<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, 1999
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 May 7, 1999
Common Stock, $0.10 par value 83,354,303
-1-
<PAGE>
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements................................................ 3
Sterling Software, Inc. Consolidated Balance Sheets at March 31, 1999 and
September 30, 1998........................................................ 3
Sterling Software, Inc. Consolidated Statements of Operations for the Three
and Six Months Ended March 31, 1999 and 1998.............................. 4
Sterling Software, Inc. Consolidated Statement of Stockholders' Equity
for the Six Months Ended March 31, 1999................................... 5
Sterling Software, Inc. Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 1999 and 1998.................................. 6
Sterling Software, Inc. Notes to Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 16
PART II- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................ 25
Item 6. Exhibits and Reports on Form 8-K................................... 26
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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
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................. $ 439,982 $ 397,312
Marketable securities...................................................... 264,108 310,537
Accounts and notes receivable, net......................................... 211,983 200,428
Prepaid expenses and other current assets.................................. 31,329 32,253
----------- ----------
Total current assets.................................................... 947,402 940,530
Property and equipment, net of accumulated depreciation of $56,558 at
March 31, 1999 and $49,832 at September 30, 1998........................... 76,537 66,726
Computer software, net of accumulated amortization of $117,976 at
March 31, 1999 and $112,734 at September 30, 1998.......................... 91,763 81,606
Excess cost over net assets of businesses acquired, net of accumulated
amortization of $31,932 at March 31, 1999 and $27,316 at September 30,
1998....................................................................... 90,349 76,086
Other assets................................................................. 37,880 32,651
----------- ----------
$1,243,931 $1,197,599
=========== ==========
<CAPTION>
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities................................... $ 155,948 $ 164,349
Deferred revenue........................................................... 92,335 102,880
----------- ----------
Total current liabilities............................................... 248,283 267,229
Noncurrent deferred revenue.................................................. 34,342 27,649
Other noncurrent liabilities................................................. 47,422 41,163
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; 250,000,000 and 125,000,000 shares
authorized at March 31, 1999 and September 30, 1998, respectively;
85,868,000 and 84,845,000 shares issued at March 31, 1999 and
September 30, 1998, respectively......................................... 8,587 8,485
Additional paid-in capital................................................. 875,361 858,615
Retained earnings.......................................................... 84,885 50,462
Less treasury stock, at cost; 2,550,000 and 2,599,000 shares at
March 31, 1999 and September 30, 1998, respectively...................... (54,949) (56,004)
----------- ----------
Total stockholders' equity.............................................. 913,884 861,558
----------- ----------
$1,243,931 $1,197,599
=========== ==========
</TABLE>
See accompanying notes.
-3-
<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
---------------------------- ----------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Products.................................... $ 82,868 $ 69,922 $147,181 $134,901
Product support............................. 50,849 45,656 102,390 91,566
Services.................................... 58,669 62,006 117,274 119,996
-------- -------- -------- --------
192,386 177,584 366,845 346,463
Costs and expenses:
Cost of sales:
Products and product support.............. 19,821 16,991 37,769 35,063
Services.................................. 50,724 53,513 103,884 104,621
-------- -------- -------- --------
70,545 70,504 141,653 139,684
Product development and enhancement......... 9,524 9,410 18,879 20,018
Selling, general and administrative......... 67,840 67,993 129,449 136,997
Reorganization costs........................ 19,655
Purchased research and development.......... 9,623
-------- -------- -------- --------
147,909 147,907 319,259 296,699
Income before other income (expense) and
income taxes................................ 44,477 29,677 47,586 49,764
Other income (expense):
Interest expense............................ (129) (27) (259) (105)
Investment income........................... 8,449 8,364 17,211 16,611
Other....................................... 476 (469) 648 (565)
-------- -------- -------- --------
8,796 7,868 17,600 15,941
-------- -------- -------- --------
Income before income taxes.................... 53,273 37,545 65,186 65,705
Provision for income taxes.................... 18,113 13,629 25,820 24,467
-------- -------- -------- --------
Net income.................................... $ 35,160 $ 23,916 $ 39,366 $ 41,238
======== ======== ======== ========
Income per common share:
Net income:
Basic..................................... $.42 $.30 $.48 $.52
======== ======== ======== ========
Diluted................................... $.40 $.28 $.45 $.49
======== ======== ======== ========
</TABLE>
See accompanying notes.
-4-
<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ended March 31, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------ ------------------
Number Additional Number Total
of Par Paid-in Retained of Stockholders'
Shares Value Capital Earnings Shares Cost Equity
------- ------- ---------- -------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998.. 84,845 $8,485 $858,615 $50,462 2,599 $(56,004) $861,558
Net income................... 39,366 39,366
Issuance of common stock
pursuant to stock options.. 725 72 9,936 10,008
Issuance of common stock to
401(k) plan................ 30 (49) 1,055 1,085
Issuance of common stock
pursuant to employee stock
purchase plan.............. 298 30 6,780 6,810
Other........................ (4,943) (4,943)
------- ------- ---------- -------- ------- -------- ------------
Balance at March 31, 1999...... 85,868 $8,587 $875,361 $84,885 2,550 $(54,949) $913,884
======= ======= ========== ======== ======= ======== ============
</TABLE>
See accompanying notes.
-5-
<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months
Ended March 31
------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating activities:
Net income....................................................................... $ 39,366 $ 41,238
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................. 25,283 21,885
Provision for losses on accounts receivable................................... 1,084 3,049
Provision for deferred income taxes........................................... 2,825 19,309
Reorganization costs.......................................................... 8,007
Purchased research and development............................................ 9,623
Changes in operating assets and liabilities, net of effects of business
acquisitions:
Increase in accounts and notes receivable.................................. (5,838) (16,943)
(Increase) decrease in prepaid expenses and other assets................... (6,588) 694
Decrease in accounts payable and accrued liabilities....................... (51,775) (34,537)
Decrease in deferred revenue............................................... (10,545) (735)
Other...................................................................... 11,544 8,065
--------- ---------
Net cash provided by operating activities................................. 22,986 42,025
Investing activities:
Purchases of property and equipment.............................................. (16,831) (13,479)
Purchases and capitalized cost of development of computer software............... (14,409) (13,322)
Business acquisitions, net of cash acquired...................................... (10,691) (3,626)
Purchases of investments......................................................... (214,231) (112,106)
Proceeds from sales of investments............................................... 258,845 85,120
Other............................................................................ 602 3,350
--------- ---------
Net cash provided by (used in) investing activities....................... 3,285 (54,063)
Financing activities:
Proceeds from issuance of common stock pursuant to exercise of stock
options........................................................................ 10,008 6,249
Proceeds from issuance of common stock pursuant to employee stock
purchase plan.................................................................. 6,810
Other............................................................................ 2,335 (5,471)
--------- ---------
Net cash provided by financing activities................................. 19,153 778
Effect of foreign currency exchange rate changes on cash........................... (2,754) (2,250)
--------- ---------
Increase (decrease) in cash and cash equivalents................................... 42,670 (13,510)
Cash and cash equivalents at beginning of period................................... 397,312 436,955
--------- ---------
Cash and cash equivalents at end of period......................................... $ 439,982 $ 423,445
========= =========
Supplemental cash flow information:
Income taxes paid, net of refunds received....................................... $ 13,757 $ 2,069
========= =========
</TABLE>
See accompanying notes.
-6-
<PAGE>
STERLING SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(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
worldwide developer and supplier of application development, information
management and systems management software products and services, as well as a
supplier of specialized information technology ("IT") services for sectors of
the federal government.
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 and
liabilities, the disclosure of contingencies at March 31, 1999 and September 30,
1998 and the results of operations for the three and six months ended March 31,
1999 and 1998. While management has based its estimates and assumptions on the
facts and circumstances known to it as of the date of this report, actual
amounts may differ from such estimates and assumptions.
Revenue
Revenue from license fees for software products is recognized when
persuasive evidence of a sale arrangement exists, delivery has occurred, the fee
is fixed or determinable and collectibility is probable. Services revenue and
revenue from products involving installation or other services are recognized as
the services are performed.
If software product sale transactions include multiple elements, each
element of the software sale is separately identified and accounted for based on
the relative fair value of such element. Revenue is not recognized on any
element of the sale arrangement if undelivered elements are essential to the
functionality of the delivered elements.
