11)
10(eee) - Systems Center, Inc. Restated and Amended
Restricted Stock Plan (9)
10(fff) - Systems Center, Inc. Amended and Restated
Nondiscretionary Restricted Stock Plan (9)
10(ggg) - Systems Center, Inc. 1982 Stock Option Plan (9)
10(hhh) - Systems Center, Inc. 1992 Stock Incentive Plan (9)
10(iii) - Systems Center, Inc. 1983 Stock Plan (9)
10(jjj) - Systems Center, Inc. Share Option Scheme (9)
10(kkk) - Registration Rights Agreement dated as of July
1, 1993 among the Company and the Selling
Stockholders (10)
11(a) - Computation of Earnings Per Share, Three Months
Ended June 30, 1994 (16)
11(b) - Computation of Earnings Per Share, Three Months
Ended June 30, 1993 (16)
11(c) - Computation of Earnings Per Share, Nine Months
Ended June 30, 1994 (16)
11(d) - Computation of Earnings Per Share, Nine Months
Ended June 30, 1993 (16)
15 - None
18 - None
19 - None
22 - None
23 - None
24 - None
27 - None
</TABLE>
-18-
<PAGE>
<TABLE>
<S> <C>
99 - None
</TABLE>
(b) Reports on Form 8-K.
On August 2, 1994, the Company filed a Current Report on Form 8-K
dated July 31, 1994, with respect to Item 5 and Item 7 of said form, which
report related to a definitive Agreement and Plan of Merger with KnowledgeWare,
Inc., pursuant to which the Company will acquire KnowledgeWare, Inc.
On August 2, 1994, the Company filed a Current Report on Form 8-K
dated August 1, 1994, with respect to Item 5 and Item 7 of said form, which
report related to the Company's acquisition of American Business Computer
Company.
- - -------------
(1) Previously filed as an exhibit to the Company's Registration Statement No.
33-62028 on Form S-4 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated July 31, 1994, filed August 2, 1994.
(3) Previously filed as an exhibit to the Company's Registration Statement No.
2-82506 on Form S-1 and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Registration Statement No.
33-69926 on Form S-8 and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement No.
33-47131 on Form S-8 and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Registration Statement No.
2-86825 on Form S-1 and incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Registration Statement No.
33-57428 on Form S-3 and incorporated herein by reference.
(8) Previously filed as an exhibit to the Quarterly Report on Form 10-Q of
Systems Center, Inc. for the quarter ended June 30, 1991 and incorporated
herein by reference.
(9) Previously filed as an exhibit to the Company's Registration Statement No.
33-65402 on Form S-8 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Registration Statement No.
33-71706 on Form S-3 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993 and incorporated herein by
reference.
(12) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1993 and incorporated herein by
reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994 and incorporated herein by
reference.
(14) Previously filed as an exhibit to the Company's Registration Statement No.
33-53831 on Form S-3 and incorporated herein by reference.
(15) Previously filed as an exhibit to the Company's Registration Statement No.
33-53837 on Form S-3 and incorporated herein by reference.
(16) Filed herewith.
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<PAGE>
SIGNATURES
Pursuant to the requirements 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.
STERLING SOFTWARE, INC.
Date: August 8, 1994 /s/ Sterling L. Williams
--------------------------------------
Sterling L. Williams
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: August 8, 1994 /s/ George H. Ellis
--------------------------------------
George H. Ellis
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-20-
<PAGE>
EXHIBIT INDEX
-----------------
Sequentially
Exhibit Numbered
No. Description Page
- - ------- -------------------------------------------------------- ------------
2(a) - Agreement and Plan of Merger dated as of March 31, 1993
among the Company, Systems Center, Inc. and SSI
Acquisition Corporation ("Agreement and Plan of
Merger") (1)
2(b) - First Amendment to Agreement and Plan of Merger (11)
2(c) - Agreement and Plan of Merger dated as of July 31, 1994,
among the Company, KnowledgeWare, Inc. and SSI
Corporation (2)
4(a) - Certificate of Incorporation of the Company (3)
4(b) - Certificate of Amendment of Certificate of Incorporation
of the Company (11)
4(c) - Certificate of Amendment of Certificate of Incorporation
of the Company (4)
4(d) - Restated Bylaws of the Company (5)
4(e) - Form of Common Stock Certificate (6)
4(f) - Form of Certificate of Designation, Preferences, Rights
and Limitations with respect to Series B Junior
Preferred Stock (11)
4(g) - Form of Indenture between the Company and Bank of America
Texas, National Association, as Trustee, including the
form of 5 3/4% Convertible Subordinated Debenture
attached as Exhibit A thereto (7)
4(h) - Preferred Stock and Warrant Purchase Agreement dated June
25, 1991 among Systems Center, Inc. and the Investors
named therein (8)
10(a) - Stock Option Agreement dated as of July 31, 1994 between
the Company and KnowledgeWare, Inc. (2)
10(b) - Form of Stockholder Agreement dated as of July 31, 1994
between the Company and certain stockholders of
KnowledgeWare, Inc. (16)
10(c) - Amended Incentive Stock Option Plan of the Company (16)
10(d) - Amended Non-Statutory Stock Option Plan of the
Company (16)
10(e) - Supplemental Executive Retirement Plan II of Informatics
General Corporation (11)
10(f) - Form of Supplemental Executive Retirement Plan II
Agreement (the "SERP II Agreement") (11)
10(g) - Amendment to SERP II Agreement (11)
10(h) - Form of Employment Agreement with Jeannette P. Meier,
George H. Ellis and Phillip A. Moore (11)
10(i) - Form of Amendment No. 1 to Employment Agreement with
Jeannette P. Meier, George H. Ellis and Phillip A.
Moore (11)
10(j) - Employment Agreement with Sam Wyly (11)
10(k) - Employment Agreement with Charles J. Wyly, Jr. (11)
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<PAGE>
10(l) - Employment Agreement with Sterling L. Williams (11)
10(m) - Form of Amendment No. 1 to Employment Agreement with
Charles J. Wyly, Jr. and Sterling L. Williams (11)
10(n) - Amendment No. 1 to Employment Agreement with Sam
Wyly (11)
10(o) - Amendment No. 2 to Employment Agreement with Sam
Wyly (11)
10(p) - Consultation Agreement with REC Enterprises, Inc. (11)
10(q) - Employment Agreement with William D. Plumb (11)
10(r) - Employment Agreement with William D. Plumb (11)
10(s) - Form of Employment Agreement with Edward J. Lott,
Warner C. Blow, Werner L. Frank and Geno P. Tolari (11)
10(t) - Employment Agreement with Sterling L. Williams (1)
10(u) - Form of Employment Agreement with Jeannette P. Meier,
George H. Ellis, Phillip A. Moore, Warner C. Blow and
Geno P. Tolari (1)
10(v) - Employment Agreement with Werner L. Frank (1)
10(w) - Form of Series B Warrant Agreement (11)
10(x) - Form of Amendment to Series B Warrant Agreement (January
1988) (11)
10(y) - Form of Amendment to Series B Warrant Agreement (May
1989) (11)
10(z) - Form of Series E Warrant Agreement (11)
10(aa) - Form of Amendment to Series E Warrant Agreement (May
1989) (11)
10(bb) - Form of Series F Warrant Agreement (11)
10(cc) - Form of Amendment to Series F Warrant Agreement (May
1989) (11)
10(dd) - Amended and Restated Revolving Credit and Term Loan
Agreement dated June 8, 1990 between the Company and The
First National Bank of Boston and BankOne Texas N.A.
