<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 December 31, 1996
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)
(Zip Code)
(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 February 7, 1997
------------------------------ -----------------------------------------
Common Stock, $0.10 par value 38,439,298
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PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (unaudited)................................... 3
Sterling Software, Inc. Consolidated Balance Sheets at December 31, 1996 and
September 30, 1996....................................................... 3
Sterling Software, Inc. Consolidated Statements of Operations for the Three
Months Ended December 31, 1996 and 1995.................................. 4
Sterling Software, Inc. Consolidated Statements of Stockholders' Equity for
the Three Months Ended December 31, 1996 and 1995........................ 5
Sterling Software, Inc. Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1996 and 1995............................ 6
Sterling Software, Inc. Notes to Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 12
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 17
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STERLING SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
A S S E T S
<TABLE>
<CAPTION>
December 31 September 30
1996 1996
------------- --------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................ $541,724 $524,237
Marketable securities.................................................................... 206,994 231,919
Accounts and notes receivable, net....................................................... 111,622 133,383
Income tax receivable.................................................................... 5,871 8,000
Prepaid expenses and other current assets................................................ 17,665 17,104
----------- ----------
Total current assets.................................................................. 883,876 914,643
Property and equipment, net of accumulated depreciation of $45,234 at
December 31, 1996 and $42,029 at September 30, 1996...................................... 45,498 39,330
Computer software, net of accumulated amortization of $87,938 at
December 31, 1996 and $84,099 at September 30, 1996...................................... 58,002 57,488
Excess cost over net assets acquired, net of accumulated amortization of $27,482 at December
31, 1996 and $26,128 at September 30, 1996............................................... 68,032 69,504
Noncurrent deferred income taxes............................................................ 657 2,986
Other assets................................................................................ 11,592 13,662
------------ -----------
$1,067,657 $1,097,613
============ ==========
<CAPTION>
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
<S> <C> <C>
Current liabilities:
Current portion of long-term debt........................................................ $ 1,587 $ 388
Accounts payable and accrued liabilities................................................. 56,295 77,349
Amounts due to Sterling Commerce......................................................... 3,050 35,134
Deferred revenue......................................................................... 77,474 68,854
------------ ------------
Total current liabilities............................................................. 138,406 181,725
Noncurrent deferred revenue................................................................. 15,856 15,778
Other noncurrent liabilities................................................................ 20,341 20,619
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $.10 par value; 10,000,000 shares authorized, no shares issued or
outstanding...........................................................................
Common stock, $.10 par value; 75,000,000 shares authorized; 39,811,000 and
39,807,000 shares issued at December 31, 1996 and September 30,
1996, respectively.................................................................... 3,981 3,981
Additional paid-in capital............................................................... 804,516 804,451
Retained earnings........................................................................ 143,654 130,156
Less treasury stock, at cost; 1,372,000 shares at December 31, 1996 and
September 30, 1996.................................................................... (59,097) (59,097)
------------ -----------
Total stockholders' equity............................................................ 893,054 879,491
------------- -----------
$1,067,657 $1,097,613
============= ===========
</TABLE>
See accompanying notes.
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STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31
-----------------------
1996 1995
--------- --------
<S> <C> <C>
Revenue:
Products................................................................................. $36,556 $ 34,972
Product support.......................................................................... 30,336 31,194
Services................................................................................. 30,249 29,819
-------- --------
97,141 95,985
Costs and expenses:
Cost of sales:
Products and product support.......................................................... 16,554 15,154
Services.............................................................................. 26,308 26,076
-------- --------
42,862 41,230
Product development and enhancement...................................................... 4,806 6,072
Selling, general and administrative...................................................... 40,732 38,677
-------- --------
88,400 85,979
-------- --------
Income from continuing operations before other income (expense) and income taxes............ 8,741 10,006
Other income (expense):
Interest expense......................................................................... (147) (1,839)
Investment income........................................................................ 10,773 3,105
Other.................................................................................... 233 531
-------- --------
10,859 1,797
-------- --------
Income from continuing operations before income taxes....................................... 19,600 11,803
Provision for income taxes.................................................................. 6,860 2,785
-------- --------
Income from continuing operations........................................................... 12,740 9,018
Income from discontinued operations, net.................................................... 12,289
-------- --------
Net income.................................................................................. $12,740 $21,307
======== ========
Income per common share:
Income from continuing operations:
Primary............................................................................... $ .33 $ .31
======== ========
Fully diluted......................................................................... $ .33 $ .30
======== ========
Net income:
Primary............................................................................... $ .33 $ .72
======== ========
Fully diluted......................................................................... $ .33 $ .66
======== ========
Average common shares outstanding........................................................ 38,439 26,630
======== ========
</TABLE>
See accompanying notes.
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STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended December 31, 1996 and 1995
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
--------------------
Number Additional Number Total
of Par Paid-in Retained of Stockholders'
Shares Value Capital Earnings Shares Cost Equity
--------- -------- ----------- ---------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995....... 26,529 $2,653 $336,752 $ 9,515 56 $ (582) $348,338
Net income....................... 21,307 21,307
Purchase of common stock
for treasury.................... 700 (30,931) (30,931)
Issuance of common stock
pursuant to stock options
and warrants.................... 880 88 19,933 20,021
Issuance of common stock
pursuant to conversion of
5.75% Debentures................ 4 105 105
Issuance of common stock
to retirement plan.............. (40) (8) 326 286
Other............................ (3) (3)
-------- -------- ---------- ---------- ------- ---------- ----------
Balance at December 31, 1995........ 27,413 $2,741 $356,747 $30,822 748 $(31,187) $359,123
======== ======== ========== ========== ======= ========== ==========
Balance at September 30, 1996....... 39,807 $3,981 $804,451 $130,156 1,372 $(59,097) $879,491
Net income....................... 12,740 12,740
Issuance of common stock
pursuant to stock options
and warrants.................... 4 65 65
Other............................ 758 758
-------- -------- ---------- ---------- ------- ---------- ----------
Balance at December 31, 1996........ 39,811 $3,981 $804,516 $143,654 1,372 $(59,097) $893,054
======== ======== ========== ========== ======= ========== ==========
</TABLE>
See accompanying notes.
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STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Operating activities:
Net income............................................................................... $12,740 $21,307
Less: Income from discontinued operations................................................ (12,289)
---------- ----------
Income from continuing operations........................................................ 12,740 9,018
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................................... 8,292 7,705
Provision for losses on accounts receivable......................................... 669 1,178
Provision for deferred income taxes................................................. 4,458 7,556
Changes in operating assets and liabilities, net of effects of business
acquisitions:
Decrease in accounts and notes receivable........................................ 22,325 5,020
Decrease in prepaid expenses and other assets.................................... 350 290
Decrease in accounts payable and accrued liabilities and amounts due to
Sterling Commerce.............................................................. (53,138) (15,431)
Increase (decrease) in deferred revenue.......................................... 8,620 (2,811)
Other............................................................................ (1,782) (2,668)
---------- ----------
Net cash provided by operating activities................................... 2,534 9,857
Investing activities:
Purchases of property and equipment...................................................... (9,352) (2,128)
Purchases and capitalized cost of development of computer software....................... (4,300) (3,316)
Business acquisitions, net of cash acquired.............................................. (7,186)
Purchases of investments................................................................. (41,790) (124,326)
Proceeds from sales of investments....................................................... 68,645 43,030
Other.................................................................................... 184 366
---------- ----------
Net cash provided by (used in) investing activities......................... 13,387 (93,560)
Financing activities:
Acquisition of common stock for treasury................................................. (30,931)
Retirement and redemption of debt and capital lease obligations.......................... (1,144) (3,186)
Proceeds from issuance of debt........................................................... 2,350 2,729
Proceeds from issuance of common stock pursuant to exercise of stock
options and warrants................................................................... 65 20,021
Other.................................................................................... 1,000 539
---------- ----------
Net cash provided by (used in) financing activities......................... 2,271 (10,828)
Cash flows provided by discontinued operations.............................................. 6,189
Effect of foreign currency exchange rate changes on cash.................................... (705) (118)
---------- ----------
Increase (decrease) in cash and cash equivalents............................................ 17,487 (88,460)
Cash and cash equivalents at beginning of period............................................ 524,237 178,910
---------- ----------
Cash and cash equivalents at end of period.................................................. $541,724 $90,450
========== ==========
Supplemental cash flow information:
Interest paid............................................................................ $133 $370
========== ==========
Income taxes paid........................................................................ $1,089 $866
========== ==========
Income tax refunds....................................................................... $186 $387
========== ==========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(unaudited)
1. Summary of Significant Accounting Policies
The Company
Sterling Software, Inc. ("Sterling Software" or the "Company") was
founded in 1981 and became a publicly owned corporation in 1983. Sterling
Software is a recognized worldwide supplier of software products and services
within three major markets classified as systems management, applications
management and federal systems. Sterling Software's international operations are
responsible for sales, marketing and first-level support of the Company's
products outside the United States and Canada. The Company's international
operations also sell, market and provide first-level support outside of the
United States, its territories and Canada for the interchange and communications
software products of Sterling Commerce, Inc. ("Sterling Commerce"), the results
of which are included in the business segment information presented herein under
"Corporate and other." See Notes 3 and 5. Consistent with Sterling Software's
decentralized operating structure, major markets are served by independently
operated business groups which consist of divisions that focus on specific
business niches within those markets. See Note 5. Sterling Software believes
that its decentralized organizational structure promotes operating flexibility,
improves responsiveness to customer requirements and focuses management on
achieving revenue and operating profit objectives. Sterling Software has
historically expanded its operations through internal growth and by business and
product acquisitions.
Basis of Presentation
The consolidated financial statements include the accounts of Sterling
Software and its wholly owned subsidiaries after elimination of all significant
intercompany balances and transactions. Certain amounts for periods ended prior
to December 31, 1996 have been reclassified to conform to the current year
presentation, including restatements to reflect the reclassification of Sterling
Commerce as a discontinued operation, giving effect to the spin-off of Sterling
Commerce on September 30, 1996. See Note 3. The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and the disclosure of contingencies. While
management has based their assumptions and estimates on the facts and
circumstances known at December 31, 1996, final amounts may differ from such
estimates.
Revenue
Revenue from license fees, including leasing transactions, for standard
software products is recognized when the software is delivered, provided no
significant future vendor obligations exist and collection is probable. Service
revenue and revenue from products involving installation or other services are
recognized as the services are performed.
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Product support contracts entitle the customer to telephone support, bug
fixing and the right to receive software updates if and when they are released.
Revenue from product support contracts, including product support included in
initial license fees, is recognized ratably over the contract period. All
significant costs and expenses associated with product support contracts are
expensed ratably over the contract period.
If software product transactions include the right to receive future
products, a portion of the software product revenue is deferred and recognized
as products are delivered. Contract accounting is applied for sales of software
products requiring significant modification or customization, such that revenue
is recognized only when the modification or customization is complete.
When products, product support and services are billed prior to the time
the related revenue is recognized, deferred revenue is recorded and related
costs paid in advance are deferred.
Revenue from professional services provided to the federal government
under multi-year contracts is recognized as the services are performed. Revenue
for services under other long-term contracts is recognized using the
percentage-of-completion method of accounting. Losses on long-term contracts are
recognized when the current estimate of total contract costs indicates a loss on
a contract is probable.
Cash Equivalents, Marketable Securities and Other Investments
Cash equivalents consist primarily of highly liquid investments in
investment-grade commercial paper of various issuers and repurchase agreements
backed by U.S. Treasury securities, with maturities of three months or less when
purchased. Cash equivalents are recorded at fair value.
The Company currently invests excess cash in a diversified portfolio
of marketable securities consisting of a variety of investment grade securities,
including commercial paper, medium-term notes, U.S. government obligations and
certificates of deposit. The fair values for marketable securities are based on
quoted market prices. All marketable securities and long-term investments are
classified as available-for-sale securities.
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 and are 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 fiscal year.
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3. Discontinued Operations
On September 30, 1996, Sterling Software completed the spin-off of
Sterling Commerce with the pro rata distribution (the "Distribution") of its
remaining 81.6% ownership interest in Sterling Commerce to Sterling Software's
stockholders by means of a tax-free dividend. Holders of record of the Company's
$0.10 par value common stock ("Software Stock") as of the close of business on
September 30, 1996 received 1.59260 shares of common stock, par value $0.01 per
share, of Sterling Commerce ("Commerce Stock") for each share of Software Stock
owned on such date. The Distribution resulted in the reduction of Sterling
Software stockholders' equity in the amount of $113,549,000, representing the
book value of net assets distributed.
Prior year financial statements have been restated to reflect the
discontinuation of Sterling Software's former electronic commerce business
segment (presently conducted by Sterling Commerce). Summary operating results of
discontinued operations for the three months ended December 31, 1995 are as
follows (in thousands):
Revenue.................................... $56,150
Total costs and expenses................... $35,459
Income before income taxes................. $20,481
Income taxes............................... $ 8,192
Income from discontinued operations, net... $12,289
4. Commitments and Contingencies
The Company is subject to certain legal proceedings and claims that arise
in the ordinary conduct of its business. In the opinion of management, the
ultimate liability with respect to these actions, net of applicable reserves,
will not materially affect the financial condition or results of operations of
the Company.
5. Segment Information
The Company acquires, develops, markets and supports a broad range of
computer software products and services in three major markets classified as
systems management, applications management and federal systems. Major markets
are represented through independently operated business segments. The systems
management business segment provides enterprise-wide systems management software
for large computing environments. The applications management business segment
provides products for developing new applications, revitalizing, integrating and
extending existing applications and facilitating enterprise information access.
The federal systems business segment provides highly technical professional
services to the federal government under several multi-year contracts primarily
in support of two major customers, the National Aeronautics and Space
Administration (NASA) and the Department of Defense. The Company's international
operations are responsible for sales, marketing and first-level support of the
Company's products outside of the United States and Canada. These international
operating results are included, as applicable, in the Company's
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<PAGE>
systems management and applications management segments in the business segment
tables contained herein. Under an agreement that expires in March 1999, the
Company's international operations also sell, market and provide first-level
support outside of the United States, its territories and Canada for Sterling
Commerce's interchange and communications software products, the results of
which are included in the business segment information presented herein under
"Corporate and other." International operating results allocated to these
business segments included revenue of $35,388,000 and $38,190,000 and
international operating profit (exclusive of intercompany royalties) of
$9,978,000 and $17,208,000 for the three months ended December 31, 1996 and
1995, respectively. The international operating profit of $17,208,000 for the
quarter ended December 31, 1995 is before consideration of $3,483,000 of
intercompany royalties related to Sterling Commerce.
Financial information concerning the Company's operations, by business
segment, for the three months ended December 31, 1996 and 1995, is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended December 31
------------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue:
Systems Management.................................... $36,950 $35,210
Federal Systems....................................... 27,858 26,262
Applications Management............................... 21,952 26,459
Corporate and other................................... 10,381 8,054
-------- --------
Consolidated totals................................. $97,141 $95,985
======== ========
Operating Profit (Loss):
Systems Management.................................... $12,889 $11,625
Federal Systems....................................... 2,395 2,300
Applications Management............................... 2,224 3,859
Corporate and other................................... (8,767) (7,778)
-------- --------
Consolidated totals................................. $8,741 $10,006
======== ========
</TABLE>
The amounts presented for "Corporate and other" include corporate expense,
inter-segment eliminations, the results of operations of the Company's retail
software division and the results of operations for the international
distribution of Sterling Commerce's interchange and communications software
products and related product support services.
6. Rights Plan
On December 18, 1996, the Board of Directors of the Company declared
a dividend distribution of one right (a "Right") for each share of Software
Stock outstanding at the close of business on December 31, 1996 (the "Record
Date"), pursuant to the terms of a Rights Agreement, dated as of December 18,
1996 (the "Rights Plan"). The Rights Plan also provides, subject to specified
exceptions and limitations, that shares of Software Stock issued after the
Record Date will be entitled to and accompanied by Rights. Pursuant to the
Rights Plan, one Right to purchase 1/100th of a share of Series A Junior
Participating Preferred Stock ("Junior Preferred Share") (structured so as to be
substantially the equivalent of a share of Software Stock) is attached to each
issued and outstanding share of Software Stock. Subject to certain
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conditions, each Right entitles the holder to purchase 1/100th of a Junior
Preferred Share at a price (the "Purchase Price") of $200.00 per 1/100th of a
Junior Preferred Share (subject to adjustment).