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>
When products, product support and services are billed prior to the
time the related revenue is recognized, deferred revenue is recorded and any
material related costs paid in advance are deferred.
Revenue from specialized IT services provided to the federal
government under multi-year contracts is recognized as the services are
performed. Revenue for services provided 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 and Equivalents
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.
Marketable Securities and Other Investments
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,
municipal 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. Unrealized holding gains and losses on
securities available-for-sale are recorded as a component of stockholders'
equity, net of any related tax effect. The amortized cost of debt securities in
this category is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in investment income.
Realized gains and losses and declines in values judged to be other-than-
temporary, if any, on available-for-sale securities are included in investment
income.
-8-
<PAGE>
Earnings Per Common Share
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
------------------------- -------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic:
Net income..................................... $35,160 $23,916 $39,366 $41,238
======= ======= ======= =======
Weighted average common shares
outstanding.................................. 83,197 80,015 82,863 79,899
======= ======= ======= =======
Net income per common share.................... $ .42 $ .30 $ .48 $ .52
======= ======= ======= =======
Diluted:
Net income..................................... $35,160 $23,916 $39,366 $41,238
======= ======= ======= =======
Weighted average common shares
outstanding.................................. 83,197 80,015 82,863 79,899
Effect of dilutive employee stock options...... 4,477 4,825 4,852 3,980
------- ------- ------- -------
Adjusted weighted average common
shares....................................... 87,674 84,840 87,715 83,879
======= ======= ======= =======
Net income per common share.................... $ .40 $ .28 $ .45 $ .49
======= ======= ======= =======
</TABLE>
Recent Developments
Effective October 1, 1998, the Company adopted Statement of Position 97-2,
"Software Revenue Recognition," as amended by Statement of Position 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2" ("SOP 97-2").
SOP 97-2 requires each element of a software sale arrangement to be separately
identified and accounted for based on the relative fair value of such element.
Revenue cannot be recognized on any element of the sale arrangement if
undelivered elements are essential to the functionality of the delivered
elements. Adoption of SOP 97-2 did not significantly affect the Company's
results of operations for the three and six months ended March 31, 1999, nor is
it expected to have a significant impact on results for the remainder of the
year as the Company's revenue recognition policies have historically been
substantially in compliance with the practices required by SOP 97-2.
On December 15, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants released Statement of
Position 98-9, "Modification of SOP 97-2, 'Software Revenue Recognition,' with
Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends SOP 97-2 to
require that an entity recognize revenue for multiple element software product
sale arrangements by means of the "residual method" when (1) there is vendor-
specific objective evidence ("VSOE") of the fair values of all of the
undelivered elements that are not accounted for by means of long-term contract
accounting, (2) VSOE of fair value does not exist for one or more of the
delivered elements, and (3) all revenue recognition criteria of SOP 97-2 (other
than the requirement for VSOE of the fair value of each delivered element) are
satisfied.
-9-
<PAGE>
The provisions of SOP 98-9 that extend the deferral of certain passages of
SOP 97-2 became effective December 15, 1998. All other provisions of SOP 98-9
will be effective for the Company's fiscal year beginning October 1, 1999.
Retroactive application is prohibited. The Company is evaluating the
requirements of SOP 98-9 and the effects, if any, on the Company's current
revenue recognition policies.
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130
requires the presentation of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. The Company's comprehensive income consists
of net income, foreign currency translation adjustments and unrealized gains and
losses on available-for-sale securities; however, the adoption of FAS 130 had no
impact on the Company's net income for the three and six months ended March 31,
1999 and 1998. Information concerning the Company's comprehensive income for
the three and six months ended March 31, 1999 and 1998, respectively, is set
forth below (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31 Ended March 31
--------------------------- ----------------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income..................................... $35,160 $23,916 $39,366 $41,238
Foreign currency translation adjustments....... (827) (3,748) (4,098) (7,524)
Unrealized gains (losses) on available-for-
sale securities, net of taxes................ 802 (419) (845) 59
------- -------- -------- --------
Comprehensive income........................... $35,135 $19,749 $34,423 $33,773
======= ======== ======== ========
</TABLE>
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. Certain
amounts for periods ended prior to March 31, 1999 have been reclassified to
conform to the current period presentation. 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,
1998.
-10-
<PAGE>
3. Business Acquisitions and Reorganizations
Acquisition of Cayenne Software, Inc.
On October 26, 1998, Sterling Software acquired Cayenne Software, Inc.
("Cayenne"), a global supplier of analysis and design solutions for application
and database development, in an $11,400,000 cash-for-stock merger transaction
(the "Cayenne Acquisition"). The total cost of the Cayenne Acquisition was
approximately $33,184,000, including costs directly related to the acquisition
of approximately $21,784,000, consisting of employee termination costs,
transaction costs, costs associated with the elimination of duplicate facilities
and other direct costs. Of the $21,784,000 of direct costs, $10,580,000 had
been paid through March 31, 1999. The Cayenne Acquisition was accounted for in
accordance with the purchase method of accounting and, accordingly, the results
of operations of Cayenne were included in the Company's results of operations
from the date of the acquisition as part of the Company's application management
business segment. Results of operations for the first six months of 1999
include $9,623,000 of purchased research and development costs, which is the
portion of the purchase price attributed to in-process research and development,
and which was charged to expense in accordance with the purchase method of
accounting. The components of the aggregate cost of the Cayenne Acquisition
were as follows (in thousands):
Cash merger consideration........................................ $11,400
Cayenne employee severance and benefits.......................... 11,912
Elimination of duplicate facilities and leases................... 5,510
Transaction costs................................................ 2,773
Other costs...................................................... 1,589
-------
$33,184
=======
The aggregate cost of the Cayenne Acquisition was allocated to the assets
and liabilities acquired, with the remainder recorded as excess cost over net
assets acquired, based on estimates of fair values (in thousands):
Working capital (deficit)....................................... $(3,921)
Property and equipment.......................................... 383
Developed software and core technology.......................... 11,434
Purchased research and development costs charged to expense..... 9,623
Other assets and liabilities (net).............................. (89)
Excess cost over net assets acquired............................ 15,754
-------
$33,184
=======
The estimates of fair value were determined by the Company's management
based on information furnished by management of Cayenne and an independent
valuation of developed software, core technology and purchased research and
development. Amounts allocated to purchased research and development were
expensed at the time of the Cayenne Acquisition as the Company determined that
the purchased research and development had not reached technological feasibility
based on the status of design and development activities that required further
refinement and testing.
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<PAGE>
The Company is using the purchased research and development to create new
products that are expected to become part of the products offered by the
application management business segment. The Company expects that products
developed from the purchased research and development will generally be released
during 1999. The development activities required to complete the purchased
research and development technologies include additional coding, cross-platform
porting and validation, quality assurance procedures and beta testing. The
Company's management expects that the purchased research and development will be
successfully developed, however, there can be no assurance that commercial
viability or timely release of these products will be achieved.
The value of the purchased research and development was determined by
discounting the estimated projected net cash flows related to such products,
including costs to complete the development of the technology and the future
revenues to be earned upon release of the products. The projected net cash
flows from such products were based on estimates of revenues and operating
profits related to such products.
Acquisition of Synon Corporation
On July 31, 1998, Sterling Software acquired Synon Corporation ("Synon"), a
provider of application development software and services, in a stock-for-stock
merger transaction (the "Synon Merger") accounted for as a pooling of interests,
valued at approximately $79,000,000. As a result of the transaction, Sterling
Software issued approximately 2,603,000 shares of the Company's common stock,
par value $.10 per share ("Common Stock"), in exchange for the previously
outstanding shares of Synon capital stock and reserved approximately 375,000
shares of Common Stock for issuance upon exercise of assumed Synon stock
options. The Company's financial statements for periods prior to the Synon
Merger, including the results of the application management business segment,
have been restated to represent the combined financial statements of the
previously separate entities.
Reorganization Costs
The Company's results of operations for the first six months of 1999
include reorganization costs of $19,655,000 related to the reorganization of the
Company's operations in connection with the Cayenne Acquisition. Of the total
reorganization costs, approximately $8,007,000 consisted of non-cash costs and
the remaining $11,648,000 required cash outlays, of which $7,097,000 had been
paid through March 31, 1999. At March 31, 1999, the remaining balance to be paid
consists primarily of commitments under lease arrangements for office space and
equipment. The Company does not expect to incur costs related to this
reorganization in excess of the amounts charged to operations in the first
quarter of 1999.
