<PAGE>
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 March 31, 1998
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)
300 CRESCENT COURT, SUITE 1200
DALLAS, TEXAS 75201
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (214) 981-1000
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 April 23, 1998
- ----------------------------- ---------------------------------------
Common Stock, $0.10 par value 77,695,836
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
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Page
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ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)............................................ 3
Sterling Software, Inc. Consolidated Balance Sheets at March 31, 1998 and
September 30, 1997................................................................. 3
Sterling Software, Inc. Consolidated Statements of Operations for the Three and Six
Months Ended March 31, 1998 and 1997............................................... 4
Sterling Software, Inc. Consolidated Statement of Stockholders' Equity for the Six
Months Ended March 31, 1998........................................................ 5
Sterling Software, Inc. Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 1998 and 1997...................................................... 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
</TABLE>
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS........................................................... 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................ 22
</TABLE>
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
A S S E T S
<TABLE>
<CAPTION>
MARCH 31 SEPTEMBER 30
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 421,507 $ 435,726
Marketable securities....................................................... 234,750 206,965
Accounts and notes receivable, net.......................................... 162,924 149,422
Income tax receivable....................................................... 8,200 9,941
Prepaid expenses and other current assets................................... 20,713 24,847
---------- ----------
Total current assets....................................................... 848,094 826,901
Property and equipment, net of accumulated depreciation of $44,641 at
March 31, 1998 and $42,430 at September 30, 1997............................. 52,061 48,598
Computer software, net of accumulated amortization of $93,804 at
March 31, 1998 and $87,258 at September 30, 1997............................. 76,750 70,422
Excess cost over net assets acquired, net of accumulated amortization of
$23,557 at March 31, 1998 and $20,650 at September 30, 1997................. 79,526 84,701
Noncurrent deferred income taxes............................................. 4,503 22,130
Other assets................................................................. 18,830 12,906
---------- ----------
$1,079,764 $1,065,658
========== ==========
</TABLE>
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
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities.................................... $ 137,096 $ 172,700
Deferred revenue............................................................ 91,043 95,455
---------- ----------
Total current liabilities................................................. 228,139 268,155
Noncurrent deferred revenue.................................................. 24,780 20,432
Other noncurrent liabilities................................................. 32,965 28,817
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value; 10,000,000 shares authorized, no shares
issued or outstanding......................................................
Common stock, $.10 par value; 125,000,000 and 75,000,000 shares authorized
at March 31, 1998 and September 30, 1997, respectively; 80,270,000 and
79,808,000 shares issued at March 31, 1998 and September 30, 1997,
respectively............................................................... 8,027 7,981
Additional paid-in capital.................................................. 807,953 802,030
Retained earnings (deficit)................................................. 34,989 (3,506)
Less treasury stock, at cost; 2,649,000 and 2,704,000 shares at March 31,
1998 and September 30, 1997, respectively.................................. (57,089) (58,251)
---------- ----------
Total stockholders' equity................................................ 793,880 748,254
---------- ----------
$1,079,764 $1,065,658
========== ==========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31 ENDED MARCH 31
----------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Products................................. $ 65,300 $ 47,579 $122,451 $ 84,135
Product support.......................... 40,197 29,179 80,816 59,515
Services................................. 53,900 29,986 104,959 60,235
-------- -------- -------- --------
159,397 106,744 308,226 203,885
Costs and expenses:
Cost of sales:
Products and product support............ 14,447 18,966 29,942 35,520
Services................................ 46,709 26,056 91,031 52,364
-------- -------- -------- --------
61,156 45,022 120,973 87,884
Product development and enhancement...... 7,812 5,011 16,665 9,817
Selling, general and administrative...... 58,613 43,560 117,148 84,292
-------- -------- -------- --------
127,581 93,593 254,786 181,993
-------- -------- -------- --------
Income before other income (expense) and
income taxes............................. 31,816 13,151 53,440 21,892
Other income (expense):
Interest expense......................... (30) (120) (61) (267)
Investment income........................ 8,364 10,244 16,611 21,017
Other.................................... (302) 121 (304) 354
-------- -------- -------- --------
8,032 10,245 16,246 21,104
-------- -------- -------- --------
Income before income taxes................ 39,848 23,396 69,686 42,996
Provision for income taxes................ 13,549 8,072 23,694 14,932
-------- -------- -------- --------
Net income................................ $ 26,299 $ 15,324 $ 45,992 $ 28,064
======== ======== ======== ========
Income per common share:
Net income:
Basic................................... $ .34 $ .20 $ .59 $ .36
======== ======== ======== ========
Diluted................................. $ .32 $ .20 $ .57 $ .36
======== ======== ======== ========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
-------------------- --------------------
NUMBER ADDITIONAL RETAINED NUMBER TOTAL
OF PAR PAID-IN EARNINGS OF STOCKHOLDERS'
SHARES VALUE CAPITAL (DEFICIT) SHARES COST EQUITY
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997........... 79,808 $ 7,981 $802,030 $ (3,506) 2,704 $(58,251) $748,254
Net income............................. 45,992 45,992
Issuance of common stock pursuant to
stock options......................... 462 46 6,198 6,244
Issuance of common stock to retirement
plan.................................. (275) (55) 1,162 887
Other.................................. (7,497) (7,497)
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1998............... 80,270 $ 8,027 $807,953 $ 34,989 2,649 $(57,089) $793,880
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MARCH 31
------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net income.................................................................. $ 45,992 $ 28,064
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities:
Depreciation and amortization............................................. 19,763 17,133
Provision for losses on accounts receivable............................... 3,049 1,284
Provision for deferred income taxes....................................... 19,368 7,535
Changes in operating assets and liabilities, net of effects of business
acquisitions:
(Increase) decrease in accounts and notes receivable................... (16,646) 16,308
Increase in prepaid expenses and other assets.......................... (150) (5,293)
Decrease in accounts payable, accrued liabilities and amounts due to
Sterling Commerce, Inc................................................ (36,016) (46,556)
(Decrease) increase in deferred revenue................................ (4,954) 1,471
Other.................................................................. 8,015 4,002
--------- ---------
Net cash provided by operating activities............................. 38,421 23,948
Investing activities:
Purchases of property and equipment......................................... (10,540) (18,094)
Purchases and capitalized cost of development of computer software.......... (11,635) (9,059)
Business acquisitions, net of cash acquired................................. (3,626) (2,995)
Purchases of investments.................................................... (112,106) (163,298)
Proceeds from sales of investments.......................................... 85,120 214,044
Other..................................................................... 1,495 398
--------- ---------
Net cash (used in) provided by investing activities................... (51,292) 20,996
Financing activities:
Retirement and redemption of debt and capital lease obligations............. (1,080) (6,567)
Proceeds from issuance of debt.............................................. 198 7,522
Proceeds from issuance of common stock pursuant to exercise of stock options
6,244 1,310
Other....................................................................... (4,460) 1,205
--------- ---------
Net cash provided by financing activities............................. 902 3,470
Effect of foreign currency exchange rate changes on cash..................... (2,250) (1,150)
--------- ---------
(Decrease) increase in cash and cash equivalents............................. (14,219) 47,264
Cash and cash equivalents at beginning of period............................. 435,726 524,237
--------- ---------
Cash and cash equivalents at end of period................................... $ 421,507 $ 571,501
========= =========
Supplemental cash flow information:
Income taxes paid........................................................... $ 2,301 $ 5,160
========= =========
Income tax refunds.......................................................... $ 232 $ 186
========= =========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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: applications management, systems management and federal systems.
Consistent with Sterling Software's decentralized operating structure, major
markets are served by independently operated business groups which consist of
divisions and business units that focus on specific business niches within those
markets. 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 after elimination of all significant intercompany balances and
transactions. 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 at March 31, 1998 and September
30, 1997 and the results of operations for the three and six months ended
March 31, 1998 and 1997. While management has based their assumptions and
estimates on the facts and circumstances currently known, final amounts may
differ from such estimates.
Revenue
Revenue from license fees 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.