In general, the Rights will not become exercisable, or transferable
apart from the shares of Software Stock, unless a person or group of affiliated
or associated persons becomes the beneficial owner of, or commences a tender
offer that would result in beneficial ownership of, 15% or more of the
outstanding shares of Software Stock (any such person or group of persons being
referred to in the Rights Plan as an "Acquiring Person"). Thereafter, under
certain circumstances, each Right (other than any Rights that are or were
beneficially owned by an Acquiring Person, which Rights will be void) could
become exercisable to purchase at the Purchase Price a number of shares of
Software Stock (or, in certain circumstances, the common stock of a company into
which the Company is merged or consolidated or to which the Company sells all or
substantially all of its assets) having a market value equal to two times the
Purchase Price. The Rights will expire on December 31, 2006, unless earlier
redeemed by the Company at a redemption price of $0.01 per Right (subject to
adjustment), or otherwise exchanged or amended in accordance with the terms of
the Rights Plan.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Subsidiary Initial Public Offering and Spin-Off
Sterling Commerce, previously a wholly owned subsidiary of Sterling
Software, completed an initial public offering of 13,800,000 shares of Commerce
Stock on March 13, 1996 (the "Offering"). Pursuant to the Offering, Sterling
Software sold to the public 12,000,000 of its 73,200,000 shares of Commerce
Stock and Sterling Commerce sold 1,800,000 of previously unissued shares of
Commerce Stock. The Offering price was $24 per share of Commerce Stock,
resulting in net proceeds to Sterling Software of approximately $265,458,000
after deducting underwriting discounts and commissions and Sterling Software's
pro rata share of Offering expenses. Sterling Software recorded a gain of
approximately $126,103,000, net of tax, from the sale of Commerce Stock in the
Offering.
In connection with the Offering, Sterling Software accelerated the
vesting of substantially all outstanding options granted under Sterling
Software's stock option plans in existence at the time of the Offering. Sterling
Software received proceeds of approximately $276,637,000 from the exercise of
approximately 9,222,000 employee stock options and warrants during fiscal 1996.
Under the terms of Sterling Software's existing stock option plans, options that
were unexercised with respect to 81,681 shares of Software Stock at the close of
business on September 30, 1996 were adjusted to thereafter be exerciseable with
respect to 207,950 shares of Software Stock at exercise prices ranging from
$3.36 to $32.40 per share, to preserve the economic value of such options.
On September 30, 1996, Sterling Software completed the spin-off of
Sterling Commerce with the distribution of its remaining 81.6% ownership
interest in Sterling Commerce to Sterling Software stockholders by means of a
tax-free dividend. Holders of record of Software Stock as of the close of
business on September 30, 1996 received 1.59260 shares of Commerce Stock for
each share of Software Stock owned as such date. The distribution resulted in
the reduction of Sterling Software's stockholders' equity in the amount of
$113,549,000, representing the book value of the net assets distributed.
Three Months Ended December 31, 1996 and 1995
The results of Sterling Software's international operations (other
than those related to the sale of Sterling Commerce products) are included in
the systems management and applications management business segments for the
purpose of management's discussion and analysis of financial condition and
results of operations. Sterling Software's historical results of operations
reflect the reclassification of Sterling Commerce as a discontinued operation,
giving effect to the spin-off of Sterling Commerce on September 30, 1996. The
results of the Company's international operations related to selling, marketing
and providing first-level support outside of the United States, its territories
and Canada for Sterling Commerce's interchange and communications software
products are included in the business segment information presented herein under
"Corporate and other."
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Total revenue increased $1,156,000, or 1%, in the first quarter of
1997 over the same period in 1996 due to increases in the Company's systems
management and federal systems business segments as well as increases in revenue
from the Company's international operations related to selling, marketing and
providing first-level support for certain of Sterling Commerce's electronic
commerce products. These increases in revenue were offset by declines in revenue
in the applications management business segment due to the decline in products
and product support revenue of the Company's Computer Aided Software Engineering
("CASE") products and due to discontinued products. Excluding both the effect of
the decline in CASE products and product support revenue and the effect of
discontinued products, the Company's total revenue increased 7% in the first
quarter of 1997 over the same period in 1996.
Revenue from the systems management business segment increased
$1,740,000, or 5%, in the first quarter of 1997 compared to the same period of
1996 primarily due to a 9% increase in products revenue. The increase in
products revenue was mainly attributable to strong product sales domestically in
the storage management product line as well as moderate growth in VM product
line sales. Product support revenue increased 2% primarily due to an increase in
product support revenue in the storage management product line offset by
declines in the operations management product line and relatively flat product
support revenue in the VM product line. The decline in product support revenue
in the operations management product line was due to amounts billed in arrears
in the first quarter of 1996 by one of the Company's international distributors
which did not occur again in 1997.
Revenue from the applications management business segment decreased
$4,507,000, or 17%, in the first quarter of 1997 over the same period of 1996
primarily due to a 13% decline in products revenue, a 17% decline in product
support revenue and a 30% decline in consulting and education services revenue.
The majority of the decline in products and product support revenue occurred in
the CASE products. As previously disclosed, the Company expects the market for
CASE development tools to continue to rapidly decline. The remainder of the
decrease in products and product support revenue is attributable to a decline
related to products marketed in the first quarter of 1996 that were not marketed
in the first quarter of 1997 either because they are no longer owned or no
longer actively marketed. Excluding both the effect of the decline in CASE
development tools and the effect of discontinued products, applications
management products revenue increased 13% and product support revenue increased
10%.
Revenue from the federal systems business segment increased
$1,596,000, or 6%, due to higher contract billings in both the Information
Technology Division and the Scientific Systems Division.
Total revenue generated from Sterling Software's international
operations was $35,388,000 in the first quarter of 1997 and $38,190,000 in the
first quarter of 1996, representing a decrease of $2,802,000, or 7%, primarily
due to declines in both the applications management (down 35%) and systems
management (down 8%) business segments, which were only partially offset by
increased revenue from sales of Sterling Commerce's interchange and
communications software products internationally. International applications
management revenue declined due to the decline in CASE development tool revenue
and, to a lesser extent, discontinued products.
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International systems management revenue declined due to a large contract
recorded in the first quarter of 1996 which was not repeated in the first
quarter of 1997. Revenue for the Company's international operations represented
36% and 40% of total revenue for the first quarter of 1997 and 1996,
respectively. The Company expects revenue from its international operations to
continue to constitute a significant percentage of its total revenue.
International operating results were not materially impacted by foreign exchange
rate fluctuations in the first quarter of 1997. However, changes in foreign
currency exchange rates resulting from a strengthening or weakening U.S. dollar
can have a net negative or net positive impact, respectively, on the Company's
financial results. See "Other Matters."
The Company's recurring revenue includes revenue from product support
agreements generally having terms ranging from one to three years, fixed-term
product lease and rental agreements generally having terms ranging from
month-to-month to year-to-year, and federal contracts generally having terms
ranging from one to five years. Like most federal contracts, Sterling Software's
federal contracts permit termination by the government for convenience or for
failure to obtain funding. Recurring revenue represented 60% of total revenue in
the first quarter of 1997 compared to 61% in the same period of the prior year.
During the first quarter of 1997, 33% of total software revenue was
derived from platforms other than stand-alone mainframes, compared with 35% for
the same period of 1996. The decline in revenue from platforms other than
stand-alone mainframes is mainly due to the discontinued non-mainframe products
in the applications management business segment. Excluding the effect of these
discontinued non-mainframe products, the Company's total software revenue
derived from platforms other than stand-alone mainframe would have increased
slightly from 32% in the first quarter of 1996 to 33% in the first quarter of
1997.
Total costs and expenses increased $2,421,000, or 3%, in the first
quarter of 1997 compared to the same period of 1996. Cost of sales increased
$1,632,000, or 4%. Cost of sales represented 44% of revenue in the first quarter
of 1997 compared to 43% in the first quarter of 1996. Product development
expense for the first quarter of 1997 was $4,806,000, net of $4,280,000 of
capitalized software costs, as compared to the first quarter of 1996 product
development expense of $6,072,000, net of $3,132,000 of capitalized software
costs. Gross product development expense was 13% of non-federal revenue in both
the first quarter of 1997 and 1996. Capitalized development costs represented
47% and 34% of gross development costs in the first quarter of 1997 and 1996,
respectively. Product development expenses and the capitalization rate
historically have, and may in the future continue to, fluctuate from period to
period depending in part upon the number and status of software development
projects which are in process. Such was the case in the first quarter of 1997
compared to the same period of 1996. Selling, general and administrative expense
represented 42% of revenue in the first quarter of 1997 compared to 40% in the
first quarter of 1996. Selling, general and administrative expense increased
$2,055,000, or 5%, primarily due to increased sales and marketing activities and
headcount in the systems management business segment.
Interest expense decreased $1,692,000 in the first quarter of 1997
compared to the first quarter of 1996 primarily due to the redemption in the
second quarter of 1996 of the Company's 5.75% Convertible Subordinated
Debentures. Investment income in the first quarter of 1997 increased $7,668,000
over the first quarter of 1996 as a result of substantially higher average cash
-14-
<PAGE>
and cash equivalents and marketable securities balances as well as realized
gains from the liquidation of investment fund partnerships.
Income from continuing operations before income taxes in the first
quarter of 1997 was $19,600,000 compared to $11,803,000 in the first quarter of
1996. The increase was primarily attributable to increases in investment income
as well as declines in interest expense. The effective tax rate for the first
quarter of 1997 was 35% compared to 24% for the same quarter of 1996. The
effective tax rate for 1996 was favorably impacted by the conclusion of an audit
conducted by the Internal Revenue Service. Income from continuing operations in
the first quarter of 1997 increased $3,722,000, or 41%, when compared to the
first quarter of 1996. Income from discontinued operations, net, for 1996
represents the restatement of Sterling Commerce as a discontinued operation,
giving effect to the spin-off of Sterling Commerce on September 30, 1996. See
Note 3 to the Consolidated Financial Statements.
Liquidity and Capital Resources
The Company maintained a strong liquidity and financial position with
$745,470,000 of working capital at December 31, 1996, which includes
$541,724,000 of cash and cash equivalents and $206,994,000 of marketable
securities. Net cash flows from operations was $2,534,000 in the first quarter
of 1997 as compared to $9,857,000 in the first quarter of 1996. Cash flows from
operations for the first quarter of 1997 were negatively impacted by payments
made to Sterling Commerce during the quarter, reducing the outstanding amount
owed by Sterling Software to Sterling Commerce by approximately $32,000,000 from
September 30, 1996 to December 31, 1996. First quarter 1997 operating cash flows
were also negatively impacted by a decrease in accounts payable and accruals of
approximately $21,000,000, primarily due to a decrease in year-end incentive
compensation accruals. Days sales outstanding at December 31, 1996, measured on
a quarterly basis, was 103 versus 120 at December 31, 1995 and 95 at September
30, 1996. Cash flows from operations and available cash balances were used to
fund operations, marketable securities purchases and capital expenditures.
At December 31, 1996, after the utilization of $1,247,000 for standby
letters of credit, $33,753,000 was available for borrowing on the Company's $35
million revolving credit and term loan agreement. Certain of the Company's
foreign subsidiaries have separate lines of credit available for foreign
exchange exposure management and working capital requirements. These lines of
credit are guaranteed by Sterling Software, Inc. In the aggregate, at December
31, 1996, $1,512,000 was outstanding pursuant to foreign lines of credit and
$19,793,000 was available for borrowing thereunder.
At December 31, 1996, the Company's capital commitments consisted
primarily of commitments under lease arrangements for office space and
equipment. The Company intends to meet such obligations primarily from cash flow
from operations. The Company believes available cash balances, cash equivalents
and short-term investments combined with cash flows from operations and amounts
available under existing loan agreements are sufficient to meet the Company's
cash requirements for the foreseeable future.
Other Matters
Demand for many of the Company's products tends to increase with
increases in the rate of inflation as customers strive to improve employee
productivity and reduce costs. However,
-15-
<PAGE>
the effect of inflation on the Company's relatively labor intensive cost
structure could adversely affect its results of operations to the extent the
Company is unable to recover increased operating costs through increased prices
for products and services.
The assets and liabilities of the Company's non-U.S. operations are
translated into U.S. dollars at exchange rates in effect as of the respective
balance sheet dates, and revenue and expense accounts of these operations are
translated at average exchange rates during the month the transactions occur.
Unrealized translation gains and losses are included as an adjustment to
retained earnings. The Company has mitigated a portion of its currency exposure
through decentralized sales, marketing and support operations and through
international development facilities, in which all costs are local-currency
based. The Company has, and may in the future, enter into hedging transactions
in an effort to reduce its exposure to currency exchange risks.
The Company maintains a strategy of seeking to acquire businesses and
products to fill strategic market niches. This acquisition strategy has
contributed in part to the Company's growth in revenue and operating profit
before restructuring charges. The impact of future acquisitions on continued
growth in revenue and operating profit cannot presently be determined.
Forward-Looking Information
This report and other reports and statements filed by the Company
from time to time with the Securities and Exchange Commission (collectively,
"SEC Filings") contain or may contain certain forward-looking statements and
information that are based on the beliefs of the Company's management as well as
estimates and assumptions made by, and information currently available to, the
Company's management. When used in SEC Filings, the words "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan" and similar
expressions, as they relate to Sterling Software or Sterling Software's
management, identify forward-looking statements. Such statements reflect the
current views of Sterling Software with respect to future events and are subject
to certain risks, uncertainties and assumptions relating to Sterling Software's
operations and results of operations, competitive factors and pricing pressures,
shifts in market demand, the performance and needs of the industries served by
Sterling Software, the costs of product development and other risks and
uncertainties, including, in addition to any uncertainties specifically
identified in the text surrounding such statements, uncertainties with respect
to changes or developments in social, economic, business, industry, market,
legal and regulatory circumstances and conditions and actions taken or omitted
to be taken by third parties, including the Company's stockholders, customers,
suppliers, business partners, competitors and legislative, regulatory, judicial
and other governmental authorities and officials. Should one or more of these
risks or uncertainties materialize, or should the underlying estimates or
assumptions prove incorrect, actual results may vary significantly from those
anticipated, believed, estimated, expected, intended or planned.
-16-
<PAGE>
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:
3.1 - Certificate of Incorporation, as amended, of the
Company (3)
3.2 - Restated Bylaws of the Company (1)
4.1 - Rights Agreement, dated December 18, 1996, by and
between the Company and The First National Bank of
Boston, as Rights Agent (2)
10.1 - Amendment No .1 to International Distributor
Agreement, dated as of January 31, 1997, between
Sterling Commerce B. V. and Sterling Software
International, Inc. (a/k/a the International
Marketing Agreement) (3)
10.2 - Third Amendment and Modification Agreement dated
December 16, 1996 by and between the Company, The
First National Bank of Boston, Bank One, Texas,
National Association and Bank of America National
Trust and Savings Association, and The First
National Bank of Boston, as agent (3)
11.1 - Computation of Earnings Per Share, Three Months
Ended December 31, 1996 (3)
11.2 - Computation of Earnings Per Share, Three Months
Ended December 31, 1995 (3)
27 - Financial Data Schedule (3)
- ------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
No. 33-47131 on Form S-8 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated December 18, 1996 and incorporated herein by reference.
(3) Filed herewith.
(b) Reports on Form 8-K.
During the three-month period ended December 31, 1996 the Company filed Current
Reports on Form 8-K, dated September 30, 1996, October 15, 1996 and December 18,
1996. Each such report included information reported under Item 5--Other Events.
-17-
<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: February 11, 1997 /s/Sterling L. Williams
---------------------------------------------------
Sterling L. Williams
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: February 11, 1997 /s/ Jeannette P. Meier
---------------------------------------------------
Jeannette P. Meier
Executive Vice President,
Chief Financial Officer, General Counsel
and Secretary
(Principal Financial and Accounting Officer)
-18-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ------------- --------------------------------------------------------------
3.1 - Certificate of Incorporation, as amended, of the Company (3)
3.2 - Restated Bylaws of the Company (1)
4.1 - Rights Agreement, dated December 18, 1996, by and between the
Company and The First National Bank of Boston, as Rights Agent
(2)
10.1 - Amendment No .1 to International Distributor Agreement, dated
as of January 31, 1997, between Sterling Commerce B. V. and
Sterling Software International, Inc. (a/k/a the International
Marketing Agreement) (3)
10.2 - Third Amendment and Modification Agreement dated December 16,
1996 by and between the Company, The First National Bank of
Boston, Bank One, Texas, National Association and Bank of
America National Trust and Savings Association, and The First
National Bank of Boston, as agent (3)
11.1 - Computation of Earnings Per Share, Three Months Ended
December 31, 1996 (3)
11.2 - Computation of Earnings Per Share, Three Months Ended
December 31, 1995 (3)
27 - Financial Data Schedule (3)
- --------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
No. 33-47131 on Form S-8 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated December 18, 1996 and incorporated herein by reference.