-12-
<PAGE>
The Company's results of operations for the year ended September 30, 1998
include reorganization costs of $45,162,000 primarily related to the
reorganization of the Company's operations in the fourth quarter of 1998 in
connection with the Synon Merger. Of the total reorganization costs,
approximately $9,552,000 consisted of non-cash costs and the remaining
$35,610,000 required cash outlays. At March 31, 1999, the remaining balance to
be paid was $8,146,000, which consists primarily of commitments under lease
arrangements for office space and equipment. The Company does not expect to
incur costs related to this reorganization in excess of the amounts charged to
operations in the fourth quarter of 1998.
4. Legal Proceedings and Claims
The Company is subject to various legal proceedings and claims that arise
in the normal course of its business. While many of these matters involve
inherent uncertainty, the Company's management believes that 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 business, financial condition or
results of operations of the Company.
5. Segment Information
Sterling Software is a worldwide developer and supplier of application
development, information management and systems management software products and
services, as well as a supplier of specialized IT services for sectors of the
federal government. The Company addresses these major markets through three
business segments. The application management business segment provides
solutions for both enterprise-scale application development and information
management. Application development solutions include products and services for
business modeling through code generation. Information management solutions
include products and services that enable customers to facilitate enterprise
information access and to extend the life and usefulness of legacy applications.
The systems management business segment provides solutions that enable customers
to simplify the use of multiple computing environments and to increase the
productivity of information systems, ultimately ensuring that the systems meet
the business needs of the organization. The federal systems business segment
provides specialized IT services for sectors of the federal government, as well
as state and local governments.
-13-
<PAGE>
Financial information concerning the Company's operations, by business
segment, for the three and six months ended March 31, 1999 and 1998, is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31 Ended March 31
----------------------------- ------------------------------
1999 1998 1999 1998
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenue:
Application Management................... $ 93,117 $ 91,365 $180,715 $183,890
Systems Management....................... 60,279 50,314 108,520 92,375
Federal Systems.......................... 38,990 35,905 77,610 69,570
Corporate and other...................... 628
--------- --------- --------- ----------
Consolidated totals.................... $192,386 $177,584 $366,845 $346,463
========= ========= ========= ==========
Operating Profit (Loss):
Application Management................... $ 26,300 $ 16,591 $ 48,328 $ 28,400
Systems Management....................... 23,193 18,680 38,809 32,518
Federal Systems.......................... 3,098 2,468 5,908 4,707
Reorganization costs..................... (19,655)
Purchased research and development....... (9,623)
Corporate and other...................... (8,114) (8,062) (16,181) (15,861)
--------- --------- --------- ----------
Consolidated totals.................... $ 44,477 $ 29,677 $ 47,586 $ 49,764
========= ========= ========= ==========
</TABLE>
6. Increase in Authorized Common Stock
On March 31, 1999, the Sterling Software stockholders approved an
amendment to the Company's Certificate of Incorporation increasing the number of
authorized shares of Common Stock from 125,000,000 shares to 250,000,000 shares.
7. Subsequent Events
On April 15, 1999, Sterling Software acquired the distributed systems
storage software business (the "Alexandria Business") of Spectra Logic
Corporation in a cash asset acquisition transaction valued at approximately
$33,000,000.
On April 30, 1999, Sterling Software acquired Interlink Computer Sciences,
Inc. ("Interlink"), a global supplier of high-performance solutions for
enterprise systems networking, in a two step cash tender offer/merger
transaction valued at approximately $64,000,000, net of proceeds from
outstanding Interlink stock options and warrants.
Both acquisitions were accounted for in accordance with the purchase method
of accounting and, accordingly, the results of operations of the Alexandria
Business and Interlink will be included in the Company's results of operations
from the date of the acquisitions and will
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<PAGE>
be reported in the systems management business segment. The Company expects to
incur non-recurring charges to operations in the third quarter of 1999,
currently estimated to aggregate between $20,000,000 and $30,000,000, primarily
related to the reorganization of the Company's operations and the write-off of
purchased research and development costs in connection with the acquisitions of
the Alexandria Business and Interlink.
-15-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Business Combinations and Reorganizations
Acquisition of Cayenne Software, Inc.
On October 26, 1998, Sterling Software acquired Cayenne Software, Inc.
("Cayenne"), a global supplier of analysis and design solutions for application
and database development, in an $11,400,000 cash-for-stock merger transaction
(the "Cayenne Acquisition"). The total cost of the Cayenne Acquisition was
approximately $33,184,000, including costs directly related to the acquisition
of approximately $21,784,000, consisting of employee termination costs,
transaction costs, costs associated with the elimination of duplicate facilities
and other direct costs. Of the $21,784,000 of direct costs, $10,580,000 had
been paid through March 31, 1999. The Cayenne Acquisition was accounted for in
accordance with the purchase method of accounting and, accordingly, the results
of operations of Cayenne were included in the Company's results of operations
from the date of the acquisition as part of the Company's application management
business segment. Results of operations for the first six months of 1999
include $9,623,000 of purchased research and development costs, which is the
portion of the purchase price attributed to in-process research and development,
and which was charged to expense in accordance with the purchase method of
accounting.
Acquisition of Synon Corporation
On July 31, 1998, Sterling Software acquired Synon Corporation ("Synon"), a
provider of application development software and services, in a stock-for-stock
merger transaction (the "Synon Merger") accounted for as a pooling of interests,
valued at approximately $79,000,000. As a result of the transaction, Sterling
Software issued approximately 2,603,000 shares of the Company's common stock,
par value $.10 per share ("Common Stock"), in exchange for the previously
outstanding shares of Synon capital stock and reserved approximately 375,000
shares of Common Stock for issuance upon exercise of assumed Synon stock
options. The Company's financial statements for periods prior to the Synon
Merger, including the results of the application management business segment,
have been restated to represent the combined financial statements of the
previously separate entities.
Reorganization Costs
The Company's results of operations for the first six months of 1999
include reorganization costs of $19,655,000 related to the reorganization of the
Company's operations in connection with the Cayenne Acquisition. Of the total
reorganization costs, approximately $8,007,000 consisted of non-cash costs and
the remaining $11,648,000 required cash outlays, of which $7,097,000 had been
paid through March 31, 1999. At March 31, 1999, the remaining balance to be paid
consists primarily of commitments under lease arrangements for office space and
equipment. The Company does not expect to incur costs related to this
reorganization in excess of the amounts charged to operations in the first
quarter of 1999.
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<PAGE>
The Company's results of operations for the year ended September 30, 1998
include reorganization costs of $45,162,000 primarily related to the
reorganization of the Company's operations in the fourth quarter of 1998 in
connection with the Synon Merger. Of the total reorganization costs,
approximately $9,552,000 consisted of non-cash costs and the remaining
$35,610,000 required cash outlays. At March 31, 1999, the remaining balance to
be paid was $8,146,000, which consists primarily of commitments under lease
arrangements for office space and equipment. The Company does not expect to
incur costs related to this reorganization in excess of the amounts charged to
operations in the fourth quarter of 1998.
Results of Operations
Three Months Ended March 31, 1999 and 1998
Total revenue increased $14,802,000, or 8%, in the second quarter of 1999
over the same period of 1998 due to revenue increases in all three of the
Company's business segments. Revenue from the application management, systems
management and federal systems business segments increased by 2%, 20% and 9%,
respectively, in the second quarter of 1999 over the same period in 1998.
Without the effect of the Synon restatement, total application management
revenue would have increased 27% and total revenue would have increased 21% in
the second quarter of 1999 over the same period of 1998.
Revenue generated from the Company's international operations was
$72,329,000 and $69,129,000 in the second quarter of 1999 and 1998,
respectively, representing an increase of $3,200,000, or 5%. This was due to a
5% quarter over quarter increase in international revenue generated by both the
systems management and application management business segments. Revenue from
the Company's international operations represented 38% and 39% of total revenue
in the second quarter of 1999 and 1998, respectively. Without the effect of the
Synon restatement, revenue from the Company's international operations would
have increased 20% in the second quarter of 1999 over the same period of 1998.