("Loan Agreement") (11)
10(ee) - First Amendment to Loan Agreement dated as of October
16, 1990 (11)
10(ff) - Second Amendment to Loan Agreement dated as of September
19, 1991 (11)
10(gg) - Third Amendment to Loan Agreement dated as of December
31, 1991 (11)
10(hh) - Fourth Amendment to Loan Agreement dated as of June 15,
1992 (11)
10(ii) - Fifth Amendment to Loan Agreement dated as of July 31,
1992 (11)
10(jj) - Sixth Amendment to Loan Agreement dated as of August 31,
1992 (11)
10(kk) - Seventh Amendment to Loan Agreement dated as of
September 9, 1992 (11)
10(ll) - Eighth Amendment to Loan Agreement dated as of September
30, 1992 (11)
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<PAGE>
10(mm) - Ninth Amendment to Loan Agreement dated as of October
13, 1992 (11)
10(nn) - Tenth Amendment to Loan Agreement dated as of December
17, 1992 (1)
10(oo) - Form of Eleventh Amendment to Loan Agreement dated as
of March 29, 1993 (11)
10(pp) - Twelfth Amendment to Loan Agreement dated as of June 30,
1993 (11)
10(qq) - Form of Thirteenth Amendment to Loan Agreement dated as
of November 10, 1993 (11)
10(rr) - Form of Fourteenth Amendment to Loan Agreement dated as
of November 22, 1993 (11)
10(ss) - Fifteenth Amendment to Loan Agreement dated as of
December 21, 1993 (12)
10(tt) - Sixteenth Amendment to Loan Agreement dated as of
December 30, 1993 (12)
10(uu) - Seventeenth Amendment to Loan Agreement dated as of
January 31, 1994 (12)
10(vv) - Eighteenth Amendment to Loan Agreement dated as of
March 15, 1994 (13)
10(ww) - Nineteenth Amendment to Loan Agreement dated as of
May 17, 1994 (16)
10(xx) - 1992 Executive Compensation Plan for Group Presidents
(11)
10(yy) - 1993 Executive Compensation Plan for Group Presidents
(1)
10(zz) - 1994 Executive Compensation Plan for Group Presidents
(11)
10(aaa) - Form of Series G Warrant Agreement (11)
10(bbb) - Amended 1992 Non-Statutory Stock Option Plan (14)
10(ccc) - 1994 Non-Statutory Stock Option Plan (15)
10(ddd) - Form of Indemnity Agreement between the Company and each
of its directors and officers (11)
10(eee) - Systems Center, Inc. Restated and Amended Restricted
Stock Plan (9)
10(fff) - Systems Center, Inc. Amended and Restated
Nondiscretionary Restricted Stock Plan (9)
10(ggg) - Systems Center, Inc. 1982 Stock Option Plan (9)
10(hhh) - Systems Center, Inc. 1992 Stock Incentive Plan (9)
10(iii) - Systems Center, Inc. 1983 Stock Plan (9)
10(jjj) - Systems Center, Inc. Share Option Scheme (9)
10(kkk) - Registration Rights Agreement dated as of July 1, 1993
among the Company and the Selling Stockholders (10)
11(a) - Computation of Earnings Per Share, Three Months Ended
June 30, 1994 (16)
11(b) - Computation of Earnings Per Share, Three Months Ended
June 30, 1993 (16)
11(c) - Computation of Earnings Per Share, Nine Months Ended
June 30, 1994 (16)
-23-
<PAGE>
11(d) - Computation of Earnings Per Share, Nine Months Ended
June 30, 1993 (16)
15 - None
18 - None
19 - None
22 - None
23 - None
24 - None
27 - None
99 - None
- - -----------
(1) Previously filed as an exhibit to the Company's Registration Statement No.
33-62028 on Form S-4 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated July 31, 1994, filed August 2, 1994.
(3) Previously filed as an exhibit to the Company's Registration Statement No.
2-82506 on Form S-1 and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Registration Statement No.
33-69926 on Form S-8 and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement No.
33-47131 on Form S-8 and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Registration Statement No.
2-86825 on Form S-1 and incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Registration Statement No.
33-57428 on Form S-3 and incorporated herein by reference.
(8) Previously filed as an exhibit to the Quarterly Report on Form 10-Q of
Systems Center, Inc. for the quarter ended June 30, 1991 and incorporated
herein by reference.
(9) Previously filed as an exhibit to the Company's Registration Statement No.
33-65402 on Form S-8 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Registration Statement No.
33-71706 on Form S-3 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993 and incorporated herein by
reference.
(12) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1993 and incorporated herein by
reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994 and incorporated herein by
reference.
(14) Previously filed as an exhibit to the Company's Registration Statement No.
33-53831 on Form S-3 and incorporated herein by reference.
(15) Previously filed as an exhibit to the Company's Registration Statement No.
33-53837 on Form S-3 and incorporated herein by reference.
(16) Filed herewith.
-24-
<PAGE>
Exhibit 10(b)
STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT (this "Agreement") is dated as of July 31, 1994,
by and between Sterling Software, Inc., a Delaware corporation (the "Buyer"),
and the stockholder listed on the signature page hereof (the "Stockholder").
WHEREAS, the Stockholder, as of the date hereof, is the owner of the
respective number of shares (the "Shares") of Common Stock, no par value (the
"Common Stock"), of KnowledgeWare, Inc., a Georgia corporation (the
"Corporation") set forth below the name of the Stockholder on the signature page
hereof;
WHEREAS, in reliance in part upon the execution and delivery of this
Agreement, the Buyer and SSI Corporation, a Georgia corporation and a wholly-
owned subsidiary of the Buyer ("Merger Sub"), will enter into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement;" capitalized
terms not defined herein shall have the meanings set forth in the Merger
Agreement), with the Corporation which provides that, among other things, upon
the terms and subject to the conditions thereof Merger Sub will be merged with
and into the Corporation, with the Corporation continuing as the surviving
corporation and a wholly-owned subsidiary of the Buyer (the "Merger"), and each
outstanding share of Common Stock, including the Shares, will, by reason of the
Merger, be converted into a fraction of a share of the Buyer's common stock, par
value $.10 per share (the "Buyer Common Stock"), that is equal to the Exchange
Ratio (subject to the provisions of the Merger Agreement);
WHEREAS, in reliance upon the execution and delivery of this Agreement, the
Buyer will enter into a Stock Option Agreement, dated as of the date hereof (the
"Stock Option Agreement"), with the Corporation pursuant to which the
Corporation has granted to the Buyer an option to acquire shares of Common Stock
upon the occurrence of certain events; and
WHEREAS, to induce the Buyer to enter into the Merger Agreement and the
Stock Option Agreement and to incur the obligations set forth therein, the
Stockholder is entering into this Agreement pursuant to which the Stockholder
agrees to vote in favor of the Merger and certain other matters as set forth
herein, and to make certain agreements with respect to the Shares upon the terms
and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreement set forth herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
Section 1. Voting of Shares; Irrevocable Proxy. The Stockholder agrees
that until the earlier of (i) the Effective Time and (ii) the termination of the
Merger Agreement (the earlier of such dates being hereinafter referred to as the
"Expiration Date"), the Stockholder shall vote all Shares owned by the
Stockholder at any meeting of the Corporation's stockholders (whether annual or
special and whether or not an adjourned or postponed meeting), or, if
applicable, take
<PAGE>
action by written consent (x) for adoption of the Merger Agreement and in favor
of the Merger and any other transaction contemplated by the Merger Agreement, as
such Merger Agreement may be modified or amended from time to time (but not to
reduce the Exchange Ratio), (y) against any action, omission or agreement which
would impede or interfere with, or have the effect of discouraging, the Merger,
including, without limitation, any Acquisition Proposal other than the Merger,
and (z) in favor of all nominees in the Corporation's slate of directors
nominated for election by a majority of the Corporation's non-management
directors. Any such vote shall be cast or consent shall be given in accordance
with such procedures relating thereto as shall ensure that it is duly counted
for purposes of determining that a quorum is present and for purposes of
recording the results of such vote or consent.