Product support contracts allow customers to receive updated versions of
Sterling Software's products when and if they become available, as well as bug
fixing, and Internet and telephone access to the Company's technical personnel.
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.
-7-
<PAGE>
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 specialized information technology ("IT") 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.
Returns and allowances and other similar adjustments to revenue involving
software products historically have not been material to the Company's results
of operations.
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.
Earnings Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS
128 sets forth new rules for computing earnings per share which replace
previously reported "primary" and "fully diluted" earnings per share with
"basic" and "diluted" earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. The Company adopted FAS
128 in the first quarter of 1998.
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<PAGE>
On March 11, 1998, the Sterling Software Board of Directors authorized a
2-for-1 stock split that was effected by means of a dividend consisting of one
share of the Company's common stock, par value $.10 per share ("Common Stock"),
for each share of Common Stock outstanding (the "Stock Split Dividend"). The
Stock Split Dividend was paid April 3, 1998 to holders of record on March 20,
1998.
Earnings per share amounts for all prior periods presented herein have been
restated to conform with FAS 128 and to reflect the Stock Split Dividend.
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic:
Earnings applicable to common
stockholders............................. $26,299 $15,324 $45,992 $28,064
======= ======= ======= =======
Weighted average shares................... 77,413 76,931 77,297 76,895
======= ======= ======= =======
Basic earnings per share.................. $ .34 $ .20 $ .59 $ .36
======= ======= ======= =======
Diluted:
Earnings applicable to common
stockholders............................. $26,299 $15,324 $45,992 $28,064
======= ======= ======= =======
Weighted average shares................... 77,413 76,931 77,297 76,895
Effect of dilutive employee stock options. 4,704 490 3,871 1,117
------- ------- ------- -------
82,117 77,421 81,168 78,012
======= ======= ======= =======
Diluted earnings per share................ $ .32 $ .20 $ .57 $ .36
======= ======= ======= =======
</TABLE>
Foreign Currency Translation
The financial statements of the Company's subsidiaries outside the United
States are generally prepared using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated into U.S.
dollars at exchange rates in effect as of the applicable balance sheet date and
any resulting translation adjustments are included as an adjustment to retained
earnings. Revenue and expense items of these subsidiaries are translated at
average exchange rates during the month the transactions occur. Gains and losses
from foreign currency transactions are included in net earnings. Foreign
currency transaction gains and losses historically have not been material to the
Company's results of operations.
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<PAGE>
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. The information included in
this report should be read in conjunction with the information presented under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1997.
3. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain legal proceedings and claims that arise in
the normal course of its business. In the opinion of management, the amount of
the liability, if any, ultimately incurred by Sterling Software with respect to
any existing proceedings and claims, net of applicable reserves and available
insurance, will not materially affect the financial condition or results of
operations of the Company.
4. SEGMENT INFORMATION
The Company acquires, develops, markets and supports a broad range of
computer software products and services in three major markets: applications
management, systems management and federal systems. Major markets are
represented through independently operated business segments. The applications
management business segment provides application development products and
services for business modeling through code generation, as well as products and
services that enable customers to extend the life and usefulness of legacy
applications and to facilitate enterprise information access. The systems
management business segment provides products that enable customers to ensure
the quality of service of IT applications across enterprise networked computing
environments. The federal systems business segment provides specialized IT
services to the federal government under numerous multi-year contracts primarily
in support of two major customers, the National Aeronautics and Space
Administration ("NASA") and the Department of Defense. Through June 30, 1997,
the Company's international operations sold, marketed and provided first-level
support outside of the United States 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 under "Corporate and other".
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<PAGE>
Financial information concerning the Company's operations, by business
segment, for the three and six months ended March 31, 1998 and 1997, is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31 ENDED MARCH 31
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Applications Management................... $ 73,178 $ 21,834 $145,653 $ 43,786
Systems Management........................ 50,314 43,916 92,375 80,866
Federal Systems........................... 35,905 27,954 69,570 55,812
Corporate and other....................... 13,040 628 23,421
-------- -------- -------- --------
Consolidated totals....................... $159,397 $106,744 $308,226 $203,885
======== ======== ======== ========
Operating Profit (Loss):
Applications Management................... $ 18,730 $ 2,824 $ 32,076 $ 5,048
Systems Management........................ 18,680 17,099 32,518 29,988
Federal Systems........................... 2,468 2,303 4,707 4,698
Corporate and other....................... (8,062) (9,075) (15,861) (17,842)
-------- -------- -------- --------
Consolidated totals...................... $ 31,816 $ 13,151 $ 53,440 $ 21,892
======== ======== ======== ========
</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, for the three and six months ended March 31, 1997, the
results of operations relating to the international distribution of Sterling
Commerce's interchange and communications software products.
5. INCREASE IN AUTHORIZED COMMON STOCK AND STOCK SPLIT DIVIDEND
On March 11, 1998, the Sterling Software stockholders approved an amendment
to the Company's Certificate of Incorporation increasing the number of
authorized shares of Common Stock from 75,000,000 shares to 125,000,000 shares.
Also on March 11, 1998, the Board of Directors of Sterling Software authorized a
2-for-1 stock split that was effected by means of the Stock Split Dividend. The
Stock Split Dividend was paid on April 3, 1998 to holders of record of
outstanding shares of Common Stock at the close of business on March 20, 1998.
Common stock, treasury stock and earnings per share information included in this
report have been restated to reflect the Stock Split Dividend.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS COMBINATIONS AND DIVESTITURES
Acquisition of TI Software
On June 30, 1997, Sterling Software completed the acquisition (the
"Acquisition") of certain assets (including the capital stock of certain foreign
subsidiaries) of Texas Instruments Incorporated ("Texas Instruments") for
approximately $214,774,000, including costs directly related to the Acquisition
of approximately $49,774,000. Such assets constitute substantially all of the
assets used by Texas Instruments' Software Division ("TI Software") in its
business of developing, marketing, licensing, supporting and maintaining
application development software and providing related consulting services. The
results of operations of TI Software are included in the Company's results of
operations from the date of the Acquisition.
Termination of International Distributor Agreement
Effective as of June 30, 1997, Sterling Software and Sterling Commerce,
formerly a wholly owned subsidiary of Sterling Software formed to operate the
business of Sterling Software's former Electronic Commerce Group, completed an
agreement terminating the International Distributor Agreement dated March 4,
1996 (the "International Distributor Agreement"), pursuant to which Sterling
Software acted as the exclusive distributor of Sterling Commerce's interchange
and communications software products in markets outside the United States and
Canada. The results of the Company's international operations related to
selling, marketing and providing first level support of these products outside
of the United States and Canada for the three and six months ended March 31,
1997 are included in the business segment information presented herein under
"Corporate and other".
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
Total revenue increased $52,653,000, or 49%, in the second quarter of 1998
over the same period of 1997 due to revenue increases in all three of the
Company's business segments, partially offset by a decline in corporate and
other revenue due to the termination of the International Distributor Agreement
with Sterling Commerce in the third quarter of 1997. Revenue from the
applications management, systems management and federal systems business
segments increased 235%, 15% and 30%, respectively, in the second quarter of
1998 over the same period in 1997. Both the applications management business
segment as well as the federal systems business segment benefited substantially
from the domestic and international operations acquired by Sterling Software in
the Acquisition.
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<PAGE>
Total revenue generated from the Company's international operations was
$60,176,000 and $39,571,000 in the second quarter of 1998 and 1997,
respectively, representing an increase of $20,605,000, or 52%, due to
increases in the applications management business segment (up 542%) and in the
systems management business segment (up 9%). The increase in international
revenue was partially offset by a decline in revenue from sales of Sterling
Commerce's interchange and communications software products and services due to
the termination of the International Distributor Agreement in the third quarter
of 1997. In addition, international operating results in the second quarter of
1998 were adversely impacted by foreign currency exchange rate fluctuations as a
result of a stronger U.S. dollar. Had foreign currency exchange rates remained
consistent with the same period of the previous year, international revenue
would have been higher in the second quarter of 1998 by approximately
$4,000,000. Revenue from the Company's international operations represented 38%
and 37% of total revenue in the second quarter of 1998 and 1997, respectively.