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 increased to 46% of total revenue in the second quarter of 1999 compared
to 45% in the same period of 1998.
Revenue from the application management business segment increased
$1,752,000, or 2%, in the second quarter of 1999 compared to the same period of
1998 due to a 10% increase in products revenue and a 16% increase in product
support revenue, offset by a 26% decline in services revenue. Without the
effect of the Synon restatement, total application management revenue would have
increased 27% in the second quarter of 1999 over the same period of 1998 with
26%, 44% and 8% increases in products, product support and services revenue,
respectively. The reported decline in services revenue is due primarily to the
Company's execution of its strategy of transitioning consulting services
opportunities to partners and third-party consulting firms in order to focus the
Company's efforts on more profitable software product sales. The
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<PAGE>
reported increase in products revenue is due to strong internal growth as well
as growth due to sales of products acquired in the Cayenne Acquisition, offset
by the discontinuance of sales of a non-strategic product acquired in the Synon
Merger. Approximately 51% of the application management business segment's total
revenue in the second quarter of 1999 was derived from the Company's
international operations, compared to 50% in the same period of 1998.
Revenue from the systems management business segment increased $9,965,000,
or 20%, in the second quarter of 1999 over the same period of 1998 primarily due
to a 28% increase in products revenue and a 3% increase in product support
revenue. The increase in products revenue was mainly attributable to strong
product sales in the storage management and network management product lines.
Approximately 41% of the systems management business segment's total revenue in
the second quarter of 1999 was derived from the Company's international
operations, compared to 47% in the same period of 1998.
Revenue from the federal systems business segment increased $3,085,000, or
9%, in the second quarter of 1999 over the same period of 1998 primarily due to
higher contract billings in the segment's defense business as well as revenue
added as a result of the Company's acquisition of Mystech Associates, Inc. in
the fourth quarter of 1998 (the "Mystech Merger").
Total costs and expenses remained constant in the second quarter of 1999
over the same period of 1998. An 11% decrease in total costs in the application
management business segment was offset by increases in total costs in the
systems management and federal systems business segments of 17% and 7%,
respectively. The decrease in total costs in the application management
business segment is primarily a result of the Company's lower cost structure in
that business segment, compared to the cost structure of the former Synon
operation. The increase in total costs in the systems management and federal
systems business segments is consistent with revenue growth in these segments.
Total cost of sales remained constant in the second quarter of 1999
compared to the same period of 1998, and represented 37% and 40% of total
revenue in the second quarter of 1999 and 1998, respectively. Cost of sales for
products and product support represented 15% of products and product support
revenue in both the second quarters of 1999 and 1998. Cost of sales for
services represented 86% of services revenue in both the second quarters of 1999
and 1998.
Product development expense for the second quarter of 1999 grew 1% to
$9,524,000, as compared to product development expense in the second quarter of
1998 of $9,410,000. Without the effect of the Synon restatement, product
development expense would have increased 22% in the second quarter of 1999 over
the same period of 1998. Gross product development expense, before
capitalization of software, was 11% of non-federal revenue in the second quarter
of 1999 compared with 12% for the same period of 1998. In the second quarter of
1999, the Company capitalized $7,940,000 of development costs, a 45%
capitalization rate, and amortized $6,350,000 of software. This compares to
$7,181,000 of capitalized development costs, or a 43% capitalization rate, and
$5,149,000 of software amortization in the second quarter of 1998. 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.
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<PAGE>
Selling, general and administrative expenses decreased $153,000 in the
second quarter of 1999 compared to the same period of 1998, primarily due to a
decrease in selling, general and administrative expenses in the application
management business segment offset by an increase in selling, general and
administrative expenses in the systems management business segment. The
decrease in selling, general and administrative expenses in the application
management business segment is primarily a result of the Company's lower cost
structure in that business segment, compared to the cost structure of the former
Synon operation. The increase in selling, general and administrative expenses
in the systems management business segment is consistent with revenue growth in
this segment. Selling, general and administrative expenses represented 35% and
38% of total revenue in the second quarter of 1999 and 1998, respectively.
Income before income taxes in the second quarter of 1999 was $53,273,000
compared to $37,545,000 for the same period of 1998. Income before income taxes
increased $15,728,000, or 42%, primarily due to higher profits in all three of
the Company's business segments.
The Company's effective tax rate for the second quarter of 1999 was 34%
compared to 36% for the same period of 1998. The effective tax rate for the
second quarter of 1998 was adversely impacted by unbenefited losses incurred by
Synon prior to the Synon Merger.
Six Months Ended March 31, 1999 and 1998
Total revenue increased $20,382,000, or 6%, in the first six months of 1999
over the same period of 1998 due to revenue increases in the Company's systems
management and federal systems business segments. Revenue from the systems
management and federal systems business segments increased by 17% and 12%,
respectively, in the first six months of 1999 over the same period in 1998.
Revenue increases in the systems management and federal systems business
segments were partially offset by a 2% decline in total revenue from the
application management business segment for the same period. Without the effect
of the Synon restatement, total application management revenue would have
increased 24% and total revenue would have increased 19% in the first six months
of 1999 over the same period of 1998.
Revenue generated from the Company's international operations was
$143,693,000 and $139,139,000 in the six months ended March 31, 1999 and 1998,
respectively, representing an increase of $4,554,000, or 3%. This was due to a
15% period over period increase in international revenue generated by the
systems management business segment, partially offset by a 2% period over period
decline in international revenue generated by the application management
business segment. Revenue from the Company's international operations
represented 39% and 40% of total revenue in the first six months of 1999 and
1998, respectively. Without the effect of the Synon restatement, revenue from
the Company's international operations would have increased 21% in the first six
months of 1999 over the same period of 1998.
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<PAGE>
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 increased to 48% of total revenue in the first six months of 1999
compared to 46% in the same period of 1998.
Revenue from the application management business segment declined
$3,175,000, or 2%, in the first six months of 1999 compared to the same period
of 1998 due to a 23% decline in services revenue and a 1% decline in products
revenue, partially offset by a 16% increase in product support revenue. Without
the effect of the Synon restatement, total application management revenue would
have increased 24% in the six months ended March 31, 1999 over the same period
of 1998 with 19%, 43% and 9% increases in products, product support and services
revenue, respectively. The reported decline in services revenue is due
primarily to the Company's execution of its strategy of transitioning consulting
services opportunities to partners and third-party consulting firms in order to
focus the Company's efforts on more profitable software product sales. The
reported decline in products revenue is due primarily to the discontinuance of
sales of a non-strategic product acquired in the Synon Merger offset by internal
growth as well as growth due to the sale of products acquired in the Cayenne
Acquisition. Approximately 51% of the application management business segment's
total revenue in the first six months of 1999 was derived from the Company's
international operations, compared to 52% in the same period of 1998.
Revenue from the systems management business segment increased $16,145,000,
or 17%, in the six months ended March 31, 1999 over the same period of 1998
primarily due to a 24% increase in products revenue and a 6% increase in product
support revenue. The increase in products revenue was mainly attributable to
higher product sales in the storage management and network management product
lines. Approximately 47% of the systems management business segment's total
revenue in the first six months of 1999 was derived from the Company's
international operations, compared to 48% in the same period of 1998.
Revenue from the federal systems business segment increased $8,040,000, or
12%, in the first six months of 1999 over the same period of 1998 primarily due
to higher contract billings in the segment's defense business as well as revenue
added as a result of the Mystech Merger.
Total costs and expenses increased $22,560,000, or 8%, in the first six
months of 1999 over the same period of 1998. However, excluding the Cayenne-
related reorganization costs of $19,655,000 and the write-off of Cayenne-related
purchased research and development costs of $9,623,000 in the first quarter of
1999, total costs and expenses decreased $6,718,000, or 2%. A 15% decrease in
total costs in the application management business segment was offset by
increases in total costs in the systems management and federal systems business
segments of 16% and 11%, respectively. The decrease in total costs in the
application management business segment is primarily a result of the Company's
lower cost structure in that business segment, compared to the cost structure of
the former Synon operation. The increase in total costs in the systems
management and federal systems business segments is consistent with revenue
growth in these segments.