In the event that the Stockholder shall fail to comply with the provisions
of this Section 1 (as determined by the Buyer in its sole discretion), the
Stockholder hereby agrees that such failure shall result, without any further
action by the Stockholder, in the irrevocable appointment of the Buyer, until
termination of the Merger Agreement, as its attorney and proxy with full power
of substitution, to vote and otherwise act (by written consent or otherwise)
with respect to the Shares which the Stockholder is entitled to vote at any
meeting of stockholders of the Corporation (whether annual or special and
whether or not an adjourned or postponed meeting) or consent in lieu of any such
meeting or otherwise, on the matters and in the manner specified in Section 1
above. THE STOCKHOLDER ACKNOWLEDGES THAT THIS PROXY IS COUPLED WITH AN
INTEREST, AND CONSTITUTES, AMONG OTHER THINGS, AN INDUCEMENT FOR THE BUYER TO
ENTER INTO THE MERGER AGREEMENT, IS IRREVOCABLE AND SHALL NOT BE TERMINATED BY
OPERATION OF LAW UPON THE OCCURRENCE OF ANY EVENT, INCLUDING, WITHOUT
LIMITATION, THE DEATH OR INCAPACITY OF THE STOCKHOLDER. Notwithstanding any
provision contained in such proxy, such proxy shall terminate upon the
Expiration Date.
Section 2. Covenants of the Stockholder. The Stockholder covenants and
agrees for the benefit of the Buyer that, until the Expiration Date, it:
(a) will not sell, transfer, pledge, hypothecate, encumber, assign,
tender or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, pledge,
hypothecation, encumbrance, assignment, tender or other disposition of (any
one or more of which, a "Transfer"), any of the Shares owned by it unless,
in connection with such Transfer, the transferee executes a counterpart of
this Agreement agreeing to be bound by the terms hereof;
(b) will, other than as expressly contemplated by this Agreement, not
grant any powers of attorney or proxies or consents in respect of any of
the Shares owned by it, deposit any of the Shares owned by it into a voting
trust, enter into a voting agreement with respect to any of the Shares
owned by it or otherwise restrict the ability of the holder of any of the
Shares owned by it freely to exercise all voting rights with respect
thereto except for powers of attorney granted in the ordinary course
consistent with the terms of the Merger Agreement;
2
<PAGE>
(c) will not take any action which, if taken by the Corporation,
would be prohibited by Section 7.1 of the Merger Agreement;
(d) will not take any action whatsoever that would prevent the Merger
from qualifying for "pooling of interests" accounting treatment;
(e) will use its best efforts to take, or cause to be taken, all
action, and do, or cause to be done, all things necessary or advisable in
order to consummate and make effective the transactions contemplated by
this Agreement including, without limitation, to enter into an affiliate's
letter substantially in the form of Annex A hereto; provided however, if
-------
the Stockholder is a director of the Corporation the provisions of this
paragraph (e) are subject to the fiduciary duties such Stockholder has to
the Corporation as a member of the Board of Directors; and
(f) will not exercise any appraisal or dissenter's rights, if any,
with respect to the Shares.
Section 3. Covenants of the Buyer. The Buyer covenants and agrees for
the benefit of the Stockholder that (a) immediately upon execution of this
Agreement, the Buyer shall enter, and cause Merger Sub to enter, into the Merger
Agreement, and (b) until the Expiration Date, it shall use its best efforts to
take, or cause to be taken, all action, and do, or cause to be done, all things
necessary or advisable in order to consummate and make effective the
transactions contemplated by this Agreement and the Merger Agreement, consistent
with the terms and conditions of each such agreement.
Section 4. Representations and Warranties of the Stockholder. The
Stockholder represents and warrants to the Buyer that: (a) if applicable, the
Stockholder is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; (b) the execution,
delivery and performance by the Stockholder of this Agreement will not conflict
with, require a consent, waiver or approval under, or result in a breach or a
default under, its Certificate of Incorporation or By-laws (if applicable), or
any of the terms of any contract, commitment or other obligations (written or
oral) to which the Stockholder is bound, which breach would result in a material
adverse effect on the Stockholder; (c) this Agreement has been duly executed and
delivered by the Stockholder and constitutes a valid and binding obligation of
the Stockholder, enforceable against the Stockholder in accordance with its
terms; (d) if applicable, the execution, delivery and performance of this
Agreement and the consummation by it of the transactions contemplated hereby
have been approved by all necessary corporate action on its part; (e) other than
as set forth herein, the Stockholder has not entered into an irrevocable proxy
with respect to the Shares.
The representations and warranties contained herein shall be made as of the
date hereof and as of each date from the date hereof through and including the
Closing.
3
<PAGE>
Section 5. Adjustments; Additional Shares. In the event (i) of any stock
dividend, stock split, recapitalization, reclassification, combination or
exchange of shares of capital stock of the Corporation on, of or affecting the
Shares, or (ii) the Stockholder shall acquire voting rights with respect to any
additional shares of Common Stock or other securities of the Corporation,
including any securities entitling the holder hereof to vote or give consent
with respect to the matters set forth in Section 1 hereof but excluding shares
of Common Stock of the Corporation as to which the holders thereof have granted
revocable proxies to the Stockholder in connection with the shareholders meeting
of the Corporation contemplated by Section 7.4 of the Merger Agreement, then the
terms of this Agreement shall apply to the shares of capital stock held by the
Stockholder immediately following the effectiveness of the events described in
clause (i) or the Stockholder becoming the beneficial owner thereof, as
described in clause (ii), as though they were Shares hereunder. As soon as
practicable after the receipt of such other capital stock or securities, the
Stockholder shall surrender to the Corporation all certificates or instruments
representing such for the purpose of affixing the legend set forth in Section 6
hereof.
Section 6. Specific Performance. The Stockholder acknowledges that the
agreements contained in this Agreement are an integral part of the transactions
contemplated by the Merger Agreement and the Stock Option Agreement and that,
without these agreements, the Buyer and Merger Sub would not enter into the
Merger Agreement or the Stock Option Agreement, and acknowledges that damages
would be an inadequate remedy for any breach by it of the provisions of this
Agreement. Accordingly, the Stockholder and the Buyer each agree that the
obligations of the parties hereunder shall be specifically enforceable and
neither party shall take any action to impede the other from seeking to enforce
such right of specific performance. Both parties further agree to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
Section 7. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by overnight
courier, by delivering the same in person, by telecopy (with confirmation), or
by registered or certified mail (return receipt requested) to the Stockholder at
the address listed on the signature page hereof, with a copy to Hicks, Maloof &
Campbell, Suite 2200, Marquis Two Tower, 285 Peachtree Center Avenue, N.E.,
Atlanta, Georgia 30303, Attention: Maurice N. Maloof, facsimile number (404)
420-7474, and to the Buyer at 8080 N. Central Expressway, Suite 1100, Dallas,
Texas 75206, Attention: President, facsimile number (214) 750-0905, with a copy
to Jackson & Walker, L.L.P., 901 Main Street, Suite 6000, Dallas, Texas 75202,
Attention: Charles D. Maguire, Jr., Facsimile number (214) 953-5822, or to such
other address as any party may have furnished to the other in writing in
accordance herewith. Any such notice shall be deemed delivered and received on
the date on which it is received if sent by overnight courier, hand-delivered or
telecopy, or on the fifth business day following the date on which it is so
mailed.
4
<PAGE>
Section 8. Binding Effect; Survival. Upon execution and delivery of this
Agreement by the Buyer, this Agreement shall become effective as to the
Stockholder at the time the Stockholder executes and delivers this Agreement.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, personal representatives, successors and
assigns.
Section 9. Assignment. The Buyer may, without the consent of the
Stockholder, assign its rights hereunder to any direct or indirect wholly owned
subsidiary of the Buyer, provided that any such assignment shall not affect the
obligations of the Buyer hereunder.