(3) Filed herewith.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
STERLING SOFTWARE, INC.
ARTICLE I
The name of the corporation is STERLING SOFTWARE, INC.
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 100 West Tenth Street, in the City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
ARTICLE IV
The total number of shares of stock of all classes which the corporation
shall have authority to issue is Twenty-Two Million (22,000,000), consisting of
Twenty Million (20,000,000) shares of Common Stock having a par value of $.10
per share, and Two Million (2,000,000) shares of Preferred Stock having a par
value of $.10 per share.
The Preferred Stock may be issued in one or more series as may be
determined from time to time by the Board of Directors. The Preferred Stock of
each such series shall have such voting powers, full or limited, or no voting
powers, and such designations, preferences, and relative, participating,
optional, redemption, conversion, exchange or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed by the Board of Directors in the resolution or resolutions providing
for the issue of such
<PAGE>
series of Preferred Stock pursuant to the authority to do so which is hereby
expressly vested in the Board of Directors.
Except as otherwise provided in any resolution or resolutions of the Board
of Directors providing for the issue of any particular series of Preferred
Stock, the number of shares of stock of any such series so set forth in such
resolution or resolutions may be increased or decreased (but not below the
number of shares of such series then outstanding) by a resolution or resolutions
likewise adopted by the Board of Directors. No approval by class or series vote
or otherwise, of the holders of the Preferred Stock or any series thereof will
be required for the issue by the Board of Directors of any other series of
Preferred Stock, whether or not in any respect senior to or on a parity with any
such outstanding series, provided, however, that the Board of Directors may
condition the issue of such additional series of Preferred Stock on the
approval, by such proportion as the Board of Directors may specify, of any such
outstanding series.
Except as otherwise provided in any resolution or resolutions of the Board
of Directors providing for the issue of any particular series of Preferred
Stock, Preferred Stock redeemed or otherwise acquired by the corporation shall
assume the status of authorized but unissued Preferred Stock and shall be
unclassified as to series and may thereafter, subject to the provisions of this
Article IV and to any restrictions contained in any resolution or resolutions of
the Board of Directors providing for the issue of any such series of Preferred
Stock, be reissued in the same manner as other authorized but unissued Preferred
Stock.
Shares of Common Stock and, subject to the provisions of this Article,
shares of any series of Preferred Stock may be issued from time to time as the
Board of Directors
2
<PAGE>
determines and on such terms and for such consideration as may be fixed by the
Board of Directors.
Subject to the provisions of law and the preferences of the Preferred
Stock, dividends may be paid on the Common Stock at such time and in such
amounts as the Board of Directors may deem advisable.
The authorized amount of shares of Common Stock and of Preferred Stock may,
without a class or series vote, be increased or decreased from time to time by
the affirmative vote of the holders of a majority of the stock of the
corporation entitled to a vote thereon.
Except as otherwise specifically required by law or as specifically
provided in any resolution or resolutions of the Board of Directors providing
for the issue of any particular series of Preferred Stock, the exclusive voting
power of the corporation shall be vested in the Common Stock of the corporation.
Each share of Common Stock shall entitle the holder thereof to one vote at all
meetings of the stockholders of the corporation.
ARTICLE V
Section 1. The name and mailing address of the incorporator is as follows:
Robert L. Jones
4400 InterFirst One
Dallas, Texas 75202
Section 2. The name and mailing address of each person who is to serve as
a director of the corporation until the first annual meeting of the stockholders
of the corporation or until a successor is elected and qualified is as follows:
3
<PAGE>
Sterling L. Williams
1001 Campbell Centre
8350 North Central Expressway
Dallas, Texas 75206
ARTICLE VI
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors is expressly authorized to make,
alter or repeal the by-laws of the corporation.
ARTICLE VII
Election of directors need not be by written ballot unless the by-laws of
the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes of the State of Delaware)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the by-laws of the corporation.
ARTICLE VIII
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, to the extent and in
the manner now or hereafter prescribed by the laws of the State of Delaware, and
additional provisions authorized by such laws as are then in force may be added
hereto. All rights conferred upon the directors, officers and stockholders of
the corporation herein or in any amendment hereof are granted subject to this
reservation.
I, THE UNDERSIGNED, being the incorporator hereinabove named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of
4
<PAGE>
Delaware, do make this Certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 10th day of February, 1983.
/s/ Robert L. Jones
---------------------
Robert L. Jones
5
<PAGE>
CERTIFICATE OF THE DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF CUMULATIVE
REDEEMABLE PREFERRED STOCK, SERIES A
OF
STERLING SOFTWARE, INC.
-----------------------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
-----------------------------
STERLING SOFTWARE, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
That, pursuant to the authority expressly vested in the Board of
Directors by Article Four of the Certificate of Incorporation of the
Corporation, as amended, and pursuant to the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors, duly
adopted, by written consent, a resolution providing for the issuance of Four
Hundred Seventeen Thousand Eight Hundred Fifty Seven (417,857) shares of
Cumulative Redeemable Preferred Stock, Series A, which resolution is as follows:
RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of Article
Four of the Certificate of Incorporation of the Corporation, as amended, this
Board of Directors hereby creates a series of the Preferred Stock, $0.10 par
value, of the Corporation to consist of Four Hundred Seventeen Thousand Eight
Hundred Fifty Seven (417,857) shares (the "Authorized Amount"), and this Board
of Directors hereby fixes the designation and the powers, preferences and
rights, and the qualifications, limitations or restrictions thereon, of the
shares of such series (in addition to the powers, preferences and rights, and
the qualifications, limitations or restrictions thereon, set forth in the
Certificate of Incorporation,
<PAGE>
as amended, which are applicable to all series of the Preferred Stock, $0.10 par
value, of the Corporation) as follows:
Four Hundred Seventeen Thousand Eight Hundred Fifty Seven (417,857)
shares of the Preferred Stock, $0.10 par value, of the Corporation are hereby
constituted as a series of the Preferred Stock designated as "Cumulative
Redeemable Preferred Stock, Series A" (hereinafter called the "Series A Stock")
with the voting powers and the preferences and rights hereinafter set forth.
1. Definitions. As used herein:
-----------
"Acquisition" means SSI Acquisition, Inc., a Delaware corporation and
a wholly-owned subsidiary of the Corporation, and any successor thereto.
"Common Stock" means (i) the class of stock designated as the Common
Stock of the Corporation as of August 12, 1985, or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares consisting
solely of changes in par value, or from par value to no par value or from no par
value to par value.
"Consolidated Current Liabilities," as of the date of determination
means (i) the aggregate amount of liabilities of the Corporation and its
Consolidated Subsidiaries which may properly be classified as current
liabilities (including, without limitation, taxes accrued as estimated), on a
consolidated basis, after eliminating all inter-company items between the
Corporation and any Subsidiary and (ii) all current maturities of long-term and
short-term Indebtedness, as determined in accordance with generally accepted
accounting principles.
"Consolidated Net Assets," as of any date, means the total amount of
assets (less accumulated depreciation or amortization, allowances for doubtful
receivables, other applicable reserves and other properly deductible items)
which would appear on a consolidated balance sheet of the Corporation and its
Consolidated Subsidiaries as at such date as recorded after the Merger giving
effect to purchase accounting, after deducting therefrom the amounts of:
(a) Consolidated Current Liabilities;
(b) minority interests held by persons other than the Corporation and
its Consolidated Subsidiaries;
(c) any revaluation or other write-up in book value of assets
subsequent to June 30, 1985 as a result of a change in the method of
valuation of accordance with generally accepted accounting principles,
other than any revaluation or write-up of tangible assets made in
accordance with generally accepted accounting principles in connection with
the Merger or in connection with the acquisition of another business;
-2-
<PAGE>
(d) all other intangible assets, including without limitation,
goodwill, patents, trademarks, tradenames, copyrights, franchises and
deferred charges (including, without limitation, unamortized debt discount
and expense, organization costs, and research and development costs), but
excluding goodwill and intangible assets, if any, recorded in the Merger
and purchased software;
(e) treasury stock (if included in total assets);
(f) cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of capital
stock to the extent such obligation is not reflected in Consolidated
Current Liabilities;
(g) investments in Unconsolidated Subsidiaries; and
(h) the excess, if any, of the amount at which securities issued by
any Person (other than a Consolidated Subsidiary) are carried over the
lesser of the cost or market value (as determined in good faith by the
Board of Directors of the Corporation or SSI Acquisition, Inc., as the case
may be, and as evidenced by a resolution of such Board of Directors) of
such securities; provided, however, if such excess is less than $100,000
-------- -------
for any class of securities and is less than $1,000,000 in the aggregate
for all such securities, such excess shall not be deducted, and no such
determination by the Board of Directors shall be required;
the amounts of such assets and deductions therefrom to be computed in accordance
with generally accepted accounting principles, consistently applied.
"Consolidated Net Earnings," for any period, means the aggregate of
the Net Earnings of the Corporation and its Subsidiaries for such period, on a
consolidated basis, determined in accordance with generally accepted accounting
principles; provided that (i) the Net Earnings of any Person other than a
Consolidated Subsidiary in which the Corporation or any Subsidiary has a joint
interest with a third party shall be included only to the extent of the amount
of dividends or distributions paid to the Corporation or a Consolidated
Subsidiary, (ii) the Net Earnings of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iii) the Net Earnings of any Unconsolidated Subsidiary which is
designated as a Consolidated Subsidiary attributable to any period prior to the
date of such designation shall be excluded and (iv) the Net Earnings of any
subsidiary incorporated in a jurisdiction other than the United States or a
State thereof shall be excluded to the extent such Net Earnings are not
permitted to be distributed by such Subsidiary.
"Consolidated Net Worth," as of any date, means Consolidated Net
Assets (including, if any, recapture upon the termination of employee benefit
plans) less Consolidated liabilities as determined in accordance with generally
accepted accounting principles consistently applied (other than Consolidated
Current Liabilities, treasury stock if included in total assets and minority
interests specified in clause (b) of the definition of
-3-
<PAGE>
Consolidated Net Assets), excluding any unrealized gains or losses from foreign
currency translations, if any, of the Corporation and its Subsidiaries.
"Consolidated Subsidiary" means a Subsidiary which for financial
reporting purposes is accounted for by the Corporation as a consolidated
subsidiary.
"Indebtedness" means (i) any liabilities of any Person (a) for
borrowed money or (b) evidenced by a note, debenture or similar instrument
(including a purchase money obligation) whether issued in connection with the
acquisition of any property, assets (other than inventory or similar property
acquired in the ordinary course of business) or securities, or otherwise, (ii)
Capitalized Lease Obligations of such Person, (iii) any liability of others
described in the preceding clause (i) or (ii) which the Person has guaranteed or
which is otherwise its legal liability, and (iv) any amendment, renewal,
extension or refunding of any liability of the types referred to in clauses (i),
(ii) and (iii) above.
"Informatics" means Informatics General Corporation, a Delaware
corporation, to be merged with Acquisition pursuant to the Agreement and Plan of
Merger, dated June 20, 1985, among the corporation, Acquisition and Informatics.
"Merger" means any consolidation of Acquisition with, or merger of
Acquisition into, Informatics or any merger of such corporation into
Acquisition.
"Net Earnings" of any Person for any period means the net earnings
(loss) from continuing operations of such period determined in accordance with
generally accepted accounting principles consistently applied (except for
changes concurred in by the Person's independent public accountants).
"Net Proceeds" means the gross consideration received (in cash, or if
the consideration is other than cash, the fair value of the consideration
received as determined by the Board of Directors of the Corporation or
Acquisition, as the case may be) from Sales of Assets by the Corporation and its
Subsidiaries less the amount of fees and commissions (including investment
banking fees) payable to Persons other than an Affiliate, legal, title and
recording tax expenses and other costs and expenses directly incident to such
Sales of Assets which are to be paid in cash; provided, however, that (i) gross
consideration received in the form of debt instruments shall not be deemed to be
Net Proceeds until such time as such debt instruments are paid, redeemed, sold
or otherwise disposed of, and (ii) the amount of liabilities, if any, assumed by
the purchaser or other transferee in connection with a Sale of Assets, the
amount of liabilities to which the transferred assets are subject which are
repaid at the time of such sale or other disposition out of the proceeds thereof
or the amount of liabilities to which the transferred assets remain subject (but
only to the extent such liabilities are without recourse to Acquisition or the
Subsidiaries) shall not be deemed to be a part of gross consideration received.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
-4-
<PAGE>
"Purchase Agreement" means the Purchase Agreement dated as of August
13, 1985 among the Corporation, Acquisition and the Purchasers named therein
("Purchasers").
"Restricted Payment" means (i) any Stock Payment by Acquisition or the
Corporation; (ii) any Stock Payment by a Consolidated Subsidiary of the
Corporation to any Person other than the Corporation or Acquisition or a
Consolidated Subsidiary of the Corporation; (iii) any consideration paid by the
Corporation or a Subsidiary of the Corporation to acquire any securities of any
Person other than securities of any Person that was a Consolidated Subsidiary of
the Corporation immediately prior to the acquisition of such securities; (iv)
the issuance by the Corporation of its Capital Stock convertible into, or
exchangeable for, property other than Capital Stock of the Corporation or the
issuance by any Subsidiary of its Capital Stock convertible into, or
exchangeable for, property other than Capital Stock of such Subsidiary of (v)
any direct or indirect payment by the Corporation or any Subsidiary of the
Corporation (whether made in cash, property or securities) to any Affiliate
thereof (other than the Corporation or a Subsidiary of the Corporation)
including, without limitation, all interest, principal payments (whether at
maturity, by operation of sinking fund, mandatory redemption or otherwise),
capital contributions, investments, advances, loans or other extensions of
credit or payments on account of the redemption, repurchase, retirement or
acquisition of any securities of the Corporation or a Subsidiary of the
Corporation or on account of the purchase or acquisition of any securities of
such Affiliate, except that none of the following shall be deemed to be
Restricted Payments: (w) payments in the form of cash, stock or indebtedness
made by the Corporation or by any Subsidiary to acquire (directly or indirectly
by the acquisition of securities) all or substantially all of the business (by
purchase of assets or securities or otherwise) of any Person which business is a
business or ancillary to a business in which the Corporation or such Subsidiary
is then engaged, (x) payments in the form of cash, stock of indebtedness not
exceeding $4,000,000 in the aggregate for the acquisition of partial interests
in businesses which are businesses or ancillary to businesses in which the
Corporation or such Subsidiary is then engaged, provided that the Corporation or
such Subsidiary acquires simultaneously with such payment the right to acquire
all or substantially all of such businesses (by purchase of assets or securities
or otherwise), provided, further, that at the time the partial interest is no
longer in existence (due to exercise of the right to acquire all or
substantially all of such business, disposition of such partial interest or
otherwise), the amount of the payment made to acquire such partial interest
shall not be included in the $4,000,000 limitation, (y) payments for goods and
services, rental payments in respect of leased property and payments in respect
of loans; provided that the transactions giving rise to such payments are in the
ordinary course of business and such transactions are on terms no less favorable
to the Corporation or such Subsidiary than would be available in a comparable
transaction with an unrelated Person, and provided further that, if the amount
(including all contingent and deferred amounts) involved in any one such
transaction exceeds $1,000,000, the Board of Directors (as evidenced by a
resolution of the Board of Directors) shall have determined that the terms
thereof are no less favorable to the Corporation or such Subsidiary than would
be available in a comparable transaction with an unrelated Person, and (z)
reasonable compensation for services in connection with employment.