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<PAGE>
Total cost of sales increased $1,969,000, or 1%, in the first six months of
1999 compared to the same period of 1998, and represented 39% and 40% of total
revenue in the first six months of 1999 and 1998, respectively. Cost of sales
for products and product support represented 15% of products and product support
revenue in both the first six months of 1999 and 1998. Cost of sales for
services represented 89% of services revenue in the first six months of 1999
compared to 87% for the same period in 1998.
Product development expense for the first six months of 1999 decreased 6%
to $18,879,000, as compared to product development expense in the first six
months of 1998 of $20,018,000. Without the effect of the Synon restatement,
product development expense would have increased 13% in the first six months of
1999 over the same period of 1998. Gross product development expense, before
capitalization of software, was 11% of non-federal revenue in the six months
ended March 31, 1999 compared with 12% for the same period of 1998. In the
first six months of 1999, the Company capitalized $14,092,000 of development
costs, a 43% capitalization rate, and amortized $11,428,000 of software. This
compares to $13,157,000 of capitalized development costs, or a 40%
capitalization rate, and $10,104,000 of software amortization in the first six
months of 1998. 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 decreased $7,548,000, or 6%,
in the six months ended March 31, 1999 compared to the same period of 1998,
primarily due to a decrease in selling, general and administrative expenses in
the application management business segment, partially offset by increased
selling, general and administrative expenses in the systems management business
segment. The decrease in selling, general and administrative expenses in the
application management business segment is primarily a result of the Company's
lower cost structure in that business segment, compared to the cost structure of
the former Synon operation. The increase in selling, general and administrative
expenses in the systems management business segment is consistent with revenue
growth in this segment. Selling, general and administrative expenses represented
35% and 40% of total revenue in the first six months of 1999 and 1998,
respectively.
Income before income taxes in the first six months of 1999 was $65,186,000
compared to $65,705,000 for the same period of 1998. However, excluding the
Cayenne-related reorganization costs of $19,655,000 and the write-off of
Cayenne-related purchased research and development costs of $9,623,000 in the
first quarter of 1999, income before income taxes increased $28,759,000, or 44%,
primarily due to higher profits in all three of the Company's business segments.
The Company's effective tax rate for the first six months of 1999 was 40%
compared to 37% for the same period of 1998. The effective tax rate for the
first six months of 1999 was adversely impacted by the write-off of purchased
research and development costs related to the Cayenne Acquisition that will not
provide a tax benefit to the Company. Before the net tax benefit related to the
Cayenne-related reorganization costs and the write-off of purchased research and
development costs, the Company's effective tax rate for the first six months of
1999
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<PAGE>
was 34%. The effective tax rate for the first six months of 1998 was adversely
impacted by unbenefited losses incurred by Synon prior to the Synon Merger.
Liquidity and Capital Resources
The Company maintained a strong liquidity and financial position with
$699,119,000 of working capital at March 31, 1999, which included $439,982,000
of cash and cash equivalents and $264,108,000 of marketable securities. Net cash
provided by operating activities was $22,986,000 in the first six months of 1999
as compared to $42,025,000 in the first six months of 1998. Net cash provided by
operating activities in the first six months of 1999 was reduced by payments
made during the period of approximately $38,399,000 primarily related to the
Synon Merger and related reorganization that occurred in the fourth quarter of
1998 and the Cayenne Acquisition and related reorganization that occurred in the
first quarter of 1999. Net cash provided by operating activities in the first
six months of 1998 was reduced by payments of approximately $20,499,000 related
to the acquisition of substantially all of the assets of the Software Division
of Texas Instruments Incorporated and the related reorganizations that occurred
in the third quarter of 1997.
Investing activities provided $3,285,000 of cash in the first six months of
1999 and used $54,063,000 in the first six months of 1998. Capital expenditures
in the first six months of 1999 were $16,831,000 compared to $13,479,000 in the
first six months of 1998. Purchases and capitalized costs of computer software
were $14,409,000 and $13,322,000 in the first six months of 1999 and 1998,
respectively. Cash provided by operating activities, together with other
available cash, was used to fund capital expenditures and additions to computer
software, as well as the Cayenne Acquisition.
Financing activities provided $19,153,000 of cash in the first six months
of 1999 compared to $778,000 in the first six months of 1998. The Company
received proceeds of approximately $10,008,000 and $6,249,000 from the exercise
of employee stock options in the first six months of 1999 and 1998,
respectively. Also, the Company received proceeds of $6,810,000 in the first
six months of 1999 from the issuance of Common Stock pursuant to the Company's
employee stock purchase plan.
The Company is party to a bank credit agreement (the "Credit Agreement")
which provides for unsecured revolving credit loans of up to $35,000,000.
Borrowings under the Credit Agreement, which expires on June 30, 2000, 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 1999 or 1998.
At March 31, 1999, the Company's short- and long-term cash commitments,
including remaining costs related to the Cayenne Acquisition, the Synon Merger
and the Mystech Merger and the related reorganizations, 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.
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<PAGE>
The Company believes that 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
Foreign Currency Matters
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 exposure to
foreign currency exchange rate fluctuations through decentralized sales,
marketing and support operations, and through international development
facilities, in which substantially all costs are local-currency based. The
Company has entered, and may in the future enter, into hedging transactions in
an effort to reduce its exposure to currency exchange risks.
Year 2000 Issues
The following discussion regarding year 2000 matters constitutes a "Year
2000 Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act.
Like most companies in the IT industry, the Company has been and is
continuing to address the impact of the so-called "year 2000" issue. A more
detailed discussion of certain risks associated with the year 2000 issue and the
Company's actions and plans to address this issue is set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1998.
Among other risks associated with the year 2000 issue, some commentators
have predicted that it may affect historical purchasing patterns and trends in
the software industry. For example, certain industry analysts have indicated
that many enterprises intend to make no changes to their existing computing
environments during the latter part of calendar 1999 and the early part of 2000.
To date, the Company has not experienced any discernable trend indicating a
material reduction in demand for the Company's products. Because of the general
uncertainty that surrounds the year 2000 issue, however, there can be no
assurance that it will not affect future customer purchasing patterns or
negatively affect demand for the Company's products in future periods.
As the turn of the century approaches, the Company is continuing to assess
the need for and refine contingency plans associated with the year 2000 issue.
Among other things, the Company's product support organizations are developing
and refining plans to make available additional customer support resources in
late December of 1999 and early January of 2000.
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<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. Such
statements are based upon the beliefs and assumptions of, and on information
available to, the Company's management. The following statements are or may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995: (i) statements preceded by, followed
by or that include the words "may", "will", "could", "should", "believe",
"expect", "future", "potential", "anticipate", "intend", "plan", "estimate" or
"continue" or the negative or other variations thereof and (ii) other statements
regarding matters that are not historical facts. Such forward-looking
statements are subject to various risks and uncertainties, including (i) risks
and uncertainties relating to the possible invalidity of the underlying beliefs
and assumptions, (ii) possible changes or developments in social, economic,
business, industry, market, legal and regulatory circumstances and conditions,
and (iii) actions taken or omitted to be taken by third parties, including
customers, suppliers, business partners, competitors and legislative,
regulatory, judicial and other governmental authorities and officials. In
addition to any risks and uncertainties specifically identified in the text
surrounding such forward-looking statements, the statements in the immediately
preceding sentence and the statements under captions such as "Risk Factors",
"Certain Considerations Relative to the Company" and "Special Considerations" in
the SEC Filings constitute cautionary statements identifying important factors
that could cause actual amounts, results, events and circumstances to differ
materially from those reflected in such forward-looking statements.
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<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on March 31, 1999,
at which the stockholders of the Company voted on and approved the following:
1. The election of three Class C directors of the Company for terms
expiring at the Company's Annual Meeting of Stockholders in 2002.
2. The amendment of the Company's Certificate of Incorporation to
increase the number of shares of authorized Common Stock from 125,000,000 shares
to 250,000,000 shares.
The voting with respect to each of these matters was as follows:
1. Election of Directors
---------------------
Name For Withheld
----- --- --------
Sam Wyly 70,897,940 4,796,919
Sterling L. Williams 70,899,747 4,795,112
Donald R. Miller, Jr. 70,463,467 5,231,392
2. Amendment to the Company's Certificate of Incorporation
-------------------------------------------------------
For Against Abstentions
--- ------- -----------
70,710,664 4,811,977 172,218
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<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 Agreement and Plan of Merger, dated as of June 20, 1998, among the
Company, Sterling Software (Southern), Inc. and Synon Corporation (1),
(2)
2.2 Agreement and Plan of Merger, dated as of August 27, 1998, among the
Company, Sterling Software (Southern), Inc. and Cayenne Software, Inc.