Section 10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws.
Section 11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
Section 12. Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction hereof.
Section 13. Additional Agreements; Further Assurance. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to use
all reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement. The Stockholder
will provide the Buyer with all documents which may reasonably be requested by
the Buyer and will take reasonable steps to enable the Buyer to obtain all
rights and benefits provided it hereunder.
Section 14. Amendment; Waiver. No amendment or waiver of any provision of
this Agreement or consent to departure therefrom shall be effective unless in
writing and signed by the Buyer and the Stockholder, in the case of an
amendment, or by the party which is the beneficiary of any such provision, in
the case of waiver or a consent to departure therefrom.
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto all as of the day and year first above written.
STERLING SOFTWARE, INC.
By:____________________________
Name:__________________________
Title:_________________________
STOCKHOLDER:
- - -----------
By:_______________________________
Name:____________________________
Title:___________________________
Address:
Number of Shares:
6
<PAGE>
EXHIBIT 10(c)
STERLING SOFTWARE, INC.
INCENTIVE STOCK OPTION PLAN
(As amended, through July 28, 1994)
1. Purpose. The purpose of the Incentive Stock Option Plan of Sterling
Software, Inc. (the "Plan") is to provide key employees with a proprietary
interest in Sterling Software, Inc., a Delaware corporation, and its
subsidiaries (the "Company") through the granting of options ("Option" or
"Options") to purchase shares of the Company's authorized Common Stock, par
value $0.10 per share ("Common Stock"), in order to:
a. Increase the interest in the Company's welfare of those key
employees who share primary responsibility for the management, growth and
protection of the business of the Company;
b. Furnish an incentive to such employees to continue their services
for the Company; and
c. Provide a means through which the Company may attract able persons
to enter its employment.
It is intended that Options issued pursuant to this Plan shall constitute
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986.
With respect to persons subject to Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent that any provision of the Plan
or action of the Committee (as defined in Section 2) fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board of Directors" or "Board") or by a Stock
Option Committee (the "Stock Option Committee") consisting of such number of
directors as are appointed by the Board from time to time in accordance with the
requirements of Rule 16b-3. As used herein, "Committee" shall mean the Board or
the duly appointed Stock Option Committee, as applicable. No member of the
Committee shall take any action with respect to Options granted to such member.
The Board of Directors shall choose an additional member or members of the Board
to serve on the Committee for the sole purpose of making decisions pursuant to
the Plan with regard to the member of the Committee receiving the Options.
Except as otherwise provided by the terms of this Plan or by the Board, the
Committee shall have all the power and authority of the Board hereunder.
The Committee shall have full and final authority in its discretion, but
subject to the provisions of the Plan, to determine from time to time the
individuals to whom Options shall be granted and the number of shares to be
covered by each Option; to determine the time or times at which Options shall be
granted; to interpret the Plan and the instruments by which Options will be
evidenced; to make, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the instruments by which Options
shall be evidenced; with the consent of the Participant (as defined in Section
3), to modify or amend any Option agreement or waive any conditions or
restrictions applicable to any Option or the exercise thereof; and to make all
other determinations necessary or advisable for the administration of the Plan.
3. Eligibility. The Committee may, from time to time, select particular
employees from among those key employees of the Company and any subsidiary of
the Company to whom Options are to be granted, and upon the grant of such
Options, the selected employees shall become Participants in the Plan. As used
herein the term "Participant" means an eligible employee as described in this
Section who accepts an Option, or the estate, personal representative or
beneficiary thereof having the right to exercise an Option pursuant to its
terms. Employees are eligible hereunder if they are employed by the Company or
any of its subsidiaries on a full-time basis and are compensated for such
employment by a regular salary. There shall be included as eligible employees
members of the Board who are also salaried officers or employees of the Company.
<PAGE>
4. Number of Shares Available for Options. The shares of Common Stock
subject to Options granted pursuant to the Plan shall be either shares of
authorized but unissued Common Stock or shares of Common Stock reacquired by the
Company. Shares that by reason of the expiration of an Option, or for any other
reason, are no longer subject to purchase pursuant to an Option granted under
the Plan, and shares from time to time rendered in payment of the exercise price
of Options, may be made subject to additional Options granted pursuant to the
Plan. The maximum aggregate number of shares of Common Stock that may be issued
from time to time pursuant to the exercise of Options granted pursuant to the
Plan shall be 1,750,000; provided that the Committee may adjust the number of
shares available for Options, the number of shares subject to and the exercise
price of Options granted hereunder to effect a change in capitalization of the
Company, such as a stock dividend, stock split, share combination, exchange of
shares, merger, consolidation, reorganization, liquidation, or the like, of or
by the Company.
5. The Grant of Options. Options granted hereunder shall be evidenced by
written stock option agreements containing such terms and provisions as are
recommended and approved from time to time by the Committee, but subject to and
not more favorable than the terms of the Plan. The Committee may from time to
time require additional terms which the Committee deems necessary or advisable.
The Company shall execute stock option agreements upon instruction from the
Committee.
6. Maximum Amount of Stock Subject to Options. The maximum aggregate
fair market value (determined as of the time the Option is granted) of the
Common Stock with respect to which Options are exercisable for the first time by
any employee during any calendar year (under all incentive stock option plans of
the Company and its subsidiaries) shall not exceed $100,000. This limitation
shall apply to all Options granted under the Plan after December 31, 1986.
7. Option Exercise Price. The purchase price of Common Stock subject to
an Option granted pursuant to the Plan shall be determined by the Committee on
the date of the grant. The price shall not be less than 100% of the fair market
value of the Common Stock on the date of the grant of the Option; provided,
however, that if the Participant owns more than 10% combined voting power of all
of the outstanding capital stock of the Company on the date of the grant, the
exercise price shall not be less than 110% of the fair market value of the
Common Stock on the date of grant. The Committee shall determine the fair
market value of the Common Stock on the date of the grant, and shall set forth
the determination in its minutes.
8. Exercise of Option.
a. Options granted under the Plan may not be exercisable while there
is outstanding any incentive stock option previously granted to the
Participant. An Option will be considered outstanding until such Option is
exercised in full or expires by reason of lapse of time. This Section 8.a.
shall not apply to any Option granted to any employee pursuant to the Plan
after December 31, 1986.
b. An Option may not be exercised, nor may Common Stock be issued
pursuant to the exercise of an Option, if any requisite action, approval or
consent of any governmental authority of any kind having jurisdiction over
the exercise of the Option shall not have been taken or secured. The term
of each Option shall not be more than ten years from the date of grant;
provided, however, that in the case of a Participant who owns greater than
10% of the Common Stock of the Company at the time the Option is granted,
the term of the Option shall not be more than five years from the date of
grant.
9. Payment. Full payment for Common Stock purchased upon the exercise of
the Option shall be made at the time of exercise. No Common Stock shall be
issued until full payment has been made and a Participant shall have none of the
rights of a stockholder until shares of Common Stock are issued to him. Any
federal, state or local taxes required to be paid or withheld at the time of
exercise shall also be paid or withheld in full prior to any delivery of shares
of Common Stock upon exercise. Payment may be made in cash, in shares of Common
Stock then owned by the Participant, or in any other form of valid
consideration, or a combination of any of the foregoing, as required by the
Committee in its discretion. Shares of Common Stock tendered in payment of the
exercise price of any Options may be reissued to the Participant who tendered
the shares of Common Stock as part
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<PAGE>
of the shares of Common Stock issuable upon exercise of other Options granted
from time to time pursuant to the Plan.
10. Time of Granting of Option. The grant of an Option pursuant to the
Plan shall be deemed to have occurred when the Stock Option Committee shall have
adopted a resolution approving such grant. Such Option shall not be effective
unless granted on or before December 31, 2003.