-5-
<PAGE>
"Restricted Securities" means shares of Series A Stock sold to the
Purchasers pursuant to the Purchase Agreement and which cannot be publicly
resold by the holder thereof without registration under the Securities Act of
1933, as amended, or the availability of an exemption thereunder; provided,
however, such securities shall cease to be Restricted Securities when (i) they
have been registered under the Securities Act of 1933, as amended, the
registration statement in connection therewith has been declared effective, (ii)
they are distributed to the public pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act of 1933, as amended, or (iii)
they have been otherwise transferred and new certificates or other evidences of
ownership for them not bearing the legend set forth in Section 3.2 of the
Purchase Agreement and not subject to any stop transfer order or other
restriction on transfer have been delivered by the Corporation.
"Sale of Assets" means, with respect to the Corporation, Acquisition
or any of their Subsidiaries, any sale, lease, conveyance or other disposition
of assets of the Corporation, Acquisition or such Subsidiary, as the case may
be, not made in the ordinary course of business, other than (i) any recapture by
Acquisition upon termination of employee benefit plans, (ii) sales, leases,
conveyances or other dispositions of assets between or among Acquisition and its
Consolidated Subsidiaries, and (iii) sales of accounts and notes receivable
pursuant to working capital financing.
"Stock Payment" means, with respect to any Person, any dividend,
either in cash or in property (except dividends payable in common stock or
common shares of Capital Stock of such Person) on, or the making by such Person
of any other distribution on account of any shares of any class of its Capital
Stock, now or hereafter outstanding, or the redemption, repurchase, retirement
or other acquisition by such Person, directly or indirectly, of any shares of
any class of its Capital Stock or any warrants, rights or options to purchase or
acquire shares of any class of its Capital Stock, now or hereafter outstanding.
"Subsidiary" means (i) a corporation a majority of whose Capital Stock
with voting power, under ordinary circumstances, to elect directors is at the
time, directly or indirectly, owned by the Corporation, by the Corporation and a
Subsidiary or Subsidiaries of the Corporation or by a Subsidiary or Subsidiaries
of the Corporation or (ii) any other person (other than a corporation) in which
the Corporation, a Subsidiary or Subsidiaries of the Corporation or the
Corporation and a Subsidiary or Subsidiaries of the Corporation, directly or
indirectly, at the date of determination thereof has at least majority ownership
interest.
"Unconsolidated Subsidiary" means any Subsidiary that is not a
Consolidated Subsidiary.
2. Dividends.
---------
(a) The holders of the Series A Stock shall be entitled to receive,
when, as, and if declared by the Board of Directors and out of the assets of the
Corporation which are legally available for the payment of dividends, cumulative
preferential cash dividends payable quarterly on the fifteenth day of February,
May, August and November (each such
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<PAGE>
date being referred to herein as a "Dividend Payment Date") to the holders of
record on the first day of the month in which such Dividend Payment Date occurs,
in each year, commencing November 15, 1985, provided, that the payment of
--------
dividends declared prior to May 15, 1986 may be deferred until May 15, 1986 but
any dividends with such deferred payment shall be cumulative and compounding.
Holders of the Series A Stock shall be entitled to receive dividends at the
annual rate of $12.00 per share until the first Dividend Payment Date subsequent
to the date when the Securities and Exchange Commission has, under the
Securities Act of 1933, as amended, declared effective a registration statement
covering the Series A Stock (the "Sale Date") and from and after such Dividend
Payment Date at the annual rate of $11.00 per share. So long as any shares of
Series A Stock shall remain outstanding, and notwithstanding Paragraph 4(e) no
dividend whatsoever shall be paid upon any class of stock or series thereof
ranking junior to or on a parity with the Series A Stock in the payment of
dividends, nor shall any shares of any class of stock or series thereof ranking
junior to or on a parity with the Series A Stock in payment of dividends to be
redeemed or purchased by the Corporation or any Subsidiaries thereof, nor shall
any monies be paid to or made available for sinking fund for the redemption or
purchase of any shares of any class of stock or series thereof ranking junior to
or on a parity with the Series A Stock in payment of dividends.
(b) Cash dividends upon shares of the Series A Stock shall commence to
accrue and be cumulative from the date of issue thereof. Accumulation of
dividends on any shares of the Series A Stock shall not bear interest.
3. Preference on Liquidation.
-------------------------
(a) In the event of any dissolution, liquidation or winding up of the
affairs of the Corporation, after payment of provision for payment of the debts
and other liabilities of the Corporation, the holders of shares of Series A
Stock shall be entitled to receive, out of the net assets of the Corporation,
$100.00 per share plus an amount equal to all dividends accrued and unpaid
thereon to the date fixed for distribution, and no more, before any distribution
shall be made to the holders of the Common Stock or any other class of stock or
series thereof ranking junior to the Series A Stock with respect to the
distribution of assets.
(b) Nothing herein contained shall be deemed to prevent redemption of
shares of the Series A Stock by the Corporation in the manner provided in
Paragraph 4 hereof. Neither the Merger nor consolidation of the Corporation
into or with any other corporation, nor the Merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, shall be deemed to be a
dissolution, liquidation or winding up of the Corporation within the meaning of
this Paragraph 3.
(c) Written notice of any dissolution, liquidation or winding up of
the affairs of the Corporation, stating a payment date and the place where the
distributable amounts shall be payable shall be given by mail, postage prepaid,
not less than 20 days prior
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<PAGE>
to the payment date stated therein, to the holders of record of the Series A
Stock at their respective addresses as the same shall appear on the books of the
Corporation.
(d) No payment on account of such dissolution, liquidation or winding
up of the affairs of the Corporation shall be made to the holders of any class
or series of stock ranking on a parity with the Series A Stock in respect of the
distribution of assets, unless there shall likewise be paid at the same time to
the holders of the Series A Stock like proportionate distributive amounts,
ratably, in proportion to the full distributive amounts to which they and the
holders of such parity stock are respectively entitled with respect to such
preferential distribution.
4. Redemption and Sinking Fund.
---------------------------
(a) The Corporation shall have the right, at its option and by
resolution of its Board of Directors, to redeem at any time shares of the Series
A Stock, in whole or in part, in accordance with paragraphs 4(h) and 4(i) upon
payment in cash, in respect of each share redeemed, at a redemption price equal
to $100 per share plus an amount equal to all dividends accrued and unpaid
thereon to the date fixed for redemption.
(b) On August 13, 1994, 1995, 1996 and 1997, the Corporation shall
redeem 25% of the Authorized Amount of the Series A Stock. In satisfaction of
all or part of mandatory redemptions required by this Paragraph 4(b), the
Corporation may elect to credit against such redemptions otherwise required to
be made in accordance with Paragraph 4(i) shares of Series A Stock which the
Corporation has acquired or purchased (otherwise than mandatory redemptions
pursuant to this Paragraph 4) and which have not previously been applied as a
credit against mandatory redemptions required by this Paragraph 4. Such shares
of Series A Stock shall be applied, on a pro rata basis, against all mandatory
redemptions required by this Paragraph 4(b) in such year and in all subsequent
years.
Any shares of Series A Stock applied as a credit against the next
mandatory redemption required by this Paragraph 4(b) shall be credited against
the next mandatory redemption to be made in respect of Restricted Securities
held by the Purchasers and all other shares of Series A Stock on a pro rata
basis, based upon the number of shares of Series A Stock held by Purchasers and
the remaining number of shares of Series A Stock, in each case outstanding at
the time a selection of shares of Series A Stock is or would be made pursuant to
Paragraph 4(i); provided, however, that credits to be made against a mandatory
redemption in respect to Restricted Securities may only be made from Restricted
Securities purchased by the Corporation.
(c) After none of Acquisition's Increasing Rate Senior Notes due no
later than 1990 or 15 1/8% Senior Subordinated Notes due 1993 are outstanding,
to the extent that Net Proceeds received by the Corporation, Acquisition or any
of its Subsidiaries, as the case may be, in connection with any single Sale of
Assets exceeds $1 million for each such sale, the Corporation shall apply a sum
of money equal to the Net Proceeds to redeem pro rata, shares of Series A Stock,
at a redemption price of $100 per share plus any accrued and unpaid dividends
with respect thereto; provided, however, that for the purposes of this
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<PAGE>
Paragraph 4(c), a Sale of Assets shall not include a sale of Informatics common
stock prior to the date of the Merger. Any redemption of Series A Stock
pursuant to this Paragraph 4 shall be made by the Corporation in the manner set
forth in Paragraphs 4(h) and 4(i), except that the notice of redemption referred
to in such paragraph must be sent within 30 days after the receipt of such Net
Proceeds and must set forth in reasonable detail the calculation of the number
of shares of Series A Stock to be redeemed.
(d) If the Merger is not consummated on or prior to February 13, 1987,
the Corporation shall redeem on March 13, 1987 all outstanding shares of the
Series A Stock at a redemption price of $100 per share plus accrued and unpaid
dividends thereon.
(e) If the Corporation, Acquisition, or any of their Subsidiaries,
directly or indirectly, makes any Restricted Payment, within 30 days of such
Restricted Payment the Corporation shall redeem all of the outstanding shares of
Series A Stock at a redemption price of $100 per share plus accrued and unpaid
dividends thereon unless
(i) immediately prior to such Restricted Payment Consolidated Net
Worth exceeds $60,000,000; and
(ii) upon giving effect to such Restricted Payment, the aggregate
amount of all Restricted Payments (the amount expended for such purposes,
if other than in cash, to be determined in good faith by the Board of
Directors of the Corporation, Acquisition, or such Subsidiary, as the case
may be, whose determination shall be conclusive and evidenced by a
resolution of such Board of Directors) subsequent to the last day of the
fiscal quarter in which Consolidated Net Worth exceeds $60,000,000 does not
exceed the sum of:
(a) 50% of the aggregate Consolidated Net Earnings of the
Corporation accrued on a cumulative basis subsequent to the last day
of the fiscal quarter in which Consolidated Net Worth exceeds
$60,000,000 (or if such Consolidated Net Earnings is a deficit, 100%
of such deficit); and
(b) 50% of the aggregate net proceeds, including the fair
market value of property other than cash (as determined in good faith
by the Board of Directors of the Corporation, Acquisition, or such
Subsidiary, as the case may be, whose determination shall be
conclusive and evidenced by a resolution of such Board of Directors)
received by the Corporation and its Subsidiaries from the issue or
sale (other than to a Subsidiary) after the last day of the fiscal
quarter in which Consolidated Net Worth exceeds $60,000,000 of Capital
Stock of the Corporation and its Subsidiaries (including Capital Stock
of the Corporation and its Subsidiaries issued upon the conversion of,
or in exchange for, securities issued subsequent to the last day of
the fiscal quarter in which Consolidated Net Worth exceeds $60,000,000
other than Capital Stock including warrants and rights to purchase
Capital Stock but excluding the issuance of Capital Stock of the
Corporation and its
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<PAGE>
Subsidiaries convertible into or exchangeable for property other than
Capital Stock of the Corporation and its Subsidiaries);
provided, that the Corporation shall not be required to redeem any shares of
Series A Stock pursuant to this Paragraph 4(e) on account of (x) the payment of
any dividend within 60 days after the date of the declaration thereof, if at
said date of declaration such payment would not have required any redemption
pursuant to this Paragraph 4(e), (y) the payment of any dividends on, or the
redemption of, any shares of Series A Stock, or the payment of the call price
for any outstanding warrants to purchase shares of Common Stock or (z) the
issuance of 450,000 shares of Capital Stock of the Corporation upon the
conversion of $3,900,000 aggregate principal amount of convertible debentures
presently outstanding and presently held by officers and directors of the
Corporation, although such Capital Stock shall be included in any computation
made pursuant to clause (ii)(b) above. For purposes of clause (ii)(b) above,
the aggregate net proceeds received by the Corporation and its Subsidiaries, as
the case may be, from the issuance of Capital Stock upon the conversion of, or
exchange for, securities other than Capital Stock shall include the aggregate
net proceeds of the original sale of the securities so converted or exchanged
or, in the case of convertible debentures provided to officers and directors of
the Corporation, the aggregate principal amount of such debentures so converted.
(f) If subsequent to August 13, 1985 the Corporation's Consolidated
Net Worth at the end of any two consecutive fiscal quarters is less than $14
million, then on the last day of the fiscal quarter next following such second
fiscal quarter (the "Accelerated Redemption Date") the Corporation shall redeem,
pro rata, 10% of the Authorized Amount of the Series A Stock, less any shares of
Series A Stock that the Corporation has acquired (otherwise than pursuant to
Paragraph 4(b) hereof) and which have not previously been applied as a credit
against any redemptions required by Paragraph 4, plus any accrued and unpaid
dividends to the Accelerated Redemption Date. In no event shall the failure to
meet the minimum Consolidated Net Worth stated above at the end of any fiscal
quarter be counted toward more than one accelerated redemption pursuant to this
Paragraph 4(f). Until the Corporation's Consolidated Net Worth exceeds $14
million, the Corporation shall redeem, pro rata, at the end of each six month
period following the first Accelerated Redemption Date an additional 10% of the
Authorized Amount of the Series A Stock less any redemptions made subsequent to
the most recent date upon which the Corporation redeemed shares of Series A
Stock pursuant to this Paragraph 4(f). Redemption of Series A Stock pursuant to
this Paragraph 4(f) shall be made by the Corporation in the manner set forth in
Paragraphs 4(h) and 4(i) and any shares of Series A Stock applied as a credit
against redemptions required by this Paragraph 4(f) shall be credited in
accordance with the credit provisions relating to mandatory redemptions required
by Paragraph 4(b) as set forth in Paragraph 4(b).
(g) In the event that the Corporation, Acquisition or any Subsidiary,
directly or indirectly, creates, incurs, issues, assumes, guarantees, or in any
other manner becomes liable with respect to, contingently or otherwise, any
Indebtedness (other than (i) Acquisition's increasing Rate Senior Notes due no
later than 1990, (ii) Acquisition's 15-1/8% Senior Subordinated Notes due 1993,
(iii) performance bonds in an aggregate amount
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<PAGE>
not to exceed $500,000 at any time outstanding and (iv) up to $5,000,000 of
Indebtedness incurred solely for working capital requirements, provided that
such Indebtedness may not be secured and no such Indebtedness shall be
outstanding for 6 consecutive months in any twelve month period) within 30 days
of such transaction the Corporation shall redeem all of the outstanding shares
of Series A Stock, unless (i) none of Acquisition's Increasing Rate Senior Notes
due no later than 1990 are outstanding and (ii) the aggregate amount of Senior
Indebtedness incurred subsequent to the date upon which none of Acquisition's
Increasing Rate Senior Notes due no later than 1990 are outstanding does not
exceed 50% of the Corporation's Increase in Consolidated Net Worth subsequent to
the last day of the fiscal quarter in which Consolidated Net Worth exceeds
$60,000,000.
(h) Notice of any redemption pursuant to this Paragraph 4, specifying
the date fixed for said redemption the number of shares of Series A Stock and
the place where the amount to be paid upon redemption is payable shall be
mailed, postage prepaid, at least 30 days but not more than 60 days prior to
said redemption date to the holders of record of the Series A Stock to be
redeemed at their respective addresses as the same shall appear on the books of
the Corporation. If such notice of redemption shall have been so mailed, and if
on or before the redemption date specified in such notice all funds necessary
for such redemption shall have been irrevocably deposited in trust for the
account of the holders of the shares of the Series A Stock to be redeemed (and
so as to be and continue to be available therefor), then, on and after said
redemption date, notwithstanding that any certificate for shares of the Series A
Stock so called for redemption shall not have been surrendered for cancellation,
the shares represented thereby so called for redemption shall be deemed to be no
longer outstanding, the right to receive dividends thereon shall cease to
accrue, and all rights with respect to such shares of the Series A Stock so
called for redemption shall forthwith cease and terminate, except only the right
of the holders thereof to receive out of the funds so set aside in trust the
amount payable on redemption thereof, but without interest. Any interest
accrued on such funds shall belong to the Corporation. However, if such notice
of redemption shall have been so mailed, and if prior to the date of redemption
specified in such notice all said funds necessary for such redemption shall have
been irrevocably deposited in trust, for the account of the holders of the
shares of the Series A Stock to be redeemed (and so as to be and continue to be
available therefor), with a bank or trust company named in such notice doing
business in the Borough of Manhattan in the City of New York, New York or in the
City of Dallas, Texas and having capital, surplus and undivided profits of at
least $50,000,000, thereupon and without awaiting the redemption date, all
shares of the Series A Stock with respect to which such notice shall have been
so mailed and such deposit shall have been so made shall be deemed to be no
longer outstanding, and all rights with respect to such shares of Series A Stock
shall forthwith upon such deposit in trust cease and terminate, except the right
of the holders thereof on or after the redemption fate to receive from such
deposit the amount payable upon the redemption, but without interest. Any
interest accrued on such funds shall belong to the Corporation. In case the
holders of shares of the Series A Stock which shall have been redeemed shall not
within six years (or any longer period if required by law) after the redemption
date claim any amount so deposited in trust for the redemption of shares, such
bank or trust company shall, upon demand, pay over to the Corporation any such
unclaimed amount so deposited with it, and shall thereupon be relieved of all
responsibility in respect
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<PAGE>
thereof, and thereafter the holders of such shares shall look only to the
Corporation for payment of the redemption price thereof, but without interest.