The Company's recurring revenue includes revenue from product support
agreements generally having terms ranging from one to three years 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 decreased to 47% of total revenue in the second quarter of 1998 compared
to 54% in the same period of 1997, primarily due to the significant increase in
products and services revenue from the applications management business segment.
Overall, services revenue increased from 28% of total revenue in the second
quarter of 1997 to 34% of total revenue for the same period of 1998. This
increase resulted primarily from generally higher levels of consulting services
associated with product sales in the applications management segment. The
Company currently expects that revenue from services will continue to constitute
a larger percentage of the Company's total revenue in future reporting periods
than was the case prior to the Acquisition.
Revenue from the applications management business segment increased
$51,344,000, or 235%, in the second quarter of 1998 over the same period of 1997
due to a 194% increase in products revenue, a 150% increase in product support
revenue and a 1,014% increase in services revenue. The significant increase in
revenue from the applications management business segment is primarily
attributable to revenue from the Applications Development and Applications
International divisions, which include the non-federal domestic and
international operations, respectively, acquired in the Acquisition.
Approximately 50% of the applications management business segment's total
revenue in the second quarter of 1998 was derived from the Company's
international operations, compared to 26% in the same period of 1997.
Revenue from the systems management business segment increased $6,398,000,
or 15%, in the second quarter of 1998 over the same period of 1997 primarily due
to a 24% increase in products revenue attributable to increased domestic and
international product sales across all three product lines. Product support
revenue in the second quarter of 1998 was consistent with product support
revenue in the same period of 1997 due to the adverse impact of foreign currency
exchange rate fluctuations as a result of a stronger U.S. dollar. Approximately
47% of the systems management business segment's total revenue in the second
quarter of 1998 was derived from the Company's international operations,
compared to 49% in the same period of 1997.
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<PAGE>
Revenue from the federal systems business segment increased $7,951,000, or
28%, in the second quarter of 1998 over the same period of 1997 due primarily to
a contract added to the Company's federal systems business segment as a result
of the Acquisition and, to a lesser extent, to higher contract billings in both
the Information Technology Division and the Scientific Systems Division. As
previously reported, in June of 1997 NASA announced that the Company was not
selected for continuation of a contract with NASA's Ames Research Center. After
NASA's initial selection of another bidder was rescinded, a number of months
elapsed while NASA re-evaluated the procurement. In April of 1998, NASA
announced that it had once again awarded the contract to the bidder originally
selected in June of 1997. After evaluating its alternatives, the Company decided
to work together with NASA to achieve an orderly transition of the procurement.
In order to assist in this transition, the Company will continue to provide
services under the pre-existing contract through June 30, 1998. The loss of this
contract will not have a material effect on the Company's profit in future
reporting periods.
Total costs and expenses increased $33,988,000, or 36%, in the second
quarter of 1998 compared to the same period of 1997, and represented 80% and 88%
of total revenue in the second quarter of 1998 and 1997, respectively.
Total cost of sales increased $16,134,000, or 36%, in the second quarter of
1998 compared to the same period of 1997, and represented 38% and 42% of total
revenue in the second quarter of 1998 and 1997, respectively. Cost of sales for
products and product support decreased $4,519,00, or 24%, in the second quarter
of 1998 compared to the same period of 1997 and represented 14% and 25% of
products and product support revenue in the second quarter of 1998 and 1997,
respectively. The decrease in cost of sales for products and product support is
primarily attributable to the decrease in royalties payable to Sterling Commerce
due to the termination of the International Distributor Agreement, as well as a
decrease in royalties payable to other third parties related to products no
longer marketed by the Company. Cost of sales for services increased
$20,653,000, or 79%, in the second quarter of 1998 compared to the same period
of 1997 and represented 87% of revenue in both the second quarter of 1998 and
1997. The significant increase in cost of sales for services is primarily
attributable to the increase in services revenue from the applications
management business segment.
Product development expense for the second quarter of 1998 was $7,812,000,
net of $6,345,000 of capitalized software costs, as compared with product
development expense in the same period of 1997 of $5,011,000, net of $4,729,000
of capitalized software costs. Gross product development expense was 11% of
non-federal revenue in the second quarter of 1998 compared with 12% for the same
period of 1997. Capitalized development costs represented 45% of gross
development costs in the second quarter of 1998 compared with 49% of gross
development costs for the same period of 1997. Product development expenses and
the capitalization rate historically have fluctuated, and may in the future
continue to fluctuate, from period to period depending in part upon the number
and status of software development projects that are in process.
Selling, general and administrative expenses increased $15,053,000, or 35%,
in the second quarter of 1998 compared to the same period of 1997, and
represented 37% and 41% of total revenue in the second quarter of 1998 and 1997,
respectively. The decrease in selling, general and administrative expenses as a
percentage of total revenue is primarily attributable to the cost structure
implemented by the Company as a result of the Acquisition, the related
reorganization in the third quarter of 1997 and cost savings resulting from the
termination of the Company's International Distributor Agreement with Sterling
Commerce.
-14-
<PAGE>
Investment income decreased $1,880,000 in the second quarter of 1998
compared to the same period of 1997 as a result of lower average cash and cash
equivalents balances primarily due to the use of cash in connection with the
Acquisition and the related reorganization in the third quarter of 1997.
Income before income taxes in the second quarter of 1998 was $39,848,000
compared to $23,396,000 for the same period of 1997. The increase of
$16,452,000, or 70%, in the second quarter of 1998 over the same period of 1997
in income before income taxes is primarily attributable to higher profits in the
applications management and systems management business segments partially
offset by a decline in investment income.
Six Months Ended March 31, 1998 and 1997
Total revenue increased $104,341,000, or 51%, in the first six months of
1998 over the same period of 1997 due to revenue increases in all three of the
Company's business segments, partially offset by a decline in corporate and
other revenue due to the termination of the International Distributor Agreement
with Sterling Commerce in the third quarter of 1997. Revenue from the
applications management, systems management and federal systems business
segments increased 233%, 14% and 25%, respectively, in the first six months of
1998 over the same period in 1997. Both the applications management business
segment as well as the federal systems business segment benefited substantially
from the domestic and international operations acquired by Sterling Software in
the Acquisition.
Total revenue generated from the Company's international operations was
$118,891,000 and $74,959,000 in the first six months of 1998 and 1997,
respectively, representing an increase of $43,932,000, or 59%, due to increases
in the applications management business segment (up 499%) and in the systems
management business segment (up 9%). The increase in international revenue was
partially offset by a decline in revenue from sales of Sterling Commerce's
interchange and communications software products and services due to the
termination of the International Distributor Agreement in the third quarter of
1997. In addition, international operating results in the first six months of
1998 were adversely impacted by foreign currency exchange rate fluctuations as a
result of a stronger U.S. dollar. Had foreign currency exchange rates remained
consistent with the same period of the previous year, international revenue
would have been higher in the first six months of 1998 by approximately
$9,000,000. Revenue from the Company's international operations represented 39%
and 37% of total revenue in the first six months of 1998 and 1997, respectively.
The Company's recurring revenue includes revenue from product support
agreements generally having terms ranging from one to three years 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 decreased to 49% of total revenue in the first six months of 1998
compared to 57% in the same period of 1997, primarily due to the significant
increase in products and services revenue from the applications management
business segment. Overall, services revenue increased from 30% of total revenue
in the first six months of 1997 to
-15-
<PAGE>
34% of total revenue for the same period of 1998. This increase resulted
primarily from generally higher levels of consulting services associated with
product sales in the applications management segment. The Company currently
expects that revenue from services will continue to constitute a larger
percentage of the Company's total revenue in future reporting periods than was
the case prior to the Acquisition.
Revenue from the applications management business segment increased
$101,867,000, or 233%, in the first six months of 1998 over the same period of
1997 due to a 207% increase in products revenue, a 143% increase in product
support revenue and a 809% increase in services revenue. The significant
increase in revenue from the applications management business segment is
primarily attributable to revenue from the Applications Development and
Applications International divisions, which include the non-federal domestic and
international operations, respectively, acquired in the Acquisition.