11. Non-Transferability of Options. Options granted under the Plan shall
not be transferable otherwise than by will or the laws of descent and
distribution and may only be exercised during the lifetime of the Participant by
such Participant.
12. Rights in Event of Death or Disability of Participant. The Committee
shall have discretion to include in each Option agreement such provisions
regarding exercisability of the Options following the death or disability of the
Participant as it, in its sole discretion, deems to be appropriate.
13. Notice Upon Disposition. Participants shall immediately notify the
Company upon sale of any Common Stock acquired pursuant to the exercise of an
Option granted under the Plan if such sale occurs within two years from the date
of the grant of the Option, or one year from the date of the exercise of the
Option.
14. Stock Purchased for Investment. At the discretion of the Committee,
any Option agreement may provide that the Option holder shall, by accepting an
Option, represent and agree on behalf of himself and his transferees by will or
the laws of descent and distribution that all shares of Common Stock purchased
upon the exercise of the Option will be acquired for investment and not for
resale or distribution, and that upon each exercise of any portion of an Option,
the person entitled to exercise the same shall furnish evidence satisfactory to
the Company (including a written and signed representation) to the effect that
the shares of Common Stock are being acquired in good faith and for investment
and not for resale or distribution.
15. Termination of Option Rights and Awards. The Committee may provide in
each Option agreement for the circumstances under which Options granted
hereunder may terminate for any reason that the Committee, in its sole
discretion, deems appropriate.
16. Amendment or Discontinuation. The Plan may be amended, altered or
discontinued by the Board or, if the Board has specifically delegated this
authority to the Committee, by the Committee, without approval of the
stockholders; provided that the Board or the Committee shall not have the power
or authority, without approval of the stockholders, to change the employees or
class of employees who are eligible to participate or the aggregate number of
shares which may be issued pursuant to the exercise of the Options. In the
event any law, or any rule or regulation issued or promulgated by the Internal
Revenue Service, Securities and Exchange Commission, National Association of
Security Dealers, Inc., any stock exchange upon which the Common Stock is listed
for trading or other governmental or quasi-governmental agency having
jurisdiction over the Company, its Common Stock or the Plan requires the Plan to
be amended, the Plan will be amended at that time and all Options then
outstanding will be subject to such amendment.
17. Employment. This Plan and any Option granted under this Plan do not
confer upon the Participant any right to be employed or to continue in the
employ of the Company, nor does it in any way interfere with the right of the
Company to terminate the employment of the Participant at any time.
18. No Obligation to Exercise Option. The granting of an Option pursuant
to the Plan shall not impose any obligation upon the Participant to exercise
such Option.
19. Termination. Unless sooner terminated by action of the Board, or, if
the Board has specifically delegated its authority to terminate the Plan to the
Committee, by the Committee, the Plan shall terminate on December 31, 2003, and
no Options may be granted pursuant to the Plan after such date.
-3-
<PAGE>
20. Use of Proceeds. The proceeds derived from the sale of stock pursuant
to Options granted under the Plan shall constitute general funds of the Company.
21. Effective Date of the Plan. The Plan shall become effective and shall
be deemed to have been adopted on January 31, 1994, subject only to ratification
by the holders of at least a majority of the outstanding shares of voting stock
of the Company twelve months before or after such date.
22. Limitations on Options Granted to Directors. The following
limitations shall apply to Options granted to directors in order to comply with
Rule 16b-3(b)(1)(iii) promulgated under the Exchange Act :
a. In addition to the limitations included in Sections 6 and 8
hereof, the maximum aggregate number of shares of Common Stock which
may be issued pursuant to Options granted to all directors as a group
under this Plan shall not exceed 50% of the aggregate shares of Common
Stock for which Options may be granted under the Plan, subject to
adjustment as provided in Section 4 hereof;
b. The purchase price for shares of Common Stock acquired
pursuant to the exercise, in whole or in part, of any Option shall be
100% of the fair market value of the Common Stock on the date of grant
of such Option;
c. Options granted to directors pursuant to the Plan may be
granted only during the term of the Plan;
d. Options granted to directors pursuant to the Plan shall not
be exercisable for a period of twelve calendar months from the date of
grant of such Options; and
e. Options granted to directors pursuant to the Plan shall
expire no later than five (5) years from the date on which the Options
are granted.
The limitations set forth in this Section 22 shall cease to apply effective
as of the date of the Company's adoption with respect to this Plan of Rule 16b-3
as promulgated under the Exchange Act effective May 1991.
STERLING SOFTWARE, INC.
By: /s/ Sterling L. Williams
----------------------------------------
Sterling L. Williams
President and Chief Executive Officer
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<PAGE>
EXHIBIT 10(d)
STERLING SOFTWARE, INC.
NON-STATUTORY STOCK OPTION PLAN
(As amended, through July 28, 1994)
1. Purpose. The purpose of the Non-Statutory Stock Option Plan of
Sterling Software, Inc. (the "Plan") is to provide key employees and advisors
with a proprietary interest in Sterling Software, Inc., a Delaware corporation,
and its subsidiaries (the "Company") through the granting of options ("Option"
or "Options") to purchase shares of the Company's authorized Common Stock, par
value $0.10 per share ("Common Stock"), in order to:
a. Increase the interest in the Company's welfare of those key
employees and advisors who share primary responsibility for the management,
growth and protection of the business of the Company;
b. Recognize the contributions made by certain key employees and
advisors to the Company's growth during its development stage;
c. Furnish an incentive to such key employees and advisors to
continue their services for the Company; and
d. Provide a means through which the Company may attract able persons
to engage as key employees and advisors.
With respect to persons subject to Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent that any provision of the Plan
or action by the Committee (as defined in Section 2) fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board of Directors" or "Board") or by a Stock
Option Committee (the "Stock Option Committee") consisting of such number of
directors as are appointed by the Board from time to time in accordance with the
requirements of Rule 16b-3. As used herein, "Committee" shall mean the Board or
the duly appointed Stock Option Committee, as applicable. No member of the
Committee shall take any action with respect to Options granted to such member.
The Board of Directors shall choose an additional member or members of the Board
to serve on the Committee for the sole purpose of making decisions pursuant to
the Plan with regard to the member of the Committee receiving the Options.
Except as otherwise provided by the terms of this Plan or by the Board, the
Committee shall have all the power and authority of the Board hereunder.
The Committee shall have full and final authority in its discretion, but
subject to the provisions of the Plan, to determine from time to time the
individuals to whom Options shall be granted and the number of shares to be
covered by each Option; to determine the time or times at which Options shall be
granted; to interpret the Plan and the instruments by which Options will be
evidenced; to make, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the instruments by which Options
shall be evidenced; with the consent of the Participant (as defined in Section
3), to modify or amend any Option agreement or waive any conditions or
restrictions applicable to any Option or the exercise thereof; and to make all
other determinations necessary or advisable for the administration of the Plan.
Non-employee members of the Board ("non-employee directors") shall not be
eligible to receive Options under the Plan except as expressly provided in
Section 22.
3. Participants. The Committee may, from time to time, select particular
key employees and advisors of the Company, or of any subsidiary of the Company,
to whom Options are to be granted, and upon the grant of such Options, the
selected key employees and advisors shall become Participants in the Plan. As
used herein, the term "Participant" means a key employee or advisor who accepts
an Option, or the estate, personal representative or beneficiary thereof having
the right to exercise an Option pursuant to its terms.
<PAGE>
4. Shares Subject to the Plan. The shares of Common Stock subject to
Options granted pursuant to the Plan shall be either shares of authorized but
unissued Common Stock or shares of Common Stock reacquired by the Company.
Shares that by reason of the expiration of an Option, or for any other reason,
are no longer subject to purchase pursuant to an Option granted under the Plan,
and shares from time to time rendered in payment of the exercise price of
Options, may be made subject to additional Options granted pursuant to the Plan.