(i) If less than all of the outstanding shares of the Series A Stock
are to be redeemed pursuant to the provisions of this Paragraph 4, the
particular shares to be redeemed shall be allocated as nearly pro rata as
practicable between Restricted Securities held by the Purchasers and the
remaining shares of Series A Stock, based upon the number of outstanding shares
Series A Stock which are Restricted Securities held by the Purchasers and the
remaining shares of Series A Stock. The Restricted Securities held by the
Purchasers to be redeemed shall be selected pro rata (or as nearly pro rata as
practicable) and the remaining shares of Series A Stock to be redeemed shall be
selected pro rata (or as nearly pro rata as practicable), by lot, or by any
other method that complies with the requirements of the principal national
securities exchange on which the shares of Series A Stock being redeemed are
listed at the discretion of the Corporation.
(j) Shares of the Series A Stock redeemed or otherwise purchased or
acquired by the Corporation shall not be reissued as shares of the Series A
Stock, but shall assume the status of authorized but unissued Preferred Stock,
$0.10 par value, of the Corporation.
5. Voting Rights. The holders of the Series A Stock shall have only
-------------
the voting rights expressly provided by applicable law, except that without the
written consent of each holder of Series A Stock, in no event shall the powers,
preferences or rights of, and the qualifications, limitations or restrictions
on, of the Series A Stock as set forth herein be modified or changed so as to
extend the maturity of any Series A Stock, reduce the amount of dividends to be
paid thereon, affect the terms of redemption of the Series A Stock or the
payment of dividends thereon or reduce the percentage of holders necessary to
otherwise modify or change the powers, preferences or rights of, and the
qualifications, limitations or restrictions on, of the Series A Stock as set
forth herein.
6. Election of Directors. The holders of the Series A Stock shall
---------------------
have the right to replace the Board of Directors of the Corporation in the event
that any quarterly dividend referred to in Paragraph 2(a) and required to be
declared on or prior to May 15, 1986 is not declared prior to its respective
Dividend Payment Date at a time when funds were legally available therefore.
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<PAGE>
IN WITNESS WHEREOF, STERLING SOFTWARE, INC. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by W. Mack
Goforth, its Vice President, and Phillip A. Moore, its Secretary, this 12th day
of August, 1985.
STERLING SOFTWARE, INC.
By:/s/ W. Mack Goforth
-----------------------------
W. Mack Goforth
ATTEST:
/s/ Phillip A. Moore
- ---------------------------
Phillip A. Moore
Secretary
[Corporate Seal]
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<PAGE>
AMENDED CERTIFICATE OF DESIGNATION
TO THE CERTIFICATE OF THE DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS
OF CUMULATIVE REDEEMABLE PREFERRED STOCK,
SERIES A, OF STERLING SOFTWARE, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 151 of
the General Corporation Law of the
State of Delaware
- --------------------------------------------------------------------------------
STERLING SOFTWARE, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY THAT:
1. Pursuant to the authority expressly vested in the Board of Directors by
Article Four of the Certificate of Incorporation of the Corporation, as amended,
and pursuant to the provisions of Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors, duly adopted, by written consent,
a resolution providing for the issuance of 417,857 shares of Cumulative
Redeemable Preferred Stock, Series A (the "Series A Stock") which resolution
fixed the designation and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereon.
2. Such resolution is on file with the Secretary of State of the State of
Delaware in the Certificate of the Designation, Preferences, Rights and
Limitations of Cumulative Redeemable Preferred Stock, Series A (the
"Certificate").
3. The Board of Directors of the Corporation has adopted a resolution in
the form attached hereto as Exhibit A amending the definition of "Restricted
Payment" contained in Section 1 of the Certificate.
4. All of the holders of the Series A Stock have consented in writing to
the approval of the amendments which is set forth in the attached Exhibit A.
<PAGE>
IN WITNESS WHEREOF, STERLING SOFTWARE, INC. has caused its corporate seal
to be hereunder affixed and this certificate to be signed by George H. Ellis,
its Vice President, and Jeannette P. Meier, its Secretary, this 11th day of
December, 1985.
STERLING SOFTWARE, INC.
By: /s/ George H. Ellis
--------------------------
George H. Ellis
Vice President
ATTEST:
/s/ Jeannette P. Meier
- -----------------------------
Jeannette P. Meier
Secretary
Each of the undersigned declare under penalty of perjury that the
matters set forth in the foregoing certificate are true of his or her own
knowledge. Executed at Dallas, Texas on December 11, 1985.
/s/ George H. Ellis
--------------------------
George H. Ellis
/s/ Jeannette P. Meier
--------------------------
Jeannette P. Meier
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<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared George H. Ellis, known to me to be the
person whose name is subscribed to the foregoing instrument as Vice President of
Sterling Software, Inc., and being by me first duly sworn, declared that the
statements therein contained are true and correct.
GIVEN under my hand and seal of office this 11th day of December,
1985.
/s/ Kelley H. Stetzler
-----------------------------
Notary Public in and for
Dallas County, Texas
My commission expires: 6/3/89
------
THE STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Jeannette P. Meier, known to me to be the
person whose name is subscribed to the foregoing instrument as Secretary of
Sterling Software, Inc., and being by me first duly sworn, declared that the
statements therein contained are true and correct.
GIVEN under my hand and seal of office this 11th day of December,
1985.
/s/ Kelley H. Stetzler
-----------------------------
Notary Public in and for
Dallas County, Texas
My commission expires: 6/3/89
-------
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<PAGE>
Exhibit A
---------
FURTHER RESOLVED, that, whereas the Board of Directors deems it advisable
and in the best interests of the Company to amend the definition of "Restricted
Payment" contained in the Certificate of Designation, Preferences, Rights and
Limitations of Cumulative Redeemable Preferred Stock, Series A (the "Series A
Stock") on file with the Secretary of State of the State of Delaware (the
"Certificate"), pursuant to the authority expressly granted to and vested in the
Board of Directors of the Company by the provisions of Article Four of the
Certificate of Incorporation of the Company, as amended, this Board of Directors
hereby amends the Certificate so that the definition of Restricted Payment
contained in Section 1 of the Certificate shall read in its entirety as follows:
"Restricted Payment" means (i) any Stock Payment by Sterling or the
Company; (ii) any Stock Payment by a Consolidated Subsidiary of Sterling to
any Person other than Sterling or the Company or a Consolidated Subsidiary
of Sterling; (iii) any consideration paid by Sterling or a Subsidiary of
Sterling to acquire any securities of any Person other than securities of
any Person that was a Consolidated Subsidiary of Sterling immediately prior
to the acquisition of such securities; (iv) the issuance by Sterling of its
Capital Stock convertible into, or exchangeable for, property other than
Capital Stock of Sterling or the issuance by any Subsidiary of its Capital
Stock convertible into, or exchangeable for, property other than Capital
Stock of such Subsidiary or (v) any direct or indirect payment by Sterling
or any Subsidiary of Sterling (whether made in cash, property or
securities) to any Affiliate thereof (other than Sterling or a Subsidiary
of Sterling) including, without limitation, all interest, principal
payments (whether at maturity, by operation of sinking fund, mandatory
redemption or otherwise), capital contributions, investments, advances,
loans or other extensions of credit or payments on account of the
redemption, repurchase, retirement or acquisition of any securities of
Sterling or a Subsidiary of Sterling or on account of the purchase or
acquisition of any securities of such Affiliate, except that none of the
following shall be deemed to be Restricted Payments: (V) payments in the
form of cash, stock or Indebtedness made by Sterling or by any Subsidiary
to acquire (directly or indirectly by the acquisition of securities) all or
substantially all of the business (by purchase of assets or securities or
otherwise) of any Person which business is a business or ancillary to a
business in which Sterling or such Subsidiary is then engaged; (W) payments
in the form of cash, stock or Indebtedness not exceeding $4,000,000 in the
aggregate for the acquisition of partial interests in businesses which are
businesses or ancillary to businesses in which Sterling or such Subsidiary
is then engaged, provided that Sterling or such Subsidiary acquires
simultaneously with such payment the right to acquire all or substantially
all of such businesses (by purchase of assets or securities or otherwise),
provided, further, that at the time the partial interest is no longer in
existence (due to exercise of the right to acquire all or substantially all
of such business, disposition of such partial interest or otherwise), the
amount of the payment made to acquire such partial interest shall not be
included in the $4,000,000 limitation; (X) payments for goods and services,
rental payments in respect of leased property and payments in respect of
loans; provided that the transactions giving rise to such payments are
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<PAGE>
in the ordinary course of business and such transactions are on terms no
less favorable to Sterling or such Subsidiary than would be available in a
comparable transaction with an unrelated Person, and provided further that,
if the amount (including all contingent and deferred amounts) involved in
any one such transaction exceeds $1,000,000, the Board of Directors (as
evidenced by a resolution of the Board of Directors filed with the Trustee)
shall have determined that the terms thereof are no less favorable to
Sterling or such Subsidiary than would be available in a comparable
transaction with an unrelated Person; (Y) payments for preferred stock of
any Person or payments for notes, debentures or similar instruments are not
at any time convertible into or exchangeable for instruments which
represent equity ownership in any Person and so long as such preferred
stock, notes, debentures or similar instruments have a final maturity of no
later than two years, except in the case of increasing rate notes or other
resettable or extendable notes; and (Z) reasonable compensation for
services in connection with employment; and be it
FURTHER RESOLVED, that the proper officer of the Company shall submit such
amendment of the Certificate for approval by either vote or written consent of
the holders of all of the outstanding shares of Series A Stock; and be it
FURTHER RESOLVED, that upon approval by the holders of all of the
outstanding shares of Series A Stock, the proper officers of the Company are
hereby authorized, empowered and directed to take any and all action necessary
to amend the Certificate, including, without limitation, filing a Certificate of
Amendment with the Secretary of State of Delaware.
-5-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Sterling Software, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Sterling
Software, Inc. and by a separate unanimous written consent of the Directors,
resolutions were duly adopted setting forth proposed amendments of the
Certificate of Incorporation of said corporation, declaring said amendments to
be advisable and directing that said amendments be considered at the next annual
meeting of the stockholders. The resolutions setting forth the proposed
amendments are as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the first paragraph of the Article
numbered "IV" so that, as amended, said paragraph of said Article
shall be and read as follows :
"The total number of shares of stock of all classes which the
corporation shall have authority to issue is Fifty-Two Million
(52,000,000), consisting of Fifty Million (50,000,000) shares of
Common Stock having a par value of $.10 per share, and Two
Million (2,000,000) shares of Preferred Stock having a par value
of $.10 per share."
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof numbered "VII"
so that, as amended said Article shall be and read as follows:
"ARTICLE VII
All power of the corporation shall be exercised by or under the
direction of the Board of Directors except as otherwise provided herein or
required by law.
For the management of the business and for the conduct of the
affairs of the corporation, and in further creation, definition, limitation
and regulation of the power of the corporation and of its directors and of
its stockholders, it is further provided:
(i) Election of Directors. Election of directors need not be
by written ballot unless the Bylaws of the corporation shall so
provide.
<PAGE>
(ii) Number, Election and Term of Directors. Except as otherwise
fixed pursuant to the provisions of Article IV hereof relating to the
rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation
to elect additional directors under specified circumstances, the
number of directors of the corporation shall be fixed from time to
time by or pursuant to the Bylaws. The directors, other than those
who may be elected by the holders of any class or series of stock
having preference over the Common Stock as to dividends or upon
liquidation, shall be classified, with respect to the time for which
they severally hold office, into three classes, as nearly equal in
number as possible, as shall be provided in the manner specified in
the Bylaws, one class to hold office initially for a term expiring at
the annual meeting of stockholders to be held in 1988, another class
to hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1989, and another class to hold office
initially for a term expiring at the annual meeting of stockholders to
be held in 1990, with members of each class to hold office until their
successors are elected and qualified. At each annual meeting of the
stockholders of the corporation, the successors to the class of
directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election.
(iii) Stockholder Nomination of a Director. Advance notice of
nominations for the election of directors, other than by the Board of
Directors or a Committee thereof, shall be given in the manner
provided by the Bylaws.
(iv) Amendment, Repeal, etc. Notwithstanding anything contained
in this' Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 75% of the voting power of all shares
of the corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to
alter, amend or adopt any provision inconsistent with, or repeal, this
Article VII or any provision hereof."
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by adding a new Article numbered "IX" to read in its entirety as
follows:
"ARTICLE IX
To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a
director of the corporation shall not be liable to the corporation or
its
-2-
<PAGE>
stockholders for monetary damages for breach of fiduciary duty as a
director."
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by adding a new Article numbered "X" to read in its entirety as
follows:
"ARTICLE X
No action required to be taken, or which may be taken, at any
annual or special meeting of stockholders of the corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied."
SECOND: That thereafter, pursuant to certain resolutions, the Board of
Directors directed that said amendments be considered at the next annual meeting
of the stockholders. An annual meeting of the stockholders of said corporation
was duly called and held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware, at which meeting the necessary
number of shares as required by statute were voted in favor of each of the
amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said amendments.
IN WITNESS WHEREOF, Sterling Software, Inc. has caused this certificate to
be signed by Sterling L. Williams, its President, and Jeannette P. Meier, its
Secretary, this 13th day of March, 1987.
By: /s/ Sterling L. Williams
----------------------------------
Sterling L. Williams,
President
ATTEST: /s/ Jeannette P. Meier
------------------------------
Jeannette P. Meier,
Secretary
-3-
<PAGE>
STATE OF TEXAS (S)
(S) SS:
COUNTY OF DALLAS (S)
BEFORE ME, the undersigned authority, on this day personally appeared
Sterling L. Williams and Jeannette P. Meier, President and Secretary,
respectively, of Sterling Software, Inc., known to me to be the persons whose
names are subscribed to the foregoing instrument, and acknowledged to me that
they executed the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL of office this 13th day of March, 1987.
/s/ Sharon B. Cron
-----------------------------
Notary Public in and for
the State of Texas
My Commission Expires:
July 31, 1987
-------------
-4-
<PAGE>
CERTIFICATE OF DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS
OF
STERLING SOFTWARE, INC.
Pursuant to Section 151(g) of the General Corporation Law of the State of
Delaware (the "G.C.L."), Sterling Software, Inc., a corporation organized and
existing under the G.C.L. (the "Corporation"),
DOES HEREBY CERTIFY
That, pursuant to authority conferred upon the Board of Directors of the
Corporation in Article 4 of its Certificate of Incorporation, as amended, and
pursuant to the provisions of Section 151(g) of the G.C.L., the Board of
Directors, on May 4, 1987, duly adopted a resolution providing for the issuance
of two hundred thousand shares of Series B Preferred Stock, par value $.10 per
share, which resolution is as follows:
RESOLVED, that a series of Preferred Stock of this Corporation, to be
designated "Series B Preferred Stock", be and it hereby is, created to
consist of two hundred thousand shares of which the preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations or restrictions of such preferences and rights, are as follows:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series B Preferred Stock," and the number of shares
constituting such series shall be two hundred thousand.
Section 2. Dividends and Distributions.
---------------------------
(A) The holders of Series B Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds legally available
for such purpose, cumulative dividends at the annual rate of $.982135 per
share, and no more, in equal quarterly payments on the fifteenth day of
February, May, August and November in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing
November 15, 1987. No accrued and unpaid dividends shall be paid to the
holders of Series B Preferred Stock so long as there are in arrears dividends
payable on the then outstanding shares of the Corporation's $7.20
Exchangeable Preferred Stock (the "$7.20 Preferred Stock").