(2), (3)
2.3 Asset Purchase Agreement, dated as of March 6, 1999, between the
Company, Spectra Logic Corporation, Sterling Software (U.S.A.), Inc.,
Nathan C. Thompson and Michael J. Sausa (2), (4)
2.4 Agreement and Plan of Merger, dated as of March 23, 1999, among the
Company, Sterling Software (Southwest), Inc. and Interlink Computer
Sciences, Inc. (2), (5)
3.1 Certificate of Incorporation, as amended, of the Company (4)
3.2 Bylaws, as amended, of the Company (6)
27 Financial Data Schedule (4)
- -------------
(1) Previously filed as an Exhibit to the Company's Current Report on Form 8-K
dated June 21, 1998 and incorporated herein by reference (SEC File No.
98652676).
(2) In accordance with Item 601 of Regulation S-K, the schedules and exhibits
relating to the agreement have been omitted. The Company will furnish
supplementally to the Securities and Exchange Commission such schedules or
exhibits upon request.
(3) Previously filed as an exhibit to the Current Report on Form 8-K dated
August 27, 1998 filed by Cayenne Software, Inc. and incorporated herein by
reference (File ID #000-19682, SEC File No. 98700698).
(4) Filed herewith.
(5) Previously filed as an exhibit to the Company's Tender Offer Statement on
Schedule 14D-1 dated March 30, 1999 and incorporated herein by reference
(SEC File No. 99579124).
(6) Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A/A filed on May 27, 1998 and incorporated herein by reference (SEC
File No. 98632257).
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the three
month period ended March 31, 1999.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING SOFTWARE, INC.
Date: May 11, 1999 By: /s/ Sterling L. Williams
--------------------------------------------
Sterling L. Williams
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: May 11, 1999 /s/ R. Logan Wray
--------------------------------------------
R. Logan Wray
Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of June 20, 1998, among the
Company, Sterling Software (Southern), Inc. and Synon Corporation (1),
(2)
2.2 Agreement and Plan of Merger, dated as of August 27, 1998, among the
Company, Sterling Software (Southern), Inc. and Cayenne Software, Inc.
(2), (3)
2.3 Asset Purchase Agreement, dated as of March 6, 1999, between the
Company, Spectra Logic Corporation, Sterling Software (U.S.A.), Inc.,
Nathan C. Thompson and Michael J. Sausa (2), (4)
2.4 Agreement and Plan of Merger, dated as of March 23, 1999, among the
Company, Sterling Software (Southwest), Inc. and Interlink Computer
Sciences, Inc. (2), (5)
3.1 Certificate of Incorporation, as amended, of the Company (4)
3.2 Bylaws, as amended, of the Company (6)
27 Financial Data Schedule (4)
--------------
(1) Previously filed as an Exhibit to the Company's Current Report on Form
8-K dated June 21, 1998 and incorporated herein by reference (SEC File
No. 98652676).
(2) In accordance with Item 601 of Regulation S-K, the schedules and
exhibits relating to the agreement have been omitted. The Company will
furnish supplementally to the Securities and Exchange Commission such
schedules or exhibits upon request.
(3) Previously filed as an exhibit to the Current Report on Form 8-K dated
August 27, 1998 filed by Cayenne Software, Inc. and incorporated herein
by reference (File ID #000-19682, SEC File No. 98700698).
(4) Filed herewith.
(5) Previously filed as an exhibit to the Company's Tender Offer Statement
on Schedule 14D-1 dated March 30, 1999 and incorporated herein by
reference (SEC File No. 99579124).
(6) Previously filed as an exhibit to the Company's Registration Statement
on Form 8-A/A filed on May 27, 1998 and incorporated herein by
reference (SEC File No. 98632257).
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EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
by and among
STERLING SOFTWARE, INC.,
Parent,
STERLING SOFTWARE (U.S.A.), INC.,
Buyer,
SPECTRA LOGIC CORPORATION,
Seller,
NATHAN C. THOMPSON,
and
MICHAEL J. SAUSA
Dated as of March 6, 1999
<PAGE>
ASSET PURCHASE AGREEMENT (herein, together with the Exhibits and Schedules
attached hereto, referred to as this "Agreement"), dated as of March 6, 1999, by
and among Sterling Software, Inc., a Delaware corporation ("Parent"), Sterling
Software (U.S.A.), Inc., a California corporation and wholly owned subsidiary of
Parent (the "Buyer"), Spectra Logic Corporation, a Delaware corporation (the
"Seller"), and Nathan C. Thompson ("Thompson") and Michael J. Sausa ("Sausa").
W I T N E S S E T H
WHEREAS, the Seller presently conducts the business of designing,
developing, marketing, selling, delivering, licensing, supporting, maintaining
or otherwise providing information systems back-up software, including the
Products (as defined in Section 1.1(a)(vi) hereof), and providing related
consulting services (the "Alexandria Business");
WHEREAS, the Seller wishes to sell to the Buyer the Assets (as defined in
Section 1.1(a) hereof) and the Alexandria Business, and the Buyer wishes to buy
from the Seller the Assets and the Alexandria Business, all upon the terms and
subject to the conditions set forth herein;
WHEREAS, the parties hereto have entered into a binding letter agreement,
dated February 27, 1999 (the "Letter Agreement"), which Letter Agreement shall
be superseded in its entirety by this Agreement upon execution hereof;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
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ARTICLE I
SALE AND PURCHASE OF ASSETS
Section 1.1 Transfer of Assets; Excluded Assets. (a) Subject to the
terms and conditions of this Agreement, on the Closing Date (as defined in
Section 1.6 hereof) the Seller shall, and shall cause each of its affiliates to,
sell, convey, assign, transfer and deliver to the Buyer, and the Buyer shall
purchase, acquire and accept from the Seller and any such affiliates, all the
rights, properties and assets of every kind, character and description, wherever
located and whether tangible or intangible, real or personal or fixed or
contingent, owned, held, used, conceived, developed or offered for sale or
license by Seller or any of its affiliates in connection with the conduct of the
Alexandria Business or otherwise arising out of the conduct of the Alexandria
Business (collectively, the "Assets"). The Assets shall include, but shall not
be limited to, the following:
(i) Tangible Personal Property. The capital equipment together with
all other hardware, equipment, office equipment and supplies and other tangible
personal property owned, held or used by Seller or any of its affiliates in
connection with the conduct of the Alexandria Business, including any such
tangible personal property held under a capitalized lease or similar agreement;
(ii) Expensed Assets. The expensed assets relating to the Alexandria
Business;
(iii) Prepaid Items. All prepaid items, deposits, costs and fees
relating to the Alexandria Business;
(iv) Inventory. All raw materials, components, work-in-process,
finished goods and packaging materials and supplies held or used by Seller or
any of its affiliates in connection with the conduct of the Alexandria Business
(collectively, the "Inventory");
(v) Accounts Receivable. All accounts or notes receivable of, and
any other amounts due or indebtedness owed by any obligor to, Seller or any of
its affiliates arising out of the conduct of the Alexandria Business prior to
the date of the Closing, including amounts due from original equipment
manufacturers used by or associated with the Alexandria Business and the portion
of any accounts receivables which are shared (e.g., common customer) with other
businesses of Seller to the extent attributable to the Alexandria Business
(collectively, the "Accounts Receivables", with such shared Accounts Receivables
being referred to herein as the "Shared Accounts Receivables");
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(vi) Alexandria Software. All (A) Software that is Related to the
Alexandria Business, including all Products and all Software used in or
necessary for the research, development, modification, testing, maintenance and
support of the Products, and (B) documentation, including research, development,
modification, testing, maintenance and support documentation and installation
and user manuals and materials, relating to any of the foregoing (in each case,
whether in written form or in magnetic, electronic or other machine readable
form), except, in each of (A) and (B), for Third Party Intellectual Property (as
defined in Section 1.1(c) hereof) ((A) and (B) collectively, the "Alexandria
Software"). "Software" means all computer programs (including applications,
utilities, modules, libraries, toolkits, applets and scripts), databases,
compilations and other electronically stored data, and any other software,
including software implementations of algorithms, models, methodologies and
other technology. "Products" means all current or previous software products of
any type licensed, sublicensed, sold or otherwise distributed by the Seller or
any of its affiliates at any time prior to the date of the Closing and Related
to the Alexandria Business, including all releases, updates, upgrades,
enhancements, fixes or other modifications to all such software products, and
all related marketing and instructional materials, user manuals and other