The maximum aggregate number of shares of Common Stock that may be issued from
time to time pursuant to the Plan shall be 4,000,000; provided that the
Committee may adjust the number of shares available for Options, the number of
shares subject to and the exercise price of Options granted hereunder to effect
a change in capitalization of the Company, such as a stock dividend, stock
split, reverse stock split, share combination, exchange of shares, merger,
consolidation, reorganization, liquidation, or the like, of or by the Company.
5. Grant of Options. Options granted hereunder shall be evidenced by
written stock option agreements containing such terms and provisions as are
recommended and approved from time to time by the Committee, but subject to and
not more favorable than the terms of the Plan. The Committee may from time to
time require additional terms which the Committee deems necessary or advisable.
The Company shall execute stock option agreements upon instruction from the
Committee.
6. Maximum Amount of Stock Subject to Options. Subject to Section 21,
the maximum aggregate fair market value (determined as of the time the Option is
granted) of the Common Stock for which any Participant may be granted Options in
any calendar year shall be determined by the Committee in its discretion.
7. Option Exercise Price. The purchase price of Common Stock subject to
an Option granted pursuant to the Plan shall be no less than the fair market
value of the Common Stock on the date of grant.
8. Restrictions. The Committee may, but need not, at the time of
granting of an Option or at any subsequent time impose such restrictions, if
any, on issuance, voluntary disposition and release from escrow of any Options
including, without limitation, permitting exercise of Options only in
installments over a period of years.
9. Payment. Full payment for Common Stock purchased upon the exercise of
an Option shall be made at the time of exercise. No Common Stock shall be
issued until full payment has been made and a Participant shall have none of the
rights of a shareholder until shares of Common Stock are issued to him. Any
federal, state or local taxes required to be paid or withheld at the time of
exercise shall also be paid or withheld in full prior to any delivery of shares
of Common Stock upon exercise. Payment may be made in cash, in shares of Common
Stock then owned by the Participant, or in any other form of valid
consideration, or a combination of any of the foregoing, as required by the
Committee in its discretion. Shares of Common Stock tendered in payment of the
exercise price of any Options may be reissued to the Participant who tendered
the shares of Common Stock as part of the shares of Common Stock issuable upon
exercise of other Options granted from time to time pursuant to the Plan.
10. Transferability of Options. Options granted under the Plan shall not
be transferable other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986, as amended (the "Code"), or Title I of the Employee
Retirement Income Security Act ("ERISA"), or the rules thereunder. The
designation by the holder of an Option of a beneficiary shall not constitute a
transfer of the Option.
11. Time of Granting of an Option. The grant of an Option pursuant to the
Plan shall be deemed to have occurred when the Stock Option Committee shall have
adopted a resolution approving such grant.
12. Rights in Event of Death or Disability of Participant. The Committee
shall have discretion to include in each Option agreement such provisions
regarding exercisability of the Options following the death or disability of the
Participant as it, in its sole discretion, deems to be appropriate.
-2-
<PAGE>
13. Termination of Option Rights and Awards. The Committee may provide in
each Option agreement for the circumstances under which Options granted
hereunder may terminate for any reason that the Committee, in its sole
discretion, deems appropriate.
14. Stock Purchased for Investment. At the discretion of the Committee,
any Option agreement may provide that the Option holder shall, by accepting an
Option, represent and agree on behalf of himself and his transferees by will or
the laws of descent and distribution that all shares of Common Stock purchased
upon the exercise of the Option will be acquired for investment and not for
resale or distribution, and that upon each exercise of any portion of an Option,
the person entitled to exercise the same shall furnish evidence satisfactory to
the Company (including a written and signed representation) to the effect that
the shares of Common Stock are being acquired in good faith and for investment
and not for resale or distribution.
15. Amendment or Discontinuation. The Plan may be amended, altered or
discontinued by the Board or, if the Board has specifically delegated this
authority to the Committee, by the Committee, without approval of the
stockholders. In the event any law, or any rule or regulation issued or
promulgated by the Internal Revenue Service, Securities and Exchange Commission,
National Association of Securities Dealers, Inc., any stock exchange upon which
the Common Stock is listed for trading or other governmental or quasi-
governmental agency having jurisdiction over the Company, its Common Stock or
the Plan requires the Plan to be amended, the Plan will be amended at that time
and all Options then outstanding will be subject to such amendment.
16. Employment. This Plan and any Option granted under this Plan do not
confer upon the Participant any right to be employed or to continue employment
with the Company.
17. No Obligation to Exercise Option. The granting of an Option pursuant
to the Plan shall not impose any obligation upon the Participant to exercise
such Option.
18. Termination. Unless sooner terminated by action of the Board or, if
the Board has specifically delegated its authority to terminate the Plan to the
Committee, by the Committee, the Plan shall terminate on December 31, 2011, and
no Options may be granted pursuant to the Plan after such date.
19. Use of Proceeds. The proceeds derived from the sale of stock pursuant
to Options granted under the Plan shall constitute general funds of the Company.
20. Effective Date of the Plan. The Plan shall be effective, as amended,
immediately upon approval of the Board of Directors of the Company.
21. Limitations on Options Granted to Directors. The following
limitations shall apply to Options granted to directors in order to comply with
Rule 16b-3(b)(1)(iii) promulgated under the Exchange Act :
a. In addition to the limitations included in Section 6 hereof, the
maximum aggregate number of shares of Common Stock which may be issued
pursuant to Options granted to all directors as a group under this Plan
shall not exceed 50% of the aggregate shares of Common Stock for which
Options may be granted under the Plan, subject to adjustment as provided in
Section 4 hereof;
b. The purchase price for shares of Common Stock acquired pursuant to
the exercise, in whole or in part, of any Option shall be 100% of the fair
market value of the Common Stock on the date of grant of such Option;
c. Options granted to directors pursuant to the Plan may be granted
only during the term of the Plan;
-3-
<PAGE>
d. Options granted to directors pursuant to the Plan shall not be
exercisable for a period of twelve calendar months from the date of grant
of such Options; and
e. Options granted to directors pursuant to the Plan shall expire no
later than five (5) years from the date on which the Options are granted.
The limitations set forth in this Section 21 shall cease to apply effective
as of the date of the Company's adoption with respect to this Plan of Rule 16b-3
as promulgated under the Exchange Act effective May 1991 ("New Rule 16b-3").
22. Automatic Grants to Non-Employee Directors. Grants to non-employee
directors on or after the date of the Company's adoption with respect to this
Plan of New Rule 16b-3 shall be solely pursuant to the following formula: each
non-employee director elected or appointed to the Board will receive, at the
time of his or her initial election or appointment, an automatic grant of
Options to purchase 40,000 shares of Common Stock. In addition, during the term
of this Plan, each non-employee director will receive an additional automatic
grant of Options to purchase 40,000 shares of Common Stock every five years on
the anniversary date of his or her initial election or appointment to the Board,
beginning on the fifth anniversary of his or her initial election or appointment
to the Board; provided that such non-employee director has served continuously
as a director of the Company since the date of his or her initial election or
appointment to the Board. The exercise price of each such Option will be equal
to the fair market value of the Common Stock on the date of grant. Each such
Option will become exercisable in cumulative annual installments of one-fourth
of the shares covered by the grant, commencing one year after the date of grant,
and will expire five years from the date of grant; provided that each such
Option will become immediately exercisable with respect to 100% of the shares
covered by the grant in the event of a change of control. A change of control
is deemed to occur (i) when any person, other than Sam Wyly or Charles J. Wyly,
Jr., or an affiliate of either of them, becomes the beneficial owner of
securities of the Company representing 20% or more of the combined voting power
of the Company's outstanding securities, (ii) if, during any three consecutive
years, individuals who constitute the Board of Directors at the beginning of
such period cease to constitute a majority of the Board of Directors or (iii)
upon the occurrence of any event that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act. This section shall not be amended more than once in any six-month
period, other than to comport with changes in the Code or ERISA, or the rules
thereunder.