Approximately 51% of the applications management business segment's total
revenue in the first six months of 1998 was derived from the Company's
international operations, compared to 28% in the same period of 1997.
Revenue from the systems management business segment increased $11,509,000,
or 14%, in the first six months of 1998 over the same period of 1997 primarily
due to a 27% increase in products revenue partially offset by a 3% decline in
product support revenue due in part to the adverse impact of foreign currency
exchange rate fluctuations as a result of a stronger U.S. dollar. The increase
in products revenue was mainly attributable to strong domestic and international
product sales in the operations management and storage management product lines.
Approximately 48% of the systems management business segment's total revenue in
the first six months of 1998 was derived from the Company's international
operations, compared to 50% in the same period of 1997.
Revenue from the federal systems business segment increased $13,758,000, or
25%, in the first six months of 1998 over the same period of 1997 due primarily
to a contract added to the Company's federal systems business segment as a
result of the Acquisition and, to a lesser extent, to higher contract billings
in both the Information Technology Division and the Scientific Systems Division.
Total costs and expenses increased $72,793,000, or 40%, in the first six
months of 1998 compared to the same period of 1997, and represented 83% and 89%
of total revenue in the first six months of 1998 and 1997, respectively.
Total cost of sales increased $33,089,000, or 38%, in the first six months
of 1998 compared to the same period of 1997, and represented 39% and 43% of
total revenue in the first six months of 1998 and 1997, respectively. Cost of
sales for products and product support decreased $5,578,000, or 16%, in the
first six months of 1998 compared to the same period of 1997 and represented 15%
and 25% of products and product support revenue in the first six months of 1998
and 1997, respectively. The decrease in cost of sales for products and product
support is primarily attributable to the decrease in royalties payable to
Sterling Commerce due to the termination of the International Distributor
Agreement, as well as a decrease in royalties payable to other third parties
related to products no longer marketed by the Company. Cost of sales for
services increased $38,667,000, or 74%, in the first six months of 1998 compared
to the same period of 1997 and represented 87% of revenue in both the first six
months of 1998 and 1997. The significant increase in cost of sales for services
is primarily attributable to the increase in services revenue from the
applications management business segment.
Product development expense for the first six months of 1998 was
$16,665,000, net of $11,470,000 of capitalized software costs, as compared with
product development expense in the first six months of 1997 of $9,817,000, net
of $9,009,000 of capitalized software costs. Gross
-16-
<PAGE>
product development expense was 12% of non-federal revenue in the first six
months of 1998 compared with 13% for the same period of 1997. Capitalized
development costs represented 41% of gross development costs in the first six
months of 1998 compared with 48% of gross development costs for the same period
of 1997. Product development expenses and the capitalization rate historically
have fluctuated, and may in the future continue to fluctuate, from period to
period depending in part upon the number and status of software development
projects that are in process.
Selling, general and administrative expenses increased $32,856,000, or 39%,
in the first six months of 1998 compared to the same period of 1997, and
represented 38% and 41% of total revenue in the first six months of 1998 and
1997, respectively. The decrease in selling, general and administrative
expenses as a percentage of total revenue is primarily attributable to the cost
structure implemented by the Company as a result of the Acquisition, the related
reorganization in the third quarter of 1997 and cost savings resulting from the
termination of the Company's International Distributor Agreement with Sterling
Commerce.
Investment income decreased $4,406,000 in the first six months of 1998
compared to the same period of 1997 as a result of lower average cash and cash
equivalents balances primarily due to the use of cash in connection with the
Acquisition and the related reorganization in the third quarter of 1997.
Income before income taxes in the first six months of 1998 was $69,686,000
compared to $42,996,000 for the same period of 1997. The increase of
$26,690,000, or 62%, in the first six months of 1998 over the same period of
1997 in income before income taxes is primarily attributable to higher profits
in the applications management and systems management business segments
partially offset by a decline in investment income.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained a strong liquidity and financial position with
$619,955,000 of working capital at March 31, 1998, which includes $421,507,000
of cash and cash equivalents and $234,750,000 of marketable securities. Net
cash provided by operating activities was $38,421,000 in the first six months of
1998 compared to $23,948,000 for the same period of 1997. Net cash provided by
operating activities in the first six months of 1998 was reduced by payments
made during the period of approximately $20,499,000 directly related to the
Acquisition and the related reorganization that occurred in the third quarter of
1997. Net cash provided by operating activities in the first six months of 1997
was reduced by payments of approximately $32,000,000 made to Sterling Commerce
during the period.
Investing activities used $51,292,000 in cash during the first six months
of 1998 while providing $20,996,000 in cash for the same period of 1997.
Capital expenditures for the first six months of 1998 were $10,540,000 compared
to $18,094,000 for the same period of 1997. Purchases and capitalized costs of
computer software were $11,635,000 and $9,059,000 for the first six months of
1998 and 1997, respectively. Cash provided by operating activities, together
with other available cash, were used to fund capital expenditures and additions
to computer software.
-17-
<PAGE>
The Company used $1,348,000 for financing activities during the first six
months of 1998 while $3,470,000 was provided in the same period of 1997.
Effective July 1, 1997, the Company entered into an amended Revolving
Credit Agreement ("Credit Agreement") with an unsecured borrowing capacity of
$35,000,000 and a stated maturity of June 30, 2000. The Credit Agreement
requires that the Company maintain certain financial ratios. Borrowings under
the Credit Agreement bear interest at the lower of the lender's base rate or a
Eurodollar lending rate plus one-half percent. No amounts were borrowed under
the Credit Agreement during the first six months of 1998 or 1997.
At March 31, 1998, the Company's existing short and long-term cash
commitments, including remaining costs related to the Acquisition and the
related reorganization in the third quarter of 1997, consisted primarily of
commitments under lease arrangements for office space and equipment. The Company
intends to meet such obligations primarily from cash provided by operating
activities.
The Company believes available cash balances, cash equivalents and short-
term investments combined with cash provided by operating activities and amounts
available under existing credit 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, 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, or increased sales of, its 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 applicable
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 substantially all costs are
local-currency based. In the past, the Company has entered, 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 reorganization and purchased research and development costs. The impact
of future acquisitions on continued growth in revenue and operating profit
cannot presently be determined.
-18-
<PAGE>
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, and information currently
available to, the Company's management, as well as estimates and assumptions
made by the Company's management. When used in SEC Filings, words such as
"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 markets and 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 or outcomes may vary significantly
from those anticipated, believed, estimated, expected, intended or planned.
-19-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On November 30, 1994, Sterling Software acquired KnowledgeWare, Inc.
("KnowledgeWare"), in a stock-for-stock acquisition. On March 14, 1995, the
Securities and Exchange Commission (the "Commission") entered an Order Directing
Private Investigation and Designating Officers to take Testimony titled "In the
Matter of KnowledgeWare, Inc. (NY-6231)". The investigation generally relates to
(i) trading in KnowledgeWare securities from July 1, 1992 through the time of
the stock-for-stock transaction by which Sterling Software acquired
KnowledgeWare, (ii) KnowledgeWare's compliance with its filing and reporting
obligations under the federal securities laws and (iii) the adequacy and/or
accuracy of KnowledgeWare's public disclosures, recordkeeping and accounting
controls. In February of 1998, the staff of the Commission informally advised
Sterling Software that the Commission does not intend to pursue any enforcement
actions against Sterling Software or the Company's wholly owned subsidiary that
was the surviving corporation in the KnowledgeWare merger. Also in February of
1998, the Commission notified certain individuals who were formerly associated
with KnowledgeWare that the Commission may pursue civil enforcement actions
against them, and invited these individuals to make submissions to the
Commission responding to the allegations and analysis of the Commission staff.
Sterling Software may have an indemnity obligation with respect to certain of
these individuals. While any legal investigation or proceeding involves inherent
uncertainty, Sterling Software's management believes based upon presently
available information that the ultimate resolution of this matter will not
materially affect the financial condition or results of operations of the
Company.