related materials. "Related to the Alexandria Business" means (I) used in or
necessary for the conduct of the Alexandria Business as currently conducted or
proposed or contemplated to be conducted, (II) conceived or developed, or in
development, in connection with the Alexandria Business as previously or
currently conducted, or proposed or contemplated to be conducted, or (III)
otherwise arising out of the conduct of the Alexandria Business as previously or
currently conducted, or proposed or contemplated to be conducted;
(vii) Contracts. All contracts (other than employment agreements,
including those listed on Schedule 1.1(vii) hereof (the "Employment
Contracts")), including consulting agreements and contract worker agency
agreements, leases, licenses (including software licenses, customer support
agreements and software user agreements, as licensor or licensee), distributor
agreements, purchase orders (as vendor or purchaser), agreements with original
equipment manufacturers, VAR and reseller agreements, loaned equipment
agreements and other agreements of Seller or any of its affiliates relating to
the Alexandria Business, including the Intellectual Property Agreements set
forth in Section 2.12(a)(ii) hereof, it being the intention of the parties
hereto to segregate contracts with a single customer which relate both to the
Alexandria Business and the hardware businesses of Seller (collectively, the
"Assumed Contracts");
(viii) Alexandria Intellectual Property. All (A) trademarks, service
marks, trade names, brand names, Internet domain names, designs, logos, slogans,
and general intangibles of like nature, together with all goodwill,
registrations and applications related to the foregoing (collectively,
"Trademarks"); (B) patents and
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industrial design registrations or applications (including any continuations,
divisionals, continuations-in-part, renewals, reissues, and applications for any
of the foregoing), and invention disclosures (collectively, "Patents"); (C)
copyrights (including any registrations and applications for any of the
foregoing), database rights and "mask works" (as defined under 17 U.S.C. (S) 901
and equivalent foreign laws) and any registrations and applications for "mask
works" (collectively, "Copyrights"); (D) technology, trade secrets and other
confidential technical and business information, know-how, proprietary
processes, formulae, algorithms, models, and methodologies (collectively, "Trade
Secrets"); and (E) content on Seller's World Wide Web site ("Seller Web Site")
that is Related to the Alexandria Business, and any other intellectual property,
industrial property or other proprietary rights; in each case (A) through (E),
(I) Related to the Alexandria Business but not constituting Third Party
Intellectual Property, (II) including but not limited to, the items set forth
and indicated as owned by the Seller or any of its affiliates in Section 2.12(a)
of the Seller's disclosure schedule delivered concurrently herewith to the Buyer
(as amended or updated in accordance with this Agreement, the "Disclosure
Schedule"), and (III) including the right to sue and collect damages for past
infringement of any of the foregoing (the Trademarks, Patents, Copyrights, Trade
Secrets and other rights as set forth and qualified in this Section
1.1(a)(viii), and the Alexandria Software, collectively, "Alexandria
Intellectual Property");
(ix) Permits. All licenses, permits, authorizations and approvals
issued by any governmental authority to Seller and any of its affiliates
relating to the Assets or the Alexandria Business;
(x) Causes of Action. All causes of action, judgments, claims,
reimbursements and demands, of whatever nature, in favor of Seller and related
to the Assets, the Assumed Liabilities (as defined in Section 1.2) or the
conduct of the Alexandria Business;
(xi) Guarantees. All guarantees and warranties under which Seller is
a beneficiary to the extent related to the Assets or the Alexandria Business;
(xii) Telephone Numbers. To the extent transferable, all rights to
the telephone numbers (and related directory listings) used in connection with
customer support associated with the Alexandria Business;
(xiii) Books and Records. All financial, accounting and operating
data, including customer lists, customer billing records, customer support
records and other customer files, sales and promotional data, advertising
materials, credit information, cost and pricing information, vendor and
distributor lists and files, payroll and personnel records, subject to employee
consent, if required, source documentation relating to the Accounts Receivables
and other books, records and information
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of Seller or any of its affiliates relating to the Assets or the Alexandria
Business, provided that Seller shall be entitled to retain originals of the
source documentation relating to the Shared Accounts Receivables but shall
deliver copies thereof to Buyer from time to time upon Buyer's request; and
(xiv) Other Assets. All other assets used in or otherwise arising
out of the conduct of the Alexandria Business, whether tangible or intangible,
and wherever located, except for the Excluded Assets.
The inclusion of any asset in this Section 1.1(a) shall not, in any
way, result in the assumption by the Buyer of any Retained Liability.
(b) The Buyer is not acquiring from the Seller, and the Seller shall
retain ownership of (i) all right, title and interest in and to, and exclude
from sale hereunder, all assets, properties and rights of the Seller of every
kind, character and description, wherever located and whether real or personal
or fixed or contingent, not included in the definition of Assets, (ii) all
hardware designs, firmware, specifications, schematics, parts lists and parts
inventory relating to the Seller's SSCL robotic control device and the Seller's
automated tape library devices, provided that the Buyer will be granted a
worldwide, royalty free, perpetual license to use the SSCL device firmware, and
Seller will make SSCL devices available to Buyer at a cost equal to Seller's
fully burdened cost plus twenty percent for a period of five years from the date
of this Agreement, (iii) all rights and obligations under the Employment
Contracts, and (iv) the assets listed on Schedule 1.1(b) (collectively, the
"Excluded Assets").
(c) All third party Software or other third party intellectual
property, including any third party Patents, Copyrights, Trademarks, Trade
Secrets or other intellectual property, that is (A) incorporated into any
Product or other Alexandria Software, or (B) otherwise Related to the Alexandria
Business (collectively, "Third Party Intellectual Property") are also deemed
"Excluded Assets" in addition to such Excluded Assets set forth in Section
1.1(b) hereof (the Alexandria Intellectual Property and Third Party Intellectual
Property collectively, "Intellectual Property").
(d) For use in the ordinary course of the Alexandria Business during
a transition period following the Closing, Seller hereby grants a limited,
worldwide, royalty-free, fully-paid license to Buyer, and consents to the use by
Buyer, for a period of 180 days following the Closing Date, of the name "Spectra
Logic" or "Spectra Logic Software" or any derivations thereof or any other
marks, slogans or logos used in connection with the Alexandria Business.
Section 1.2 Assumed Liabilities; Retained Liabilities. (a) As additional
consideration hereunder, at the Closing (as defined in Section 1.5 hereof), the
Buyer
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shall assume, and shall be solely and exclusively liable with respect to, and
shall pay, perform or discharge in accordance with their respective terms, the
following liabilities and obligations of the Seller (collectively, the "Assumed
Liabilities"):
(i) all liabilities and obligations that arise in the ordinary course
of business under the Assumed Contracts (but only with respect to performance of
such Contracts after the Closing and excluding any liabilities for any breaches
of such Contracts by the Seller);
(ii) accrued vacation, sick pay and similar routine liabilities
(other than sabbatical liability) associated with employees of the Alexandria
Business who become employees of the Buyer or Parent on or immediately after the
Closing Date; and
(iii) except as otherwise provided in this Agreement, all liabilities
and obligations arising solely out of the conduct of the Alexandria Business by
the Buyer on and after the Closing Date.
(b) Notwithstanding anything in this Agreement to the contrary, the
Buyer and Parent shall not assume, and shall be deemed not to have assumed, any
liabilities or obligations of the Seller or the Alexandria Business, whether
known or unknown, disclosed or undisclosed, asserted or unasserted, fixed or
contingent and whether or not reflected on a balance sheet of Seller, except as
expressly provided in Section 1.2(a) hereof, and the Seller shall be solely and
exclusively liable with respect to, and shall pay, perform or discharge, all
such liabilities and obligations of the Seller other than the Assumed
Liabilities (collectively, the "Retained Liabilities").