STERLING SOFTWARE, INC.
By: /s/ Sterling L. Williams
-----------------------------------------
Sterling L. Williams
President and Chief Executive Officer
-4-
<PAGE>
EXHIBIT 10(ww)
NINETEENTH AMENDMENT AND
MODIFICATION AGREEMENT
NINETEENTH AMENDMENT AND MODIFICATION AGREEMENT dated as of May 17, 1994
(this "Amendment") by and among STERLING SOFTWARE, INC., a Delaware corporation
(the "Company"), the direct and indirect subsidiaries of the Company listed on
the signature pages hereto (collectively, the "Sterling Subsidiaries"), THE
FIRST NATIONAL BANK OF BOSTON and BANK ONE, TEXAS, NATIONAL ASSOCIATION
(collectively, the "Banks") and THE FIRST NATIONAL BANK OF BOSTON, as agent (the
"Agent") for the Banks, amending certain provisions of an Amended and Restated
Revolving Credit and Term Loan Agreement dated as of June 8, 1990 (as heretofore
amended the "Loan Agreement") by and among the Company, the Banks and the Agent
and certain of the other Loan Documents, (as defined in the Loan Agreement).
Terms not otherwise defined herein which are defined in the Loan Agreement shall
have the respective meanings herein assigned to such terms in the Loan
Agreement.
WHEREAS, upon the terms and subject to the conditions contained herein,
the Company, the Agent and the Banks wish to amend certain provisions of the
Loan Agreement and of certain of the other Loan Documents;
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Loan Agreement, the other Loan Documents and herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged the parties hereto hereby agree as follows:
(S)1. Amendment To (S)1.1 of the Loan Agreement. Section 1.1 of the Loan
--------- -- ------ -- --- ---- ---------
Agreement is hereby amended by deleting the words "The First National Bank of
Boston or its affiliates" from the definition of "Foreign Obligations" and
substituting in lieu thereof the words "either Bank or any affiliate of either
Bank".
(S)2. Amendment To (S)9.1 of the Loan Agreement. Section 9.1 of the Loan
--------- -- ------ -- --- ---- ---------
Agreement is hereby amended by deleting the dollar amount "$5,000,000" from
subsection (h) thereof and inserting in lieu thereof the dollar amount
"$15,000,000".
(S)3. Amendment To The Pledge Agreement. The Pledge Agreement is hereby
--------- -- --- ------ ---------
amended by:
(a) deleting from the definition of "Foreign Obligations" contained in
(S)2(d) thereof the words "The First National Bank of Boston or any of its
affiliates" and substituting in lieu thereof the words "either Bank or any
affiliate of either Bank"; and
(b) by deleting the final sentence of (S)12 thereof in its entirety and
substituting in lieu thereof the following new sentence:
<PAGE>
2
"Except as otherwise provided in this (S)12, the Agent shall apply
the residue of any proceeds of collection or sale of the Collateral first
to the Obligations ratably among the Banks and the Agent until paid in
full, with proper allowance being made for any Obligations not then due,
and next to the Foreign Obligations ratably between the Banks until paid
in full, with proper allowance being made for any Foreign Obligations not
then due."
(S)4. Amendment To the Assignment Agreement. The Assignment Agreement is
--------- -- --- ---------- ---------
hereby amended by:
(a) deleting the words "The First National Bank of Boston or any of its
affiliates" from the definition of "Foreign Obligations" and substituting in
lieu thereof the words "either Bank or any affiliate of either Bank";
(b) deleting the first sentence of (S)6 thereof in its entirety and
substituting in lieu thereof the following text:
"Following the occurrence of (a) any acceleration of the Obligations
pursuant to (S)11 of the Loan Agreement, or of the Foreign Obligations
pursuant to the terms of the guaranty agreements of the Company evidencing
the Foreign Obligations, or (b) the occurrence of any Event of Default
specified in (S)(S)11(g), (h) or (k) of the Loan Agreement, should any
payment on account of or any collateral for any part of the Intercompany
Indebtedness be received by the Company, such payment or collateral shall
be delivered forthwith to the Agent by the Company for application first
to the Obligations until paid in full and then to the Foreign Obligations
(ratably between the Banks) until paid in full, in the form received
except for the addition of any endorsement or assignment necessary to
effect transfer of all rights therein to the Agent.";
(c) inserting in (S)11 thereof the words "ratably between the Banks until
paid in full" after the words "next to the payment of the Foreign Obligations"
and before the text ", proper allowance being made for interest on Foreign
Obligations not then due,"; and
(d) inserting in (S)13 thereof, after the words "to the payment of the
Foreign Obligations" and before the words "in full, proper allowance being made
for any Foreign Obligations not then due" the words "ratably between the Banks
until paid".
(S)5. Intercreditor Arrangements. Section 16 of the Sixth Amendment and
------------- ------------
Modification Agreement dated as of August 31, 1992 by and among the Company, the
Agent, the Banks and the Sterling Subsidiaries party thereto is hereby deleted
in its entirety. The parties hereby agree that notwithstanding anything to the
contrary in any other agreement or document, (a) any and all security interests,
liens or other rights claimed by either Bank in any collateral under the
Assignment Agreement or the Pledge Agreement which secures the Foreign
Obligations (the "Specified Collateral") shall be subordinate and junior to any
and all security interests, liens or other rights in any such collateral now or
hereafter claimed by the Agent and the Banks in connection with the Obligations,
and (b) neither Bank will assert or attempt to enforce or avail itself of the
<PAGE>
3
Specified Collateral as security for the Foreign Obligations other than (i) upon
the payment in full of the Obligations, (ii) with the consent of the Banks, or
(iii) concurrently with the assertion or attempted enforcement by the Agent, on
behalf of the Banks, of any pre-judgment or post-judgment liens or rights in or
claims against any collateral securing the Obligations, with the proceeds
thereof to be distributed in accordance with the terms of the Pledge Agreement,
as amended, and the Assignment Agreement, as amended.
(S)6. Conditions To Effectiveness. This Amendment shall be deemed to be
---------- -- -------------
effective as of May 17, 1994 (the "Effective Date") upon the receipt by the
Agent, on or before May 24, l994, of facsimile copies of original counterparts
(to be followed promptly by original counterparts) or original counterparts of
this Amendment, duly executed by each of the Company, the Sterling Subsidiaries,
the Agent and the Banks.
(S)7. Representation and Warranties; No Default; Authorization. Each of
-------------- --- ---------- -- ------- -------------
the Company and the Sterling Subsidiaries hereby represents and warrants to each
of the Agent and the Banks as follows:
(a) Each of the representations and warranties of the Company and the
Sterling Subsidiaries contained in the Loan Agreement, the other Loan Documents
or in any document or instrument delivered pursuant to or in connection with the
Loan Agreement, the other Loan Documents or this Amendment was true as of the
date as of which it was made and is true as and at the date of this Amendment,
and no Default or Event of Default has occurred and is continuing as of the date
of this Amendment; and
(b) This Amendment has been duly authorized, executed and delivered by
the Company and each of the Sterling Subsidiaries and shall be in full force and
effect upon the satisfaction of the conditions set forth in (S)6 hereof, and the
agreements of the Company and each of the Sterling Subsidiaries party hereto
contained herein, in the Loan Agreement, as amended, and the other Loan
Documents, as amended, respectively constitute the legal, valid and binding
obligations of the Company and each of the Sterling Subsidiaries party hereto,
enforceable against the Company or such Sterling Subsidiary in accordance with
their respective terms.