The Company is also subject to certain legal proceedings and claims that
arise in the normal course of its business. In the opinion of management, the
amount of the liability, if any, ultimately incurred by Sterling Software with
respect to any such existing proceedings and claims, net of applicable reserves
and available insurance, will not materially affect the financial condition or
results of operations of the Company.
-20-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on March 11, 1998,
at which the stockholders of the Company voted on and approved the following:
1. The election of three Class B directors of the Company for terms
expiring at the Company's Annual Meeting of Stockholders in 2001.
2. The amendment of the Company's Certificate of Incorporation to
increase the number of shares of authorized Common Stock from 75,000,000 shares
to 125,000,000 shares.
3. The approval of the Sterling Software, Inc. Employee Stock Purchase
Plan.
The voting with respect to each of these matters was as follows:
1. Election of Directors
---------------------
Name For Withheld
---- ---------- --------
Charles J. Wyly, Jr. 33,535,231 387,386
Phillip A. Moore 33,540,677 381,940
Michael C. French 33,139,297 783,321
2. Amendment to the Company's Certificate of Incorporation
-------------------------------------------------------
For Against Abstentions
--- ------- -----------
31,218,072 2,599,657 104,888
3. Approval of the Sterling Software, Inc. Employee Stock Purchase Plan
--------------------------------------------------------------------
For Against Abstentions
--- ------- -----------
32,557,803 1,244,220 120,594
-21-
<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:
2.1 Asset Purchase Agreement, dated April 18, 1997, by and between Texas
Instruments Incorporated and the Company (1)
2.2 Amendment No. 1 to Asset Purchase Agreement, dated June 19, 1997, by
and between Texas Instruments Incorporated, the Company and certain
subsidiaries of the Company, and Amendment No. 2 to Asset Purchase
Agreement, dated June 28, 1997, by and between Texas Instruments
Incorporated, the Company and certain subsidiaries of the Company
(2)
3.1 Certificate of Incorporation of the Company, as amended (3)
3.2 Restated Bylaws of the Company (4)
4.1 Rights Agreement, dated as of December 18, 1996, by and between the
Company and BankBoston, N.A., as Rights Agent (5)
4.2 First Amendment to Rights Agreement, dated as of March 12, 1998, by
and between the Company and BankBoston, N.A., as Rights Agent (5)
10.1 Sterling Software, Inc. Amended and Restated Employee Stock Purchase
Plan (3), (6)
10.2 Form of Amendment to Stock Option Agreement, dated March 20, 1998,
between the Company and each of its executive officers (3), (6)
27 Financial Data Schedule (3)
- -------------
(1) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 and incorporated herein by
reference. In accordance with Item 601 of Regulation S-K, this copy of the
Asset Purchase Agreement does not include the schedules or exhibits thereto,
which schedules and exhibits are listed in the table of contents to the
Asset Purchase Agreement. The Company agrees to furnish supplementary to the
Securities and Exchange Commission a copy of such schedules and exhibits
upon request.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated June 30, 1997, as amended, and incorporated herein by reference.
(3) Filed herewith.
(4) Previously filed as an exhibit to the Company's Registration Statement
No. 33-47131 and incorporated herein by reference.
-22-
<PAGE>
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A/A filed April 3, 1998 and incorporated herein by reference.
(6) Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
-23-
<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: April 28, 1998 By: /s/Sterling L. Williams
--------------------------------------------
Sterling L. Williams
President, Chief Executive Officer
and Director
Date: April 28, 1998 /s/ R. Logan Wray
-------------------------------------------
R. Logan Wray
Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-24-
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NO. Description
- ------- ------------------------------------------------------------
2.1 Asset Purchase Agreement, dated April 18, 1997, by and between Texas
Instruments Incorporated and the Company (1)
2.2 Amendment No. 1 to Asset Purchase Agreement, dated June 19, 1997, by
and between Texas Instruments Incorporated, the Company and certain
subsidiaries of the Company, and Amendment No. 2 to Asset Purchase
Agreement, dated June 28, 1997, by and between Texas Instruments
Incorporated, the Company and certain subsidiaries of the Company (2)
3.1 Certificate of Incorporation of the Company, as amended (3)
3.2 Restated Bylaws of the Company (4)
4.1 Rights Agreement, dated as of December 18, 1996, by and between the
Company and BankBoston, N.A., as Rights Agent (5)
4.2 First Amendment to Rights Agreement, dated as of March 12, 1998, by and
between the Company and BankBoston, N.A., as Rights Agent (5)
10.1 Sterling Software, Inc. Amended and Restated Employee Stock Purchase
Plan (3), (6)
10.2 Form of Amendment to Stock Option Agreement, dated March 20, 1998,
between the Company and each of its executive officers (3), (6)
27 Financial Data Schedule (3)
- -------------
(1) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by
reference. In accordance with Item 601 of Regulation S-K, this copy of the
Asset Purchase Agreement does not include the schedules or exhibits
thereto, which schedules and exhibits are listed in the table of contents
to the Asset Purchase Agreement. The Company agrees to furnish
supplementary to the Securities and Exchange Commission a copy of such
schedules and exhibits upon request.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated June 30, 1997, as amended, and incorporated herein by reference.
<PAGE>
(3) Filed herewith.
(4) Previously filed as an exhibit to the Company's Registration Statement
No. 33-47131 and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A/A filed April 3, 1998 and incorporated herein by reference.
(6) Management contract or compensatory plan or arrangement.
<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;
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<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
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<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.
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<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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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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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.
-12-
<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]
-13-
<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
-2-
<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
-------
-3-
<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
-4-
<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 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
amendment is as follows:
RESOLVED, that, subject to approval of the Charter Amendment by the
requisite vote of the Company's stockholders, the first paragraph of
Article IV of the Company's Certificate of Incorporation be amended to read
in its entirety as follows:
"The total number of shares of stock of all classes which the
corporation shall have authority to issue is One Hundred Thirty-Five
Million (135,000,000), consisting of One Hundred Twenty-Five Million
(125,000,000) 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.
IN WITNESS WHEREOF, Sterling Software, Inc. has caused this certificate to
be signed by Don J. McDermett, Jr., its Senior Vice President, on this 11th day
of March, 1998.
By: /s/ Don J. McDermett, Jr.
--------------------------
Don J. McDermett, Jr.
Senior Vice President
<PAGE>
AMENDED CERTIFICATE OF DESIGNATIONS
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:
1. 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 on December 26, 1996 created a series of 750,000
shares of Preferred Stock designated Series A Junior Participating Preferred
Stock, of which no shares have been issued.
2. That pursuant to authority vested in the Board of Directors of the
Company by its Certificate of Incorporation and the General Corporation Law of
the State of Delaware, the Board of Directors on March 11, 1998 adopted a
resolution providing for the amendment and restatement of the Certificate of
Designations of the Series A Junior Participating Preferred Stock solely to
effect an increase in the number of shares constituting such Series A Junior
Participating Preferred Stock as follows:
1
<PAGE>
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 1,250,000. Such number of shares
may be increased or decreased by resolution of the Board of Directors of the
Company (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.
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 after the filing of this Amended
Certificate of Designations (this "Certificate") with the Secretary of State of
the State of Delaware (the "Delaware Secretary of State") (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.
2
<PAGE>
(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 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 after the filing of this
Certificate with the Delaware Secretary of State (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.
3
<PAGE>
(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, 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 solely 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.
4
<PAGE>
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 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 after the filing of this
Certificate with the Delaware Secretary of State (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.
5
<PAGE>
VIII. 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 after the filing of this Certificate with the Delaware Secretary of State
(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.
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 Amended Certificate of Designations is executed on
behalf of the Company by its Senior Vice President and General Counsel attested
by its Assistant Secretary this 12th day of March, 1998.
/s/ Don J. McDermett, Jr.
----------------------------------
Don J. McDermett, Jr.