(B) Dividends shall begin to accrue and be cumulative from the date of
issue of the Series B Preferred Stock. The amount of dividends so payable
<PAGE>
shall be determined on the basis of twelve 30-day months and a 360-day year.
Accrued but unpaid dividends shall not bear interest.
(C) All dividends paid on shares of Series B Preferred Stock shall be
paid pro-rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of Series B Preferred Stock entitled to receive
payment of a dividend declared thereon, which record date shall be no more
than sixty days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of Series B Preferred Stock shall
-------------
not be entitled to the following voting rights:
(A) Except as otherwise expressly provided herein or as required by law,
the holders of shares of Series B Preferred Stock and Common Stock shall be
entitled to vote together as a single class on all matters with respect to
which stockholders are entitled to vote, and each holder of Series B
Preferred Stock shall be entitled to one (1) vote in person or by proxy for
each share of Series B Preferred Stock standing in his name on the stock
transfer records of the Corporation.
(B) The affirmative vote of the holders of at least 66-2/3% of the
outstanding shares of the Series B Preferred Stock, voting separately as a
single class, in person or by proxy, at a special or annual meeting of
stockholders called for that purpose, shall be necessary (i) to authorize the
issuance of securities of any class of the Corporation's capital stock
ranking prior (either as to dividends or upon liquidation, dissolution or
winding up) to Series B Preferred Stock, or (ii) to amend the Certificate of
Incorporation of the Corporation in any manner which would materially alter
the relative rights and preferences of Series B Preferred Stock so as to
adversely affect holders thereof (other than to increase or decrease the
authorized number of shares of Series B Preferred Stock); provided, however,
that the affirmative vote of the holders of Series B Preferred Stock shall
not be required for the Corporation's Board of Directors to authorize and
issue the $7.20 Preferred Stock. The affirmative vote of the holders of at
least 51% of the outstanding shares of Series B Preferred Stock, voting
separately as a single class, in person or by proxy, at a special or annual
meeting of stockholders called for that purpose shall be necessary to amend
the Certificate of Incorporation of the Corporation to create a class of
preferred stock which is equal in preference as to dividends and upon
liquidation, dissolution or winding up to the Series B Preferred Stock.
(C) In the event the Corporation proposes to effect any sale, lease,
assignment, transfer or other conveyance of all or substantially all of the
assets of the Corporation or any of its subsidiaries, or any consolidation or
merger involving the Corporation or any of its subsidiaries, or any
reclassification, or any dissolution, liquidation or winding up of the
Corporation, or any other
-2-
<PAGE>
reorganization of the Corporation which requires the consent of stockholders
("Proposed Reorganization Event"), the holders of Series B Preferred Stock
shall be entitled to ten (10) votes for each share of Series B Preferred
Stock standing in his name on the stock transfer records of the Corporation;
provided, however, that if any such Proposed Reorganization Event is
unanimously approved by all of the members of the Board of Directors who are
not holders of Series B Preferred Stock, each holder of Series B Preferred
Stock shall only be entitled to one (1) vote for each share of Series B
Preferred Stock standing in his name on the stock transfer records of the
Corporation.
Section 4. Certain Restrictions. Whenever quarterly dividends payable on
--------------------
Series B Preferred Stock as provided in Section 2 are in arrears, thereafter
and until all dividends, including all accrued dividends, on shares of Series
B Preferred Stock outstanding shall have been paid in full or declared and
set apart for payment, the Corporation shall not (A) pay dividends on, make
any other distributions on, or redeem or purchase or otherwise acquire for
consideration any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to Series B Preferred Stock, provided
that the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for, or out of the net cash
proceeds from the sale of, other shares of any such junior stock, (B) pay
dividends on or make any other distributions on any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with
Series B Preferred Stock, except dividends paid ratably on Series B Preferred
Stock and all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such shares
are then entitled, or (C) redeem or purchase or otherwise acquire for
consideration any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with Series B Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking Junior to Series B Preferred Stock. The
Corporation shall not permit any subsidiary of the Corporation to purchase or
otherwise acquire for consideration any shares of stock of the Corporation
unless the Corporation could purchase such shares at such time and in such
manner.
Section 5. Reacquired Shares. Any shares of Series B Preferred Stock
-----------------
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued by resolution or
resolutions of the Board of Directors, subject to the conditions or
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
--------------------------------------
dissolution or winding up of the Corporation, no distribution shall be made
(A) to the holders of stock ranking junior (either as to dividends or upon
-3-
<PAGE>
liquidation, dissolution or winding up) to Series B Preferred Stock unless,
prior thereto, the holders of Series B Preferred Stock shall have received
$8.9285 per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment or (B) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up), with Series B
Preferred Stock, except distributions made ratably on Series B Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. The foregoing notwithstanding, upon any
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made to the holders of Series B Preferred Stock unless, prior
thereto, the holders of the Corporation's outstanding $7.20 Preferred Stock
have been paid, out of the net assets of the Corporation, an amount equal to
$48.00 per share of the $7.20 Preferred Stock then outstanding plus an amount
equal to all dividends accrued and unpaid thereon on the date fixed for
distribution.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Designation, Preferences, Rights and
Limitations to be signed by Jeannette P. Meier, its Senior Vice President, and
attested by Brenda Rudd, its Assistant Secretary, this 11th day of May, 1987.
STERLING SOFTWARE, INC.
By: /s/ Jeannette P. Meier
-------------------------
Jeannette P. Meier
Senior Vice President
[Corporate Seal]
ATTEST:
By: /s/ Brenda Rudd
-----------------------------------
Brenda Rudd, Assistant Secretary
-4-
<PAGE>
CERTIFICATE OF DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS
OF
STERLING SOFTWARE, INC.
Pursuant to Section 151(g) of the General Corporation Law of the State
of Delaware (the "G.C.L."), Sterling Software, Inc., a corporation organized and
existing under the G.C.L. (the "Corporation"),
DOES HEREBY CERTIFY
That, pursuant to authority conferred upon the Board of Directors of
the Corporation in Article 4 of its Certificate of Incorporation, as amended,
and pursuant to the provisions of Section 151(g) of the G.C.L., the Board of
Directors, on May 3, 1987, duly adopted a resolution providing for the issuance
of six hundred twenty-five thousand shares of $7.20 Exchangeable Preferred
Stock, par value $.10 per share, which resolution is as follows:
RESOLVED, that a series of Preferred Stock of this Corporation, to be
designated "$7.20 Exchangeable Preferred Stock", be and it hereby is,
created to consist of six hundred twenty-five thousand shares of which the
preferences and relative, participating, optional and other special rights,
and the qualifications, limitations or restrictions of such preferences and
rights, are as follows:
Section 1. Designation and Amount. The shares of such series shall
----------------------
be designated as "$7.20 Exchangeable Preferred Stock" ("$7.20 Preferred
Stock"), and the number of shares constituting such series shall be six
hundred twenty-five thousand.
Section 2. Dividends and Distributions.
---------------------------
(A) The holders of $7.20 Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of funds
legally available for such purpose, cumulative dividends at the initial
annual rate of $7.20 per share, and no more, in equal quarterly payments on
the fifteenth day of February, May, August and November in each year (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing November 15, 1987. The foregoing notwithstanding, beginning
August 15, 2002 and on each August 15 thereafter (the "Redetermination
Date"), the annual rate of the cumulative dividend with respect to $7.20
Preferred Stock then outstanding for the year commencing on such
Redetermination Date shall be determined by adding $.48 to the annual rate
<PAGE>
paid during the year ending on such Redetermination Date; provided,
however, that in no event shall the annual dividend rate exceed $9.69.
(B) Dividends shall begin to accrue and be cumulative from the
date of issue of the $7.20 Preferred Stock. The amount of dividends so
payable shall be determined on the basis of twelve 30-day months and a 360-
day year. Accrued but unpaid dividends shall bear interest at the annual
rate of 15%.
(C) All dividends paid on shares of $7.20 Preferred Stock shall
be paid pro-rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of $7.20 Preferred Stock entitled to receive
payment of a dividend declared thereon, which record date shall be no more
than sixty days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of $7.20 Preferred Stock shall
-------------
not be entitled to any voting rights except as follows:
(A) Whenever quarterly dividends payable on $7.20 Preferred
Stock as provided in Section 2 are in arrears in an aggregate amount at
least equal to six full quarterly dividends (which need not be
consecutive), the number of directors constituting the Board of Directors
of the Corporation shall be increased by two and the holders of $7.20
Preferred Stock shall have, in addition to the rights set forth in
paragraph (B), the special right, voting separately as a single class, to
elect two directors of the Corporation to fill such newly created
directorships at the next succeeding annual meeting of stockholders (and at
each succeeding annual meeting of stockholders thereafter until such right
shall terminate as hereinafter provided).
At each meeting of stockholders at which the holders of $7.20
Preferred Stock shall have the right to vote as a class, as provided in
this paragraph (A), the presence in person or by proxy of the holders of
record of a majority of the total number of shares of $7.20 Preferred Stock
then outstanding shall be necessary and sufficient to constitute a quorum
of such class for such election by such stockholders as a class. At any
such meeting or adjournment thereof.
(i) the absence of a quorum of holders of $7.20 Preferred Stock
shall not prevent the election of directors other than those to
be elected by the holders of $7.20 Preferred Stock, and the
absence of a quorum of the holders of any such class of stock
for the election of such other directors shall not prevent the
election of the directors to be elected by the holders of $7.20
Preferred Stock, and
-2-
<PAGE>
(ii) in the absence of a quorum of the holders of $7.20 Preferred
Stock, a majority of the holders present in person or by proxy
shall have the power to adjourn the meeting from time to time and
place to place without notice other than announcement at the
meeting until a quorum shall be present.
Each director elected by the holders of $7.20 Preferred Stock as
provided in this paragraph (A) shall hold office until the annual meeting
of stockholders next succeeding such director's election or until such
director's successor, if any, is elected by such holders and qualified.
In case any vacancy shall occur among the directors elected by the
holders of $7.20 Preferred Stock as provided in this paragraph (A), such
vacancy may be filled for the unexpired portion of the term by vote of the
remaining directors theretofore elected by such stockholders, or such
director's successors in office, or by the vote of such stockholders given
at a special meeting of such stockholders called for that purpose.
Whenever all dividends accrued and unpaid on $7.20 Preferred Stock
shall have been paid and dividends thereon for the current quarterly period
shall have been paid or declared and set apart for payment, the special
right of the holders of $7.20 Preferred Stock to elect directors as
provided in this paragraph (A) shall terminate, but subject always to the
same provisions for the vesting of such special right of the holders of
$7.20 Preferred Stock to elect directors in the case of future unpaid
dividends as hereinabove provided.
(B) The affirmative vote of the holders of at least 66-2/3% of
the outstanding shares of the $7.20 Preferred Stock, voting separately as a
single class, in person or by proxy, at a special or annual meeting of
stockholders called for that purpose, shall be necessary (i) to authorize
the issuance of securities of any class of the Corporation's capital stock
ranking prior (either as to dividends or upon liquidation, dissolution or
winding up) to $7.20 Preferred Stock, or (ii) to amend the Certificate of
Incorporation of the Corporation in any manner which would materially alter
the relative rights and preferences of $7.20 Preferred Stock so as to
adversely affect holders thereof (other than to increase or decrease the
authorized number of shares of $7.20 Preferred Stock). The affirmative
vote of the holders of at least 51% of the outstanding shares of $7.20
Preferred Stock, voting separately as a single class, in person or by
proxy, at a special or annual meeting of stockholders called for that
purpose shall be necessary to amend the Certificate of Incorporation of the
Corporation to create a class of preferred stock which is equal to the
ranking of the $7.20 Preferred Stock as to dividends or upon liquidation,
dissolution or winding up.
Section 4. Certain Restrictions. Whenever quarterly dividends
--------------------
payable on $7.20 Preferred Stock as provided in Section 2 are in arrears,
-3-
<PAGE>
thereafter and until all dividends, including all accrued dividends, on
shares of $7.20 Preferred Stock outstanding shall have been paid in full or
declared and set apart for payment, the Corporation shall not (A) pay
dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to $7.20
Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in exchange
for, or out of the net cash proceeds from the sale of, other shares of any
such junior stock, (B) pay dividends on or make any other distributions on
any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with $7.20 Preferred Stock, except dividends
paid ratably on $7.20 Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled, or (C) redeem or
purchase or otherwise acquire for consideration any stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding
up) with $7.20 Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking junior to
$7.20 Preferred Stock. The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could purchase
such shares at such time and in such manner.
Section 5. Redemption.
----------
(A) The Corporation shall not have any right to redeem shares
of the $7.20 Preferred Stock prior to August 15, 1990. Thereafter, the
Corporation shall have the right, at its sole option and election, to
redeem shares of $7.20 Preferred Stock, in whole or in part, at any time
and from time to time, at (i) a redemption price per share of:
<TABLE>
<CAPTION>
If Redeemed prior Redemption
to August 15, Price
<S> <C>
1991 $50.40
1992 $50.16
1993 $49.92
1994 $49.68
1995 $49.44
1996 $49.20
1997 $48.96
1998 $48.72
1999 $48.24
2000 $48.00
</TABLE>
-4-
<PAGE>
plus (ii) in each case, an amount per share equal to all accrued and unpaid
dividends thereon to the date fixed for redemption (hereinafter called a
"Redemption Date"). The foregoing notwithstanding, unless the full
cumulative dividends on all outstanding shares of $7.20 Preferred Stock
shall have been paid or contemporaneously are declared and paid for all
past dividend periods, none of the shares of $7.20 Preferred Stock shall be
redeemed unless all outstanding shares of $7.20 Preferred Stock are
simultaneously redeemed.
(B) If less than all $7.20 Preferred Stock at the time
outstanding is to be redeemed, the shares so to be redeemed shall be
selected by lot, pro-rata or in such other manner as the Board of Directors
may determine to be fair and proper.
(C) Notice of any redemption of $7.20 Preferred Stock shall be
mailed at least thirty, but not more than sixty, days prior to the date
fixed for redemption to each holder of $7.20 Preferred Stock to be
redeemed, at such holder's address as it appears in the books of the
Corporation. In order to facilitate the redemption of $7.20 Preferred
Stock, the Board of Directors may fix a record date for the determination
of holders of $7.20 Preferred Stock to be redeemed, not more than sixty
days nor less than ten days, prior to the date fixed for such redemption.
(D) On the Redemption Date specified in the notice given pursuant
to paragraph (C), the Corporation shall, at any time after such notice
shall have been mailed and before such Redemption Date the Corporation may,
deposit, for the pro-rata benefit of the holders of the shares of $7.20
Preferred Stock so called for redemption, the funds necessary for such
redemption with a bank or trust company in New York City having a capital
and surplus of at least $50,000,000. Any monies so deposited by the
Corporation and unclaimed at the end of two years from the date designated
for such redemption shall revert to the general funds of the Corporation.
After such reversion, any such bank or trust company shall, upon demand,
pay over to the Corporation such unclaimed amounts and thereupon such bank
or trust company shall be relieved of all responsibility in respect thereof
to such holder and such holder shall look only to the Corporation for the
payment of the redemption price. Any interest accrued on funds so
deposited pursuant to this paragraph (D) shall be paid from time to time to
the Corporation for its own account.
(E) Upon the deposit of funds pursuant to paragraph (D) in
respect of shares of $7.20 Preferred Stock called for redemption,
notwithstanding that any certificate for such shares shall not have been
surrendered for cancellation, the shares represented thereby shall no
longer be deemed outstanding, the rights to receive dividends thereon shall
cease to accrue from and after the Redemption Date designated in the notice
of
-5-
<PAGE>
redemption and all rights of the holders of the shares of $7.20 Preferred
Stock called for redemption shall cease and terminate, excepting only the
right to receive the redemption price therefor.
Section 6. Exchange.