(S)8. Ratification etc. Except as expressly amended hereby, the Loan
------------ ---
Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects and
shall continue in full force and effect. All references in the Loan Agreement
or such other Loan Documents or in any related agreement or instrument to the
Loan Agreement or such other Loan Documents shall hereafter refer to such
agreements as amended hereby and as previously amended, if previously amended,
pursuant to the provisions of the Loan Agreement.
(S)9. Implied Waiver. Except as expressly provided herein, nothing
------- ------
contained herein shall constitute a waiver of, impair or otherwise affect any
Obligations, any other obligations of the Company or any right of the Agent or
the Banks consequent thereon.
<PAGE>
4
(S)10. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
(S)11. Governing Law. THIS AMENDMENT SHALL FOR ALL PURPOSES BE GOVERNED
--------- ---
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW).
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a
document under seal as of the date first above written.
THE FIRST NATIONAL BANK OF BOSTON,
Individually and as Agent
By:
------------------------------------
Title:
BANK ONE, TEXAS, NATIONAL ASSOCIATION
By: /s/ Michael Silverman
------------------------------------
Michael Silverman
Vice President
STERLING SOFTWARE, INC.
By: /s/ Vicki L. Hill
-------------------------------------
Vicki L. Hill
Vice President,
Treasurer
Each of the undersigned hereby (1) executes the foregoing Amendment for purposes
of (S)(S)4 and 6 hereof and (2) acknowledges the foregoing Amendment as of the
Effective Date and agrees that its obligations under the Guaranty will extend to
the Loan Agreement, as so amended, and the other Loan Documents, as so amended.
STERLING SOFTWARE (MIDWEST), INC.
(formerly Creative Data Systems, Inc.)
By: /s/ Vicki L. Hill
------------------------------------
Vicki L. Hill
Assistant Treasurer
<PAGE>
6
STERLING SOFTWARE
(NORTHERN AMERICA), INC.
(formerly Directions, Inc.)
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING SOFTWARE
(UNITED STATES), INC.
(formerly Zanthe, Inc. Dylakor, Inc.
and Answer Systems, Inc.
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING SOFTWARE (AMERICA), INC.
(formerly Ordernet Services, Inc.)
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING CHECK LIQUIDATION, INC.
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING SOFTWARE (U.S.A.), INC.
(formerly Systems Software Marketing,
Inc. and Software Laboratories, Inc.)
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
<PAGE>
7
STERLING DISTRIBUTION SERVICES, INC.
By:/s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING SOFTWARE (US), INC.
(formerly known as Sterling
Federal Systems, Inc.
and Sterling IMD, lnc.)
By:/s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
SYSTEMS CENTER, INC.
(formerly Sterling Software, Inc.
a Wyoming corporation)
By:/s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING SOFTWARE LEASING COMPANY
By:/s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING SOFTWARE
INTERNATIONAL, INC.
By:/s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
<PAGE>
8
STERLING ZEROONE, INC.
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
ZEROONE SYSTEMS, INC.
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING SOFTWARE (UNITED STATES
OF AMERICA), INC.
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING SOFTWARE
(NORTH AMERICA), INC.
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
STERLING SOFTWARE
(U.S. OF AMERICA), INC.
By: /s/ Vicki L. Hill
---------------------------------
Vicki L. Hill
Assistant Treasurer
<PAGE>
STERLING SOFTWARE, INC. EXHIBIT 11(a)
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED JUNE 30, 1994
(in thousands, except per share information)
Fully
Primary Diluted
------- -------
Earnings:
Earnings applicable to common stockholders.............. $15,099 $15,099
Add: Interest expense on amounts outstanding for the
5 3/4% Convertible Subordinated Debentures
(net of applicable income taxes)................ 1,054
Interest income on investment of proceeds from
assumed conversion of options and warrants (net
of applicable income taxes)..................... 36 32
------- -------
$15,135 $16,185
======= =======
Shares:
Weighted average of shares outstanding.................. 20,127 20,127
Add common shares issued on assumed exercise of options
and warrants......................................... 6,772 6,772
Less common shares assumed repurchased................. (4,043) (4,043)
------- -------
22,856 22,856
=======
Common shares issued on assumed conversion of 5 3/4%
Convertible Subordinated Debentures..................... 4,056
-------
26,912
=======
Earnings per common share:
Primary................................................. $.66
=======
Fully diluted........................................... $.60
=======
<PAGE>
STERLING SOFTWARE, INC. EXHIBIT 11(b)
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED JUNE 30, 1993
(in thousands, except per share information)
Fully
Primary Diluted
------- -------
Earnings:
Earnings applicable to common stockholders.............. $ 5,030 $ 5,030
Add: Interest expense on amounts outstanding for the
5 3/4% Convertible Subordinated Debentures (net
of applicable income taxes)..................... 208 1,031
Interest expense on use of proceeds from assumed
conversion of options and warrants to pay off
amounts outstanding on Systems Center, Inc.
line of credit (net of applicable income taxes). 217
------- -------
$ 5,238 $ 6,278
======= =======
Shares:
Weighted average of shares outstanding.................. 17,510 17,510
Add common shares issued on assumed exercise of options
and warrants......................................... 6,345 6,345
Less common shares assumed repurchased................ (3,513) (3,513)
------- -------
20,342
=======
Common shares issued on assumed conversion of 5 3/4%
Convertible Subordinated Debentures..................... 4,056
-------
24,398
=======
Earnings per common share:
Primary................................................. $.26
=======
Fully diluted........................................... $.26
=======
<PAGE>
STERLING SOFTWARE, INC. EXHIBIT 11(c)
COMPUTATION OF EARNINGS PER SHARE
NINE MONTHS ENDED JUNE 30, 1994
(in thousands, except per share information)
Fully
Primary Diluted
------- -------
Earnings:
Earnings applicable to common stockholders.............. $39,379 $39,379
Add: Interest expense on amounts outstanding for the
5 3/4% Convertible Subordinated Debentures (net
of applicable income taxes)..................... 3,160
Interest income on investment of proceeds from
assumed conversion of options and warrants (net
of applicable income taxes)..................... 115 103
------- -------
$39,494 $42,642
======= =======
Shares:
Weighted average of shares outstanding.................. 19,251 19,251
Add common shares issued on assumed exercise of options
and warrants......................................... 7,360 7,360
Less common shares assumed repurchased................ (4,043) (4,043)
------- -------
22,568 22,568
=======
Common shares issued on assumed conversion of 5 3/4%
Convertible Subordinated Debentures..................... 4,056
-------
26,624
=======
Earnings per common share:
Primary................................................. $1.75
=======
Fully diluted........................................... $1.60
=======
<PAGE>
STERLING SOFTWARE, INC. EXHIBIT 11(d)
COMPUTATION OF EARNINGS PER SHARE
NINE MONTHS ENDED JUNE 30, 1993
(in thousands, except per share information)
Fully
Primary Diluted
------- --------
Earnings:
Earnings applicable to common stockholders.......... $10,070 10,070
Add: Interest expense on amounts outstanding
for the 8% Convertible Senior Subordinated
Debentures and 5 3/4% Convertible
Subordinated Debentures (net of applicable
income taxes)............................... 553 1,908
Interest expense on use of proceeds from
assumed conversion of options and warrants
to pay off amounts outstanding on Systems
Center, Inc. line of credit (net of
applicable income taxes).................... 558
------- -------
$10,623 $12,536
======= =======
Shares:
Weighted average of shares outstanding.............. 17,031 17,031
Add common shares issued on assumed exercise of
options and warrants........................ 6,383 6,383
Less common shares assumed repurchased.............. (3,513) (3,513)
------- -------
19,901
=======
Common shares issued on assumed conversion of 8%
Convertible Senior Subordinated Debentures.......... 329
Common shares issued on assumed conversion of 5 3/4%
Convertible Subordinated Debentures................. 2,183
-------
22,413
=======
Earnings per common share:
Primary $.53
=======
Fully diluted....................................... $.53
=======