Senior Vice President and
General Counsel
Attest:
/s/ Mark H. Kleinman
- --------------------
Mark H. Kleinman,
Assistant Secretary
7
<PAGE>
EXHIBIT 10.1
STERLING SOFTWARE, INC.
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
(Effective as of March 20, 1998)
<PAGE>
STERLING SOFTWARE, INC.
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
Table of Contents
-----------------
I. Purpose of the Plan.................................................... 1
II. Administration of the Plan............................................. 1
III. Stock Subject to Plan.................................................. 1
IV. Purchase Periods....................................................... 2
V. Eligibility............................................................ 2
VI. Payroll Deductions; Additional Contributions; Shortfall Contributions.. 2
VII. Purchase Rights........................................................ 4
VIII. Accrual Limitations.................................................... 6
IX. Effective Date and Term of the Plan.................................... 7
X. Amendment of the Plan.................................................. 7
XI. General Provisions..................................................... 8
Appendix.....................................................................A-1
<PAGE>
STERLING SOFTWARE, INC.
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
-------------------------------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Sterling Software, Inc. and certain of its subsidiaries by providing eligible
employees with the opportunity to acquire a proprietary interest in the Company
through participation in a payroll-deduction based employee stock purchase plan
designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan Administrator shall administer the Plan and shall have
full authority and discretion to interpret and construe any provision of the
Plan and to adopt such rules and regulations for administering the Plan as it
may deem necessary, and to take any action it may deem necessary in order to
comply with the requirements of Section 423 of the Code. Decisions of the Plan
Administrator and the Administrative Committee described in paragraph B. below
shall be final and binding on all parties having an interest in the Plan. The
Plan Administrator shall have full authority and discretion to retain and engage
such third party firms (including, without limitation, brokerage and record
keeping firms) as it shall from time to time deem advisable or appropriate.
B. The Administrative Committee for the Plan shall have the full
authority and discretion to designate Corporate Affiliates (other than domestic
subsidiaries of the Company) as Participating Companies from time to time and to
terminate any such designation; to decide any questions relating to the
administration of the Plan that are referred to the Administrative Committee by
the Plan Administrator; and to amend the Plan as provided in Section X.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued Common Stock or shares of Common Stock held in the Company's
treasury. The maximum number of shares of Common Stock which may be issued over
the term of the Plan shall not exceed 3,500,000 shares.
B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and class of
<PAGE>
securities issuable under the Plan, (ii) the maximum number and class of
securities purchasable per Participant on any one Purchase Date and (iii) the
number and class of securities and the price per share in effect under each
outstanding purchase right in order to prevent the dilution or enlargement of
benefits thereunder.
IV. PURCHASE PERIODS
Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive Purchase Periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the Effective Date
shall be eligible to participate in the Plan on the first day of any Purchase
Period under the Plan, provided such individual remains an Eligible Employee on
such day. Until the Administrative Committee designates one or more foreign
subsidiaries of the Company as a Participating Company, eligibility to
participate in the Plan shall be limited to Eligible Employees employed by the
Company or by a U.S. subsidiary of the Company.
B. Each individual who becomes an Eligible Employee after the
Effective Date shall be eligible to participate in the Plan on the first day of
any Purchase Period commencing thereafter, provided such individual remains an
Eligible Employee on such day.
C. To participate in the Plan for a particular Purchase Period, an
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator and file such forms with the Plan Administrator (or its designee)
before the first day of such Purchase Period. An Eligible Employee's enrollment
in the Plan for a Purchase Period will remain in effect for all subsequent
Purchase Periods until modified or terminated by the Eligible Employee or until
he or she no longer qualifies as an Eligible Employee.
VI. PAYROLL DEDUCTIONS; ADDITIONAL CONTRIBUTIONS; SHORTFALL CONTRIBUTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any whole multiple of
one percent (1%) of the Eligible Compensation paid to the Participant during
each Purchase Period, up to a maximum of twenty-five percent (25%). The
deduction rate so authorized shall continue in effect for the entire Purchase
Period. The Participant may not increase his or her rate of payroll deduction
during a Purchase Period. However, the Participant may, at any time prior to
the tenth (10th) Business Day immediately preceding the Purchase Date for the
Purchase Period, reduce his or her rate of payroll deduction to any whole
percentage or to zero, such reduction to become effective prospectively as soon
as administratively feasible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one (1) such
reduction per Purchase Period. If a Participant reduces his or her payroll
deductions to zero, the
2
<PAGE>
Participant's previous payroll deductions for the Purchase Period will still be
applied to the purchase of shares of Common Stock on the Purchase Date, unless
the Participant elects to terminate his or her purchase rights for the Purchase
Period in accordance with Section VII.E.
B. Payroll deductions shall begin on the first pay day of each
Purchase Period and shall (unless sooner terminated) continue through the pay
day ending on or immediately prior to the last day of the Purchase Period. The
amounts so collected shall be credited to the Participant's Account under the
Plan. Except as otherwise provided in paragraph D below, Interest shall accrue
and be credited on each pay day in the Purchase Period on the amount of the
Participant's Account balance that has been credited to the Participant's
Account during the entire pay period ending on such pay day. No Interest will
accrue or be credited on any amount that is credited to the Participant's
Account for any period that is less than a full pay period. Payroll deduction
amounts, Additional Contribution amounts and credited Interest need not be held
in any segregated account or trust fund and may be commingled with the general
assets of the Company and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. In addition to payroll deductions, a Participant may make one
Additional Contribution to the Plan during each Purchase Period. An Additional
Contribution may be made in cash, by personal check or in any other form
permitted from time to time by the Plan Administrator. All Additional
Contributions will be credited to the Participant's Account and will be credited
with Interest. Such Interest will accrue and be credited to the Participant's
Account in the same manner as Interest is accrued and credited to the
Participant's Account under paragraph B of this Section. An Eligible Employee
who has not authorized payroll deductions, or who has terminated payroll
deductions, for a Purchase Period may not thereafter make an Additional
Contribution to the Plan for such Purchase Period.
E. A Participant whose net pay after all deductions therefrom on any
given pay day is not sufficient to fund the payroll deduction authorized by the
Participant for a Purchase Period shall be permitted to fund any such shortfall
by contributing the amount thereof to the Plan in cash, by personal check or in
any other form permitted from time to time by the Plan Administrator ("Shortfall
Contributions"). Shortfall Contributions must be contributed to the Plan before
the tenth (10th) Business Day immediately preceding the Purchase Date for the
Purchase Period. Interest will accrue and be credited in respect of Shortfall
Contributions in the same manner as for Additional Contributions. All
references in this Plan to payroll deductions also shall be deemed to refer to
and include Shortfall Contributions, except where the context clearly requires
otherwise.
3
<PAGE>
VII. PURCHASE RIGHTS
A. A Participant shall be granted a separate purchase right on the
first day of each Purchase Period in which he or she participates. The purchase
right shall provide the Participant with the right to purchase shares of Common
Stock on the Purchase Date upon the terms set forth below. Under no
circumstances shall purchase rights be granted under the Plan to any Eligible
Employee if such individual would, immediately after the grant, own (within the
meaning of Section 424(d) of the Code) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Corporate Affiliate.
B. Each purchase right shall be automatically exercised on the
Purchase Date, and shares of Common Stock shall accordingly be purchased on such
date on behalf of each Participant participating in the related Purchase Period
(other than any Participant whose payroll deductions have previously been
refunded in accordance with paragraph E below). The purchase shall be effected
by applying the Participant's Account balance as of the last day of the Purchase
Period (including Interest credited through such day) to the purchase of shares
of Common Stock (subject to the limitation on the maximum number of shares
purchasable per Participant) at the Purchase Price in effect for that Purchase
Period.
C. The number of shares of Common Stock purchasable by a Participant
on each Purchase Date shall be the number of whole shares obtained by dividing
the Participant's Account balance on the last day of the Purchase Period by the
Purchase Price in effect for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed 6,000 shares.