--------
(A) The Corporation shall not have the right to exchange shares
of the $7.20 Preferred Stock prior to August 15, 1989. Thereafter, the
Corporation shall have the right, at its sole option and election to
exchange the $7.20 Preferred Stock, in whole or in part, on any Quarterly
Dividend Payment Date for the Corporation's 15% Subordinated Notes, each of
which Notes shall be due on such date which shall be fifteen years from the
date of original issue of such Notes (the "15% Notes"), to be issued
pursuant to the form of indenture (the "Indenture"), filed as Exhibit g(3)
to the Corporation's Schedule 13E-4 dated May 12, 1987, a copy of which is
on file with the Secretary of the Corporation. Holders of the outstanding
shares of $7.20 Preferred Stock will be entitled to receive $48 principal
amount of the 15% Notes in exchange for each share of $7.20 Preferred Stock
exchanged. At the time shares of $7.20 Preferred Stock are exchanged, the
rights of the holders of $7.20 Preferred Stock to be exchanged as
stockholders of the Corporation shall cease (except the right to receive on
the date of exchange an amount equal to the amount of accrued and unpaid
dividends to the date of exchange), and the person or persons entitled to
receive the 15% Notes issuable upon exchange of $7.20 Preferred Stock for
all purposes as the registered holder or holders of such 15% Notes. Notice
of any exchange of $7.20 Preferred Stock shall be mailed at least thirty,
but not more than sixty, days prior to the date fixed for exchange to each
holder of $7.20 Preferred Stock to be exchanged, at such holder's address
as it appears on the books of the Corporation. Such notice shall set forth
the procedures for exchanging certificates formerly representing $7.20
Preferred Stock for 15% Notes. The 15% Notes will be issued only in
denominations of $1,000 and integral multiples thereof and separately, in
denominators of less than $1,000, in integral multiples of $1. Any holder
of $7.20 Preferred Stock otherwise entitled to a 15% Note in a principal
amount which is not an integral multiple of $1 will receive cash in lieu of
the amount less than $1. Prior to giving notice of its intention to
exchange, the Corporation shall execute with and deliver to a bank or trust
company selected by the Corporation the Indenture with such changes as may
be required by law or usage. The Corporation will cause the Indenture to
be qualified under the Trust Indenture Act of 1939, as amended, and will
cause the 15% Notes to be authenticated as of the date on which the
exchange is effective.
(B) If less than all the $7.20 Preferred Stock at the time
outstanding is to be exchanged, the shares so to be exchanged shall be
selected by lot, pro-rata or in such other manner as the Board of Directors
may determine to be fair and proper.
-6-
<PAGE>
Section 7. Reacquired Shares. Any shares of $7.20 Preferred Stock
-----------------
redeemed, purchased, exchanged or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued by
resolution or resolutions of the Board of Directors, subject to the
conditions or restrictions on issuance set forth herein.
Section 8. Liquidation, Dissolution or Winding Up. Upon any
--------------------------------------
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (A) to the holders of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to $7.20
Preferred Stock unless, prior thereto, the holders of $7.20 Preferred Stock
shall have received $48.00 per share, plus an amount equal to unpaid
dividends thereon, including accrued dividends, whether or not declared, to
the date of such payment or (B) to the holders of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up),
with $7.20 Preferred Stock, except distributions made ratably on $7.20
Preferred Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
-7-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Designation, Preferences, Rights and
Limitations to be signed by its Senior Vice President, Jeannette P. Meier, and
attested by its Assistant Secretary this 19th day of June, 1987.
STERLING SOFTWARE, INC.
By:/s/ Jeannette P. Meier
--------------------------
Jeannette P. Meier
Senior Vice President
and General Counsel
[Corporate Seal]
ATTEST:
By:/s/ Brenda H. Rudd
-----------------------
Assistant Secretary
-8-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Sterling Software, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Sterling
Software, Inc. and by a separate unanimous written consent of the Directors,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and directing that said amendment be considered at the next annual
meeting of the stockholders. The resolutions setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the first paragraph of the Article
numbered "IV" so that, as amended, said paragraph of said Article
shall be read as follows:
"The total number of shares of stock of all classes which the
corporation shall have authority to issue is Sixty Million
(60,000,000), consisting of Fifty Million (50,000,000) shares of
Common Stock having a par value of $.10 per share, and Ten
Million (10,000,000) shares of Preferred Stock having a par value
of $.10 per share."
SECOND: That thereafter, pursuant to certain resolutions, the Board
of Directors directed that said amendment be considered at the next annual
meeting of the stockholders. An annual meeting of the stockholders of said
corporation was duly called and held, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendment.
<PAGE>
IN WITNESS WHEREOF, Sterling Software, Inc. has caused this Certificate to
be signed by Sterling L. Williams, its President, and Jeannette P. Meier, its
Secretary, this 14th day of October, 1988.
By: /s/ Sterling L. Williams
-------------------------
Sterling L. Williams,
President
ATTEST: /s/ Jeannette P. Meier
-----------------------
Jeannette P. Meier,
Secretary
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Sterling Software, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Sterling Software,
Inc., resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and directing that said amendment be considered at the next annual
meeting of the stockholders. The resolution setting forth the proposed
amendments is as follows:
RESOLVED, that, subject to approval of the Company's stockholders of the
Charter Amendment, the Company's Certificate of Incorporation be, and it
hereby is, amended by changing the first paragraph of the Article numbered
"IV" so that, as amended, said paragraph of said Article shall read as
follows:
"The total number of shares of stock of all classes which the corporation
shall have authority to issue is Eighty-Five Million (85,000,000),
consisting of Seventy-Five Million (75,000,000) shares of Common Stock
having a par value of $.10 per share, and Ten Million (10,000,000) shares of
Preferred Stock having a par value of $.10 per share."
SECOND: That thereafter, pursuant to certain resolutions, the Board of
Directors directed that said amendments be considered at the next annual meeting
of the stockholders. An annual meeting of the stockholders of said corporation
was duly called and held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware, at which meeting the necessary
number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Sterling Software, Inc. has caused this certificate to be
signed by Albert K. Hoover, its Vice President, on this 11th day of May, 1995.
By: /s/ Albert K. Hoover
----------------------------------
Albert K. Hoover, Vice President
<PAGE>
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK
of
STERLING SOFTWARE, INC.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
Sterling Software, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Company"), DOES HEREBY CERTIFY:
That, pursuant to authority vested in the Board of Directors of the Company
by its Certificate of Incorporation, and pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, the Board of
Directors of the Company has adopted the following resolution providing for the
issuance of a series of Preferred Stock:
RESOLVED, that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Company (hereinafter called the "Board of
Directors" or the "Board") by the Certificate of Incorporation of the Company, a
series of Preferred Stock, par value $0.10 per share (the "Preferred Stock"), of
the Company be, and it hereby is, created, and that the designation and amount
thereof and the powers, designations, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
I. Designation and Amount
----------------------
The shares of such series will be designated as Series A Junior Participating
Preferred Stock (the "Series A Preferred") and the number of shares constituting
the Series A Preferred is 750,000. Such number of shares may be increased or
decreased by resolution of the Board; provided, however, that no decrease will
-------- -------
reduce the number of shares of Series A Preferred to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into shares of Series A Preferred.
<PAGE>
II. Dividends and Distributions
---------------------------
(a) Subject to the rights of the holders of any shares of any series of
Preferred Stock ranking prior to the shares of Series A Preferred with respect
to dividends, the holders of shares of Series A Preferred, in preference to the
holders of Common Stock, par value $0.10 per share (the "Common Stock"), of the
Company, and of any other junior stock, will be entitled to receive, when, as
and if declared by the Board out of funds legally available for the purpose,
dividends payable in cash on such dates as are from time to time established for
the payment of cash dividends on the Common Stock (each such date being referred
to herein as a "Dividend Payment Date"), commencing on the first Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred (the "First Dividend Payment Date"), in an amount per share
(rounded to the nearest cent) equal to the greater of (i) $1.00 or (ii) subject
to the provision for adjustment hereinafter set forth, one hundred times the
aggregate per share amount of all cash dividends, and one hundred times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Dividend Payment Date or, with respect to the First Dividend Payment Date, since
the first issuance of any share or fraction of a share of Series A Preferred.
In the event that the Company at any time (i) declares a dividend on the
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding shares of Common Stock, (iii) combines the
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of its capital stock in a reclassification of the outstanding
shares of Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), then, in each such case and regardless of whether any shares of
Series A Preferred are then issued or outstanding, the amount to which holders
of shares of Series A Preferred would otherwise be entitled immediately prior to
such event under clause (ii) of the preceding sentence will be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Dividends will accrue on outstanding shares of Series A Preferred from
the Dividend Payment Date next preceding the date of issue of such shares,
unless (i) the date of issue of such shares is prior to the record date for the
First Dividend Payment Date, in which case dividends on such shares will accrue
from the date of the first issuance of a share of Series A Preferred or (ii) the
date of issue is a Dividend Payment Date or is a date after the record date for
the determination of holders of shares of Series A Preferred entitled to receive
a dividend and before such Dividend Payment Date, in either of which events such
dividends will accrue from such Dividend Payment Date. Accrued but unpaid
dividends will cumulate from the applicable Dividend Payment Date but will not
bear interest. Dividends paid on the shares of Series A Preferred in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares will be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board may fix a record date for the
determination of holders of shares of Series A Preferred entitled to
-2-
<PAGE>
receive payment of a dividend or distribution declared thereon, which record
date will be not more than 60 calendar days prior to the date fixed for the
payment thereof.
III. Voting Rights
-------------
The holders of shares of Series A Preferred will have the following voting
rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred will entitle the holder thereof to one hundred
votes on all matters submitted to a vote of the stockholders of the Company.
In the event the Company at any time (i) declares a dividend on the
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding shares of Common Stock, (iii) combines the
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of its capital stock in a reclassification of the
outstanding shares of Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), then, in each such case and regardless
of whether any shares of Series A Preferred are then issued or outstanding,
the number of votes per share to which holders of shares of Series A
Preferred would otherwise be entitled immediately prior to such event will be
adjusted by multiplying such number by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any other Preferred Stock
Designation creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred and the holders of shares of
Common Stock and any other capital stock of the Company having general voting
rights will vote together as one class on all matters submitted to a vote of
stockholders of the Company.
(c) Except as set forth in the Certificate of Incorporation or herein, or
as otherwise provided by law, holders of shares of Series A Preferred will
have no voting rights.
IV. Certain Restrictions
--------------------
(a) Whenever dividends or other distributions payable on the Series A
Preferred are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Preferred
outstanding have been paid in full, the Company will not:
(i) Declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the shares of Series A
Preferred;
(ii) Declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation,
-3-
<PAGE>
dissolution, or winding up) with the shares of Series A Preferred, except
dividends paid ratably on the shares of Series A Preferred and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) Redeem, purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the shares of Series A
Preferred; provided, however, that the Company may at any time redeem,
-------- -------
purchase or otherwise acquire shares of any such junior stock in exchange
for shares of any stock of the Company ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the shares of
Series A Preferred; or
(iv) Redeem, purchase or otherwise acquire for consideration any
shares of Series A Preferred, or any shares of stock ranking on a parity
with the shares of Series A Preferred, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board) to all
holders of such shares upon such terms as the Board, after consideration of
the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, may determine in good
faith will result in fair and equitable treatment among the respective
series or classes.
(b) The Company will not permit any majority-owned subsidiary of the
Company to purchase or otherwise acquire for consideration any shares of stock
of the Company unless the Company could, under paragraph (a) of this Article IV,
purchase or otherwise acquire such shares at such time and in such manner.
V. Reacquired Shares
-----------------
Any shares of Series A Preferred purchased or otherwise acquired by the
Company in any manner whatsoever will be retired and canceled promptly after the
acquisition thereof. All such shares will upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock subject to the conditions and restrictions on
issuance set forth herein, in the Certificate of Incorporation of the Company,
or in any other Preferred Stock Designation creating a series of Preferred Stock
or any similar stock or as otherwise required by law.
VI. Liquidation, Dissolution or Winding Up
--------------------------------------
Upon any liquidation, dissolution or winding up of the Company, no
distribution will be made (a) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution, or winding up) to the
shares of Series A Preferred unless, prior thereto, the holders of shares of
Series A Preferred have received $100 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment; provided, however, that the holders of shares of Series A
-------- -------
Preferred will be entitled to receive an aggregate amount per share, subject to
the
-4-
<PAGE>
provision for adjustment hereinafter set forth, equal to one hundred times the
aggregate amount to be distributed per share to holders of shares of Common
Stock or (b) to the holders of shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution, or winding up) with the shares of
Series A Preferred, except distributions made ratably on the shares of Series A
Preferred and all such parity stock in proportion to the total amounts to which
the holders of all such shares are entitled upon such liquidation, dissolution,
or winding up. In the event the Company at any time (i) declares a dividend on
the outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding shares of Common Stock, (iii) combines the
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of its capital stock in a reclassification of the outstanding
shares of Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), then, in each such case and regardless of whether any shares of
Series A Preferred are then issued or outstanding, the aggregate amount to which
each holder of shares of Series A Preferred would otherwise be entitled
immediately prior to such event under the proviso in clause (a) of the preceding
sentence will be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
VII. Consolidation, Merger, Etc.
---------------------------
In the event that the Company enters into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then, in each such case, each share of Series A Preferred will at the
same time be similarly exchanged for or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to one
hundred times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Company at any
time (a) declares a dividend on the outstanding shares of Common Stock payable
in shares of Common Stock, (b) subdivides the outstanding shares of Common
Stock, (c) combines the outstanding shares of Common Stock in a smaller number
of shares, or (d) issues any shares of its capital stock in a reclassification
of the outstanding shares of Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), then, in each such case and regardless of
whether any shares of Series A Preferred are then issued or outstanding, the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred will be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
-5-
<PAGE>
VIII. Redemption
----------
The shares of Series A Preferred are not redeemable.
IX. Rank
----
The shares of Series A Preferred rank, with respect to the payment of
dividends and the distribution of assets, junior to all other series of the
Company's Preferred Stock.
X. Amendment
---------
Notwithstanding anything contained in the Certificate of Incorporation
of the Company to the contrary and in addition to any other vote required by
applicable law, the Certificate of Incorporation of the Company may not be
amended in any manner that would materially alter or change the powers,
preferences or special rights of the Series A Preferred so as to affect them
adversely without the affirmative vote of the holders of at least 80% of the
outstanding shares of Series A Preferred, voting together as a single series.
-6-
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Company by its Executive Vice President, Chief Financial Officer,
General Counsel and Secretary and attested by its Assistant Secretary this 18th
day of December, 1996.
/s/ Jeannette P. Meier
-----------------------
Jeannette P. Meier,
Executive Vice President,
Chief Financial Officer,
General Counsel and Secretary
Attest:
/s/ Don J. McDermett, Jr.
- --------------------------
Don J. McDermett, Jr.,
Assistant Secretary
-7-
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 1
---------------
TO
INTERNATIONAL DISTRIBUTOR AGREEMENT
BETWEEN
STERLING COMMERCE INTERNATIONAL, INC.
AND
STERLING SOFTWARE INTERNATIONAL, INC.
THIS AMENDMENT NO. 1 (this "Amendment") is made and entered into as of
January 31, 1997, by and between Sterling Commerce B.V., a private limited
liability company organized and existing under the laws of The Netherlands
("SCII"), and Sterling Software International, Inc., a Delaware corporation
("Distributor"). Capitalized terms used herein that are not otherwise defined
shall have the meanings ascribed to them in the Agreement (as hereinafter
defined).
WHEREAS, Sterling Commerce International, Inc., a Delaware corporation
("SC International"), was an original party to the Agreement;
WHEREAS, effective January 1, 1997, SC International assigned all of its
rights and obligations under the Agreement to SCII, a wholly owned subsidiary of
SCI; and
WHEREAS, SCII and Distributor desire to clarify and/or correct certain
provisions under the Agreement;
NOW, THEREFORE, effective as of the date hereof, the International
Distributor Agreement, dated as of March 4, 1996, between SC International and
Distributor (together with all exhibits and schedules thereto, the "Agreement"),
is hereby amended as follows:
1. References in the Agreement to SCII shall mean and refer to Sterling
Commerce B.V., a private limited liability company organized and existing under
the laws of The Netherlands.
2. The first "WHEREAS" clause of the Agreement is deleted in its entirety
and replaced with the following:
WHEREAS, Sterling Commerce (Mid America), Inc. ("ISG"), a subsidiary of
SCI, and the Communications Software Group ("CSG"), an operating group of
SCI (ISG and CSG, collectively the "SCI Companies"), market, license,
install, maintain and support certain computer software products, including
the Products (as defined below);
3. Section 1.a.: The first sentence of Section l.a. is deleted and
------------
replaced with the following:
<PAGE>
Except as otherwise provided in Section 1.d., SCII hereby grants to
Distributor, and Distributor hereby accepts from SCII, the exclusive right
to market, sublicense, install, maintain and support the Products within
the Territory, either directly and/or through such wholly owned
subsidiaries of SSW (collectively, "SSW Subdistributors") and unaffiliated
third parties (collectively, "Third-Party Subdistributors" and, together
with SSW Subdistributors, "Subdistributors") as may be appointed by
Distributor in accordance with this Section 1.a.