D. Any portion of the Participant's Account balance that is not
applied to the purchase of shares of Common Stock on any Purchase Date because
such portion is not sufficient to purchase a whole share of Common Stock shall
be held for the purchase of Common Stock on the next Purchase Date, unless the
Participant has elected not to participate during the next Purchase Period, in
which case the Participant's entire remaining Account balance shall be refunded
to the Participant as soon as administratively feasible. Any portion of the
Participant's Account balance that is not applied to the purchase of Common
Stock by reason of the limitation on the maximum number of shares purchasable by
the Participant on the Purchase Date shall be refunded as soon as
administratively feasible.
E. The following provisions shall govern the termination of
outstanding purchase rights:
(i) A Participant may, at any time prior to the tenth (10th)
Business Day immediately preceding the Purchase Date for the Purchase
Period, terminate his or her outstanding purchase right by filing the
appropriate form with the Plan Administrator (or its designee), and no
further payroll deductions or Additional Contributions shall be collected
from or made by the Participant with respect to such terminated purchase
right. The Participant's entire Account
4
<PAGE>
balance as of the effective date of such termination shall be refunded as
soon as administratively feasible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the Purchase
Period for which the terminated purchase right was granted. In order to
resume participation in any subsequent Purchase Period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) before the first day of the new Purchase Period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
employment status) while his or her purchase right remains outstanding,
then that purchase right shall immediately terminate, and the Participant's
entire Account balance shall be refunded as soon as administratively
feasible. However, should the Participant cease to remain in active
service by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the tenth (10th)
Business Day immediately preceding the Purchase Date for the Purchase
Period in which such leave commences, to withdraw his or her entire Account
balance. If a Participant on such an unpaid leave does not exercise this
right, such Participant's Account balance shall be held for the purchase of
shares at the next Purchase Date. In no event, however, shall any
Additional Contributions or any further payroll deductions be collected on
the Participant's behalf during any such unpaid leave. Upon the return to
active service of any Participant previously on unpaid leave, his or her
payroll deductions under the Plan shall automatically resume at the rate in
effect at the time the leave began, unless the Participant elected to
withdraw his or her Account balance for the Purchase Period in which the
leave commenced.
(iv) Notwithstanding any other provision of the Plan to the
contrary, a Participant's purchase rights with respect to a Purchase Period
shall terminate, and his or her Account balance shall be refunded as soon
as administratively feasible, if the Participant's employment with the
Participating Companies terminates for any reason on or before the Purchase
Date for such Purchase Period.
F. Each outstanding purchase right shall automatically be exercised,
immediately prior to the date any Corporate Transaction is consummated, by
applying the Participant's Account balance to the purchase of whole shares of
Common Stock at a purchase price per share equal to eighty-five percent (85%) of
the lower of (i) the Fair Market Value per share of Common Stock on the first
day of the Purchase Period in which such Corporate Transaction occurs or (ii)
the Fair Market Value per share of Common Stock immediately prior to the date
such Corporate Transaction is consummated. However, the applicable limitation
on the number of shares of Common Stock purchasable per Participant shall
continue to apply to any such purchase. Any portion of the Participant's
Account balance that is not applied to the purchase of shares of Common Stock
because such portion is not sufficient to purchase a whole share of Common Stock
shall be refunded to the Participant as soon as administratively feasible.
5
<PAGE>
The Company shall use reasonable efforts to provide prior written notice of the
occurrence of any Corporate Transaction, and Participants shall, following the
receipt of such notice, have the right to terminate their outstanding purchase
rights prior to the effective date of the Corporate Transaction.
G. Should the total number of shares of Common Stock which are to be
purchased pursuant to outstanding purchase rights on any particular date exceed
the number of shares then available for issuance under the Plan, the Plan
Administrator shall make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis, and the Account balance of each
Participant, to the extent in excess of the aggregate Purchase Price payable for
the Common Stock pro-rated to such individual, shall be refunded as soon as
administratively feasible.
H. The purchase right shall be exercisable only by the Participant
and shall not be assignable or transferable by the Participant.
I. A Participant shall have no stockholder rights with respect to
the shares subject to his or her outstanding purchase right until the shares are
purchased on the Participant's behalf in accordance with the provisions of the
Plan and the Participant has become the owner of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such rights, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Section 423 of the Code) of the Company or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Company and of any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding, subject to the following:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue on the Purchase Date in effect for the Purchase
Period for which such right is granted.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one (1) or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined on the basis
of the Fair Market Value per share on the date or dates of grant) for each
calendar year such rights were at any time outstanding.
6
<PAGE>
B. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Period, then the
Participant's Account balance with respect to such purchase right shall be
refunded as soon as administratively feasible.
C. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on December 3, 1997, approved by
the requisite vote of the stockholders of the Company on March 11, 1998, and
became effective as of the Effective Date. Pursuant to Section III.B above and
Section X below, the Plan was amended and restated in its entirety, effective as
of March 20, 1998, in order to reflect a two-for-one stock split effected by the
Company with respect to the Common Stock through a 100% stock dividend paid to
stockholders of record as of March 20, 1998.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest to occur of (i) the last Business Day in December 2007, (ii)
the date on which all shares available for issuance under the Plan shall have
been sold to Participants pursuant to purchase rights exercised under the Plan
or (iii) the date on which all purchase rights are exercised in connection with
a Corporate Transaction. Following such termination, no further purchase rights
shall be granted or exercised, and no further payroll deductions or Additional
Contributions shall be collected, under the Plan.
X. AMENDMENT OF THE PLAN
A. The Plan may be amended from time to time by the Board or any duly
authorized committee thereof, or by the Administrative Committee, and all
purchase rights outstanding at the effective date of any such amendment will be
subject to such amendment. In the event any law, or any rule or regulation
issued or promulgated by the Internal Revenue Service, the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., any
stock exchange upon which the Common Stock is listed for trading, or any other
governmental or quasi-governmental agency having jurisdiction over the Company,
the Common Stock or the Plan, requires the Plan to be amended, or in the event
any of the rules under Section 16 of the 1934 Act are amended or supplemented
(e.g., by addition of alternative rules), in either event to require or permit
the Company to add, remove or lessen any restrictions on or with respect to
purchase rights under the Plan, the Administrative Committee and the Board each
reserves the right to amend the Plan to the extent of any such requirement,
amendment or supplement, and all purchase rights then outstanding will be
subject to such amendment.
B. The Plan may be terminated at any time by action of the Board;
provided, however, that the termination of the Plan shall not adversely affect
the terms of any outstanding purchase rights.
7
<PAGE>
C. Notwithstanding the foregoing, the Board may not, without the
approval of the Company's stockholders, increase the number of shares of Common
Stock issuable under the Plan, except to the extent permitted under Section
III.B.
D. With respect to any Participating Corporation which employs
Eligible Employees who reside outside of the United States, and notwithstanding
anything herein to the contrary, the Administrative Committee may in its sole
discretion amend the terms of the Plan, or any purchase right granted under the
Plan, in order to comply with the requirements of local law, and may, where
appropriate, establish one or more sub-plans to reflect such amended provisions
applicable to such Eligible Employees.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Company.
B. Nothing in the Plan shall confer upon any Participant any right to
continue in the employ of the Company or any Corporate Affiliate for any period
of specific duration, or interfere with or otherwise restrict in any way the
rights of the Company (or any Corporate Affiliate employing such person) or of
the Participant, which rights are hereby expressly reserved by each, to
terminate such Participant's employment at any time for any reason, with or
without cause.
8
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. ACCOUNT shall mean the account established by the Plan
Administrator to record a Participant's payroll deductions, credited Interest
and Additional Contributions (if any) as of any given date.
B. ADDITIONAL CONTRIBUTION shall mean a Participant's contribution
(other than by payroll deductions) for a Purchase Period in an amount that does
not exceed $2,000 and which is made before the tenth (10th) Business Day
immediately preceding the Purchase Date for the Purchase Period.
C. ADMINISTRATIVE COMMITTEE shall mean a committee consisting of one
or more persons appointed by the Board from time to time to act as the
administrative committee of the Plan.
D. BOARD shall mean the Company's Board of Directors or the Executive
Committee thereof.
E. BUSINESS DAY shall mean a day on which the New York Stock Exchange
is open for trading.
F. CODE shall mean the Internal Revenue Code of 1986, as amended.
G. COMMON STOCK shall mean the Company's common stock, par value
$0.10 per share.
H. COMPANY shall mean Sterling Software, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Sterling Software, Inc. which shall by appropriate
action adopt the Plan.
I. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Company (as determined in accordance with Section 424 of the
Code), whether now existing or subsequently established.
J. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger, consolidation or reorganization of the Company into
or with another corporation or legal person as a result of which securities
possessing less than fifty percent (50%) of the total combined voting power
of the then-outstanding voting securities of such corporation or person
immediately after
A-1
<PAGE>
such transaction are held in the aggregate by the holders of the voting
securities of the Company immediately prior to such transaction, or
(ii) a sale or other transfer of all or substantially all of the
assets of the Company to another corporation or other legal person as a
result of which securities possessing less than fifty percent (50%) of the
total combined voting power of the then-outstanding voting securities of
such corporation or person immediately after such sale or transfer are held
in the aggregate by the holders of the voting securities of the Company
immediately prior to such sale or transfer.
K. EFFECTIVE DATE shall mean February 1, 1998.
L. ELIGIBLE COMPENSATION means the following items of remuneration
paid to a Participant by one or more Participating Companies during each
Purchase Period: base salary, overtime pay, commissions and cash incentive
compensation, computed before giving effect to the Participant's salary
reduction elections under Section 125 or Section 401(k) of the Code or the
Participant's deferral elections under any nonqualified deferred compensation
plan of the Company or any Corporate Affiliate.
M. ELIGIBLE EMPLOYEE shall mean an Employee who is employed by a
Participating Company on a basis under which he or she is regularly expected to
render at least twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages. Notwithstanding the
foregoing, a person who is an independent contractor performing services for a
Participating Company shall not be eligible to participate in the Plan.
N. EMPLOYEE shall mean an individual who is a common law employee of
the Company or any Corporate Affiliate.
O. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be the closing selling price per share of Common Stock on the date in
question on the stock exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which such
quotation exists.
P. INTEREST shall mean an additional amount of compensation
calculated at the annual rate of interest of six month Treasury bills as quoted
in The Wall Street Journal published on the last Business Day of the month
immediately preceding the applicable Purchase Period during which such
compensation is credited, prorated for periods of less than one year.
Q. 1933 ACT shall mean the Securities Act of 1933, as amended.
R. 1934 ACT shall mean the Securities Exchange
Act of 1934, as amended.
A-2
<PAGE>
S. PARTICIPANT shall mean any Eligible Employee of a Participating
Company who is actively participating in the Plan.
T. PARTICIPATING COMPANY shall mean the Company, each Corporate
Affiliate that is a direct or indirect domestic subsidiary of the Company and
each other Corporate Affiliate that is authorized from time to time by the
Administrative Committee to extend the benefits of the Plan to its Eligible
Employees. For purposes of the foregoing, the term "subsidiary" has the meaning
set forth in Section 424(f) of the Code.
U. PLAN shall mean the Company's Amended and Restated Employee Stock
Purchase Plan, as set forth in this document.
V. PLAN ADMINISTRATOR shall mean the person or persons appointed by
the Board from time to time as the plan administrator of the Plan.
W. PURCHASE DATE shall mean the last Business Day of each Purchase
Period or, with respect to a Corporate Transaction, the date specified for the
purchase in Section VII.F.
X. PURCHASE PERIOD shall mean a period of six (6) months extending
from January 1 to June 30 and from July 1 to December 31 of each year; provided,
however, that the first Purchase Period shall begin on February 1, 1998, and
shall end on June 30, 1998.
Y. PURCHASE PRICE shall mean the purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
and shall be equal to eighty-five percent (85%) of the lower of (i) the Fair
Market Value per share of Common Stock on the first day of the Purchase Period
in which the Purchase Date occurs or (ii) the Fair Market Value per share of
Common Stock on that Purchase Date.
Z. SERVICE shall mean the performance of services to the Company or
any Corporate Affiliate by a person in the capacity of an Employee.
AA. SHORTFALL CONTRIBUTIONS shall have the meaning ascribed to such
term in Section VI.E. of the Plan.
A-3
<PAGE>
EXHIBIT 10.2
AMENDMENT TO
STOCK OPTION AGREEMENT
THIS AMENDMENT TO STOCK OPTION AGREEMENT (this "Amendment") is made and
entered into as of the 20th day of March, 1998, by and between Sterling
Software, Inc., a Delaware corporation ("Sterling Software"), and
[________________] (the "Participant").
RECITALS:
WHEREAS, Sterling Software and the Participant are parties to a Stock
Option Agreement dated as of [_____________, 199__] (the "Agreement"); and
WHEREAS, on March 11, 1998 the Board of Directors of Sterling Software
declared a 2-for-1 split of the Common Stock, payable in the form of a 100%
stock dividend (the "Stock Dividend") to all Sterling Software stockholders of
record as of the close of business on the date hereof (such time and date are
referred to herein as the "Record Date"); and
WHEREAS, in connection with the Stock Dividend, the Board of Directors
adjusted the Stock Option evidenced by the Agreement (herein also called the
"Stock Option") to (i) double the number of shares of Common Stock subject on
the Record Date to the Stock Option and (ii) halve the Option Price thereof; and
WHEREAS, Sterling Software and the Participant desire to amend the
Agreement in the manner set forth in this Amendment;
NOW, THEREFORE, Sterling Software and the Participant hereby agree as
follows:
1. Correct Owner and Holder. The undersigned Participant hereby
represents and warrants to Sterling Software that he or she is the true and
lawful owner and holder of the Stock Option.
2. Amendment. The Agreement is hereby amended such that (i) the number of
shares of Common Stock subject to the unexercised portion of the Stock Option on
the Record Date is doubled to [______________] shares, such increase to apply
pro rata to the portion of the Stock Option currently exercisable and the
portions to become exercisable in the future pursuant to Section 2 of the
Agreement, and (ii) the Option Price of the shares of Common Stock subject to
the unexercised portion of the Stock Option on the Record Date is halved to
$[___________].
3. References to and Continuation of Agreement. On and after the Record
Date, each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," "herein," or words of like import referring to the Agreement will be a
reference to the Agreement as amended by this Amendment. Except as specifically
amended by this Amendment, the Agreement will remain in full force and effect
and is hereby ratified and confirmed.
<PAGE>
4. Use of Defined Terms. Capitalized terms used but not defined herein
shall have the respective meanings ascribed to them in the Agreement.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AMENDMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO
CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
6. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the date first above written.
STERLING SOFTWARE, INC.
By:
-----------------------------------
Sterling L. Williams,
President & Chief Executive Officer
--------------------------------------
[Participant]
-2-
<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 10Q FOR THE QUARTER ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1998
<PERIOD-START> JAN-01-1998 OCT-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1998
<CASH> 421,507 421,507
<SECURITIES> 234,750 234,750
<RECEIVABLES> 169,924 169,924
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 848,094 848,094
<PP&E> 52,061 52,061
<DEPRECIATION> 44,641 44,641
<TOTAL-ASSETS> 1,079,764 1,079,764
<CURRENT-LIABILITIES> 228,138 228,139
<BONDS> 0 0
0 0
0 0
<COMMON> 8,027 8,027
<OTHER-SE> 785,853 785,853
<TOTAL-LIABILITY-AND-EQUITY> 1,079,764 1,079,764
<SALES> 159,397 308,226
<TOTAL-REVENUES> 159,397 308,226
<CGS> 61,156 120,973
<TOTAL-COSTS> 127,581 254,786
<OTHER-EXPENSES> 302 304
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 30 61
<INCOME-PRETAX> 39,848 69,686
<INCOME-TAX> 13,549 23,694
<INCOME-CONTINUING> 26,299 45,992
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 26,299 45,992
<EPS-PRIMARY> .34 .59
<EPS-DILUTED> .32 .57
</TABLE>