4. Section 1.b.: Reference to "that SCII makes available to Distributor"
------------
in the second line of Section 1.b. is deleted and replaced with "that SCII makes
available for third-party distribution within the Territory".
5. Section 1.c.: The first sentence of Section 1.c. is deleted and
------------
replaced with the following:
"Territory" means everywhere in the world except the United States of
America, its territories, Puerto Rico and Canada.
6. Section 1.d. The following Section 1.d. shall be inserted:
------------
d. Services. Distributor acknowledges that SCII markets and provides,
--------
and is not prohibited under this Agreement from marketing or
providing, directly or through third parties, Commerce Services (as
herein defined) to entities located in the Territory, and that
Distributor is not authorized to market or provide the Commerce
Services. Furthermore, Distributor acknowledges that specialized
software, such as the Enabling Software (as herein defined), is
required to enable and facilitate the use and provision of, and is an
integral part of, certain of the Commerce Services. Accordingly, and
notwithstanding anything in this Agreement to the contrary, SCII
specifically shall have the right within the Territory to directly or
indirectly market, sublicense, install, maintain and support:
(A) GENTRAN:Basic, GENTRAN:Director, GENTRAN: Integrator,
GENTRAN: SmartForms and any other similar PC software products
marketed under the GENTRAN tradename (collectively, the "Enabling
Software") the principal purpose of which is to enable or facilitate
SCII's service offerings, marketed under the COMMERCE tradename,
including without limitation COMMERCE:Network, COMMERCE:Exchange and
other substantially similar service offerings (all such services
collectively, "Commerce Services"); provided that the Enabling
Software is marketed in the Territory by SCII and/or its
subdistributors only in connection with the Commerce Services; and
(B) Products that are a component of, integrated with, embedded
in or provided as an add-on to COMMERCE:Exchange or any substantially
similar service offering of SCII or its subdistributors (collectively,
"Exchange
2
<PAGE>
Components"). Distributor shall not be entitled to any payment
hereunder with respect to Exchange Components and shall not market or
sublicense Products as Exchange Components to licensees of Commerce
Exchange or substantially similar service offerings ("Exchange
Customers"). Notwithstanding the foregoing provisions of this clause
(B), if Distributor or any Subdistributor independently brings to
SCII's attention a potential purchaser of Exchange Components not
theretofore known to SCII (or its subdistributors or affiliates),
Distributor or such Subdistributor shall be entitled to a royalty from
SCII for those Products (I) actually delivered to and licensed by such
purchaser, and (II) with respect to which Distributor or such
Subdistributor would have had full right to market and sublicense if
not a component of, embedded in or provided as an add-on to
COMMERCE:Exchange or any substantially similar service offering of
SCII or its subdistributors (the "Exchange Offerings"). The amount of
such royalty for any such referral shall be fifty percent (50%) of the
relative value attributable to such Exchange Components within the
particular Exchange Offering. In determining such value, consideration
will be given to the relative functionality and significance of the
different pieces of software contained in such Exchange Offering
(including such Exchange Components), the relative list prices of such
software and overall discounts, if any. The parties shall cooperate
and work in good faith in making such determinations.
In order to avoid interfering with SCII's Commerce Services business,
neither Distributor nor any Subdistributor shall market or sublicense
Enabling Software to the following persons or entities:
(i) A person or entity that is a party to or an express third-
party beneficiary under an agreement for the provision of
Commerce Services; or
(ii) A person or entity that is a subdistributor or remarketer of
Commerce Services or a Prospect (as herein defined). A
Prospect shall be any person or entity that is in
discussions or negotiations with SCII (or an affiliate of
SCII) to become a subdistributor or remarketer of Commerce
Services, as identified in a written notice to Distributor.
From time to time, SCII shall provide Distributor with the
list of such subdistributors and remarketers and Prospects.
Subject to the prohibitions set forth in clauses (i) and (ii) above,
Distributor and its Subdistributors may market, sublicense, install,
maintain and support Enabling Software within the Territory. Without
limiting the provisions above, in the event Distributor, an SSW
Subdistributor or Third-Party Subdistributor sublicenses (x) Enabling
Software to any of the persons or entities in clauses (i) or (ii)
above or (y) Products as Exchange Components to Exchange Customers,
the percentage royalty payable to SCII pursuant to Section 6 of this
Agreement shall be 100% in the case of a sublicense by Distributor or
an SSW Subdistributor, and 200%, in
3
<PAGE>
the case of a sublicense by a Third-Party Subdistributor.
SCII and Distributor and its Subdistributors acknowledge and agree
that they will cooperate and communicate with one another in good
faith and in a timely and responsive manner in order to promote full
compliance with the provisions of this Section 1(d) and to avoid
interfering with, and to in fact maximize, their respective marketing
efforts within the Territory. Without limiting the generality of the
preceding sentence, when SCII or Distributor (or any Subdistributor)
is uncertain as to whether a prospective customer (whether end-user,
reseller or otherwise) has a relationship that would be subject to the
foregoing provisions of this Section 1(d), the party confronting such
uncertainty shall make due inquiry of the other party hereunder in
order to resolve such uncertainty as promptly as possible.
7. Section 2.e.: The fifth sentence of Section 2.e. is deleted and
------------
replaced with the following:
Neither Distributor nor any Subdistributor will make any material
modification or amendment to the Product Use Contract without SCII's prior
written approval, such approval to be given on a case-by-case basis and not
to be unreasonably withheld. For purposes of this Agreement, and without
limiting the foregoing, any modification or amendment that has the effect
of modifying the provisions of Sections 2 (Grant and Use of Software), 3
(Title and Confidentiality, 5 (Warranty and Liability), and 7 (Services)
of the Product Use Contract shall be deemed material.
8. Section 2.f.: Reference to "then current maintenance agreements" in
------------
the first sentence of Section 2.f. shall be deleted and replaced with "under
then current Product Use Contracts."
9. Section 4.b.: The first sentence of Section 4.b. is deleted and
------------
replaced with the following:
SCII may accept or reject at its discretion any non-standard order or non-
standard Product Use Contract that has been materially modified or amended
without SCII's prior written consent as required under Section 2.e, subject
to any written and binding commitment that SCII may hereafter make to
Distributor outside of this Agreement.
10. Exhibit C: The third paragraph under the heading DISTRIBUTOR PROFILE
---------
is hereby deleted and replaced with the following:
Future financials both with and, to the extent publicly available, without
SCII Product representation;
11. Exhibit D: Exhibit D of the Agreement is hereby amended as follows:
---------
4
<PAGE>
(i) Paragraph 2.1: Paragraph 2.1 is deleted in its entirety and replaced
-------------
with the following:
In consideration of the payment by Customer of the Product Use
Charge(s) as provided for in this Contract and more specifically
defined in the Schedule and subject to the terms and conditions set
forth in this Contract, Licensor hereby grants to Customer a personal,
non-transferable and non-exclusive right to execute one copy of the
applicable Software only at the designated Computer Installation(s)
specified in the Schedule.
(ii) Paragraph 2.6: The phrase "during the term of this Contract," in the
-------------
first line of Paragraph 2.6 is hereby deleted. The brackets
surrounding the word "Australia" are hereby deleted.
(iii) Paragraph 4.2: The brackets surrounding the phrase "the currency of
-------------
the Installation Country" in Paragraph 4.2 are hereby deleted.
(iv) Paragraph 6.3: The reference to "Paragraph 7.3" in the last line of
-------------
Paragraph 6.3 is hereby deleted and replaced with "Paragraph 6.3."
(v) Paragraph 6.5. After "Paragraph 2.6," insert "Section 3.0."
-------------
As soon as practicable after date hereof, SCII will prepare an amended and
restated Exhibit D incorporating solely those amendments set forth in this
Section 9.
12. On and after the date hereof, each reference in the Agreement to "this
Agreement," "hereunder," "herein" or words of like import referring to the
Agreement will be a reference to the Agreement as amended by this Amendment
No.1.
13. Except as specifically amended by this Amendment No.1, the Agreement
will remain in full force and effect and is hereby ratified and confirmed.
STERLING COMMERCE B.V. STERLING SOFTWARE
INTERNATIONAL, INC.
By: /s/ Albert K. Hoover By: /s/ James E. Jenkins, Jr.
------------------------------ -----------------------------------
Name: Albert K. Hoover Name: James E. Jenkins, Jr.
Title: Managing Director Title: Vice President
5
<PAGE>
EXHIBIT 10.2
THIRD AMENDMENT AND MODIFICATION AGREEMENT
THIRD AMENDMENT AND MODIFICATION AGREEMENT dated as of December 16, 1996
(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, BANK ONE, TEXAS, NATIONAL ASSOCIATION, and BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (collectively, the "Banks");
and THE FIRST NATIONAL BANK OF BOSTON, AS AGENT (the "Agent") for the Banks,
amending certain provisions of the Second Amended and Restated Revolving Credit
and Term Loan Agreement dated as of August 24, 1995 (as heretofore amended, the
"Agreement") among the Company, the Banks and the Agent and the other Loan
Documents (as defined in the Agreement). Terms not otherwise defined herein
which are defined in the Agreement shall have the respective meanings assigned
to such terms in the Agreement.
WHEREAS, the Company has requested that the Agent and the Banks amend
certain provisions of the Agreement; and
WHEREAS, upon the terms and subject to the conditions contained herein, the
Agent and the Banks are willing to amend such provisions of the Credit
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Agreement, the other Loan Documents and this Amendment 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 OF (S)9.15 OF THE AGREEMENT. Section 9.15 of the
-------------------------------------
Agreement is hereby deleted in its entirety, and the following new text is
hereby substituted in lieu thereof: "(S)9.15. Intentionally omitted."
(S)2. AMENDMENT OF (S)10.4 OF THE AGREEMENT. Section 10.4 of the
-------------------------------------
Agreement is hereby deleted in its entirety, and the following new (S)10.4 is
hereby substituted in lieu thereof:
"(S)10.4. Consolidated Net Worth. The Company shall not cause or
----------------------
permit Consolidated Net Worth at the end of any fiscal quarter of the
Company to be less than the sum of (a) $725,000,000, plus (b) on a
----
cumulative basis, commencing with the fiscal quarter ending December 31,
1996, seventy-five percent (75%) of the Consolidated Net Income for each
fiscal quarter (calculated without deduction for any net losses) through
the fiscal quarter then ended, after preferred stock dividends actually
paid by the Company since September 30, 1996 (to the extent permitted by
(S)9.16), and as adjusted from time to time to reflect stock
<PAGE>
-2-
splits, distributions (other than repurchases by the Company of its issued
and outstanding capital stock, as permitted by (S)9.16), or
recapitalizations or reclassifications, plus (c) one hundred percent (100%)
----
of the net proceeds received by the Company of any new equity (not
including shares of the Company reissued by the Company following the
Company's repurchase thereof as permitted by (S)9.16) issued by the Company
since September 30, 1996.
(S)3. CONDITIONS TO EFFECTIVENESS. This Amendment shall be deemed to be
---------------------------
effective as of the date first written above (the "Effective Date") (provided,
--------
however, that the amendment contained in (S)1 hereof shall be deemed to be
effective as of July 31, 1996) upon the Agent's receipt on or before December
20, 1996, 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)4. REPRESENTATIONS 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 Agreement, the other Loan
Documents or in any document or instrument delivered pursuant to or in
connection with the Agreement, the other Loan Documents or this Amendment
was true as of the date as of which it was made, 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)3
hereof, and the agreements of the Company and each of the Sterling
Subsidiaries, contained herein, in the Agreement, as herein or heretofore
amended, or in the other Loan Documents, as heretofore amended,
respectively constitute the legal, valid and binding obligations of the
Company and each of the Sterling Subsidiaries, party hereto or thereto,
enforceable against the Company or such Sterling Subsidiary, in accordance
with their respective terms.
(S)5. RATIFICATION, ETC. Except as expressly amended hereby, the
-----------------
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 Agreement or
such other Loan Documents or in any related agreement or instrument to the
Agreement or such other Loan Documents shall hereafter refer to such agreements
as amended hereby, pursuant to the provisions of the Agreement.
(S)6. NO IMPLIED WAIVER, ETC. Except as expressly provided herein,
----------------------
nothing contained herein shall constitute a waiver of, impair or otherwise
affect any of the Obligations, any other obligations of the Company or any of
the Sterling Subsidiaries or any right of the Agent or the Banks consequent
thereon.
<PAGE>
-3-
The waivers and consents provided herein are limited strictly to their
terms. Neither the Agent nor any of the Banks shall have any obligation to
issue any further waiver or consent with respect to the subject matter hereof or
any other matter.
(S)7. 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)8. 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 CHOICE OR CONFLICTS OF LAWS).
<PAGE>
-4-
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:
------------------------------
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION
By:
------------------------------
Title:
STERLING SOFTWARE, INC.
By:
------------------------------
Title:
<PAGE>
-5-
Each of the undersigned hereby acknowledges the foregoing Amendment as of the
Effective Date and agrees that its obligations under the Guaranty will extend to
the Agreement, as so amended, and the other Loan Documents, as so amended.
STERLING SOFTWARE (U.S.), INC.
By:
------------------------------
Title:
STERLING SOFTWARE
(SOUTHERN), INC.
By:
------------------------------
Title:
STERLING SOFTWARE
(U.S.A.), INC.
By:
------------------------------
Title:
STERLING SOFTWARE
INTERNATIONAL, INC.
By:
------------------------------
Title:
STERLING SOFTWARE LEASING
COMPANY
By:
------------------------------
Title:
<PAGE>
-6-
STERLING SOFTWARE (U.S. OF
AMERICA), INC.
By:
-----------------------------
Title:
<PAGE>
STERLING SOFTWARE, INC. EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED DECEMBER 31, 1996
(in thousands, except per share information)
(unaudited)
<TABLE>
<CAPTION>
Fully
Primary Diluted
------------ --------
<S> <C> <C>
Earnings:
Earnings applicable to common stockholders.................................... $12,740 $12,740
========= =========
Shares:
Weighted average of shares outstanding........................................ 38,439 38,439
Add common shares issued on assumed exercise of options and warrants.......... 6,787 6,787
Less common shares assumed repurchased........................................ (6,081) (6,081)
--------- ---------
39,145 39,145
========= =========
Earnings per common share:
Primary....................................................................... $ .33
==========
Fully diluted................................................................. $ .33
=========
</TABLE>
<PAGE>
STERLING SOFTWARE, INC. EXHIBIT 11.2
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED DECEMBER 31, 1995
(in thousands, except per share information)
(unaudited)
<TABLE>
<CAPTION>
Fully
Primary Diluted
--------- ---------
<S> <C> <C>
Earnings:
Earnings applicable to common stockholders............................................... $21,307 $21,307
Add: Interest expense on amounts outstanding for the 5 3/4% Convertible
Subordinated Debentures (net of applicable income taxes)......................... 218 1,160
------- -------
$21,525 $22,467
======= =======
Shares:
Weighted average of shares outstanding................................................... 26,630 26,630
Add common shares issued on assumed exercise of options and warrants..................... 8,616 8,616
Less common shares assumed repurchased................................................... (5,333) (5,074)
------- -------
29,913 30,172
=======
Common shares issued on assumed conversion of 5 3/4% Convertible
Subordinated Debentures.................................................................. 4,052
-------
34,224
=======
Earnings per common share:
Primary.................................................................................. $ .72
=======
Fully diluted............................................................................ $ .66
=======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE STERLING SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 541,724
<SECURITIES> 206,994
<RECEIVABLES> 111,622
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 883,876
<PP&E> 90,732
<DEPRECIATION> 45,234
<TOTAL-ASSETS> 1,067,657
<CURRENT-LIABILITIES> 138,406
<BONDS> 0
0
0
<COMMON> 3,981
<OTHER-SE> 889,073
<TOTAL-LIABILITY-AND-EQUITY> 1,067,657
<SALES> 97,141
<TOTAL-REVENUES> 97,141
<CGS> 42,862
<TOTAL-COSTS> 88,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 19,600
<INCOME-TAX> 6,860
<INCOME-CONTINUING> 12,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,740
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