Section 1.3 Purchase Price. (a) In consideration for the sale and
transfer of the Assets, the Buyer shall (A) assume and become responsible for
the Assumed Liabilities and (B) pay the Seller an aggregate of $26,750,000 in
cash (the "Purchase Price"), in accordance with Section 1.3(b) hereof.
(b) On the Closing Date, Buyer shall pay to Seller, the amount of the
Purchase Price (the "Seller Closing Payment") payable by wire transfer in
immediately available funds to an account specified in writing by Seller at
least one business day prior to the Closing (the "Seller's Account").
Section 1.4 Closing Date Statement of Net Book Assets. (a) At or
immediately prior to the Closing, the Seller, in consultation with the Buyer,
shall prepare and deliver to the Buyer a Statement of Net Book Assets as of the
Closing Date (the "Closing Date Statement of Net Book Assets") which statement
shall be prepared in accordance with U.S. generally accepted accounting
principles ("GAAP") applied on
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a consistent basis and shall set forth the net book value of the Assets and
Assumed Liabilities as of such date. Seller shall cooperate with Buyer and
Buyer's accountants and representatives in connection with the preparation of
the Closing Date Statement of Net Book Assets and shall grant the Buyer and the
Buyer's accountants and representatives such access as may be reasonably
requested to the books, records or other information related to the Alexandria
Business in the Seller's possession that may be useful in reviewing the
preparation of the Closing Date Statement of Net Books Assets.
(b) Following receipt of the Closing Date Statement of Net Book
Assets, the Buyer shall promptly review such Statement. The Seller shall, and
shall cause the Seller's employees, accountants and other representatives to,
cooperate with the Buyer and Buyer's accountants and representatives in
connection with a review of such Statement.
Section 1.5 Closing. Upon the terms and subject to the conditions of this
Agreement, the consummation of the transactions contemplated by this Agreement
(the "Closing") will take place on the second business day following the
satisfaction or waiver of the conditions set forth in Article V hereof (other
than the conditions with respect to actions the parties will take at the
Closing), at 10:00 a.m., local time, at the offices of Parent, 300 Crescent
Court, Suite 1200, Dallas, Texas or Skadden, Arps, Slate, Meagher & Flom LLP,
919 Third Avenue, New York, New York, or at such other time or at such other
place as shall be agreed upon by the parties. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date." The parties hereby
agree that the Closing shall be deemed effective as of 12:01 A.M., Boulder,
Colorado time, on the Closing Date.
Section 1.6 Purchase Price Allocation/Tax Filings. Buyer and Seller shall
consult with each other with respect to the allocation of the Purchase Price and
the amount of the Assumed Liabilities among the Assets; provided, however, that
nothing in this Section 1.6 shall be deemed to obligate either the Buyer or the
Seller to agree on such allocation.
Section 1.7 Deliveries by the Seller. At the Closing, the Seller shall
deliver or cause to be delivered to the Buyer (unless previously delivered), the
following:
(a) A duly executed bill of sale and assignments with respect to the
Assets, in substantially the form of Exhibit A hereto (the "Bill of Sale").
(b) The opinion of counsel to the Seller, dated the Closing Date,
covering the matters set forth in Exhibit B hereto.
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(c) A copy of the resolutions of the board of directors of the Seller
and the stockholders of the Seller, authorizing the execution, delivery and
performance hereof, and of each other agreement to be executed in connection
with the transactions contemplated by this Agreement, by the Seller, and a
certificate of its secretary or assistant secretary, dated as of the Closing
Date, that such resolutions were duly adopted and are in full force and effect.
(d) Duly executed instruments of assignment for assigning all
Alexandria Intellectual Property to Buyer in substantially the form attached
hereto as Exhibit C and such other forms of assignment of Alexandria
Intellectual Property and Intellectual Property Agreements as, in the reasonable
judgment of Buyer, are required or appropriate under applicable law in order to
record the transfer of the Alexandria Intellectual Property and Intellectual
Property Agreements from the Seller to Buyer (collectively, the "Intellectual
Property Assets Assignments").
(e) The Product Reseller Agreement referred to in Section 4.16
hereof.
(f) The Seller Product License referred to in Section 4.17 hereof.
(g) All of the books and records relating to the Alexandria Business,
provided, that books and records at the principal place of business of the
Alexandria Business shall remain thereat and shall be deemed delivered to the
Buyer, provided further, that the Seller may retain any original of a book or
record relating to the Alexandria Business that Seller is required to retain
under any Applicable Law (as defined in Section 2.9(b)) relating to Taxes (as
defined in Section 2.10(h)), it being understood between the parties hereto that
Buyer shall be provided with copies at the Closing of, and shall have access to
following the Closing, any such book or record retained by the Seller.
(h) Evidence satisfactory to the Buyer of the release of all material
Liens on the Assets, other than Permitted Liens (as such terms are defined in
Section 2.17(b) hereof).
(i) The Consulting Agreement referred to in Section 4.11 hereof.
(j) A certification of non-foreign status for the Seller in the form
and manner which complies with the requirements of section 1445 of the Code and
the Regulations and any other certifications which may be required under
applicable law stating that no Taxes are due to any taxing authority for which
the Buyer could have liability to withhold and pay with respect to the transfer
of the Assets; provided, however, that if the Seller shall fail to deliver such
certification of non-foreign status or other certifications, the Buyer shall
withhold at the Closing and pay over to the appropriate taxing authority an
amount equal to, in the case of a failure to provide a
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certification of non-foreign status in compliance with section 1445 of the Code
and the Regulations, ten percent (10%) of the total "amount realized" (as
defined in section 1445 of the Code) and, in the case of a failure to provide
any other certification, such amount as necessary to cover such Taxes, based on
the Buyer's estimate of the amount of such potential liability.
(k) Such other documents and certificates duly executed as may be
required to be delivered by the Seller pursuant to the terms of this Agreement
or such other duly executed instruments of conveyance and transfer as may be
reasonably requested by the Buyer prior to the Closing Date.
Section 1.8 Deliveries by the Buyer. (i) At the Closing, the Buyer shall
deliver to the Seller (or, if specified below, to Thompson or Sausa) (unless
previously delivered), the following:
(a) The Seller Closing Payment in accordance with Section 1.3 hereof.
(b) The Non-Compete Payment (as defined in Section 4.10 hereof) to
Thompson and Sausa referred to in Section 4.10 hereof.
(c) The Consulting Agreement referred to in Section 4.11 hereof,
together with the Consulting Payment (as defined in Section 4.11 hereof) to
Thompson.
(d) A duly executed instrument of assumption, in substantially the
form of Exhibit D hereto (the "Instrument of Assumption").
(e) The Product Reseller Agreement referred to in Section 4.16
hereof.
(f) The Seller Product License referred to in Section 4.17 hereof.
(g) Such other documents and certificates duly executed as may be
required to be delivered by the Buyer pursuant to the terms of this Agreement or
such other duly executed instruments of assumption as may be reasonably
requested by the Seller prior to the Closing Date.
Section 1.9 Third-Party Consents. To the extent that any Asset is not
capable of being sold, conveyed, assigned or transferred without the consent,
release or waiver of any third party, including a Governmental Entity (as
defined in Section 2.3 hereof), the Seller agrees to use all reasonable efforts
to obtain such consent, release or waiver. To the extent such consent, release
or waiver cannot be obtained, this Agreement shall not constitute a sale,
conveyance, assignment or transfer, or an at-
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tempted sale, conveyance, assignment or transfer thereof. In those cases where
consents, releases or waivers have not been obtained at or prior to the Closing
Date to the sale, conveyance, assignment or transfer to the Buyer of such
Assets, this Agreement shall constitute an equitable assignment by the Seller to
the Buyer of all of the Seller's rights, benefits, title and interest in and to
such Assets, and where necessary or appropriate, the Seller shall be deemed to
be the Buyer's agent for the purpose of completing, fulfilling and discharging
all of the Buyer's rights and liabilities arising after the Closing Date with
respect to such Assets. The Seller shall take all necessary steps and actions to
provide the Buyer with the benefit of such Assets (including, but not limited
to, (i) enforcing any rights of the Seller arising with respect to any such
Assets (including without limitation the right to terminate in accordance with
the terms thereof upon the advice of the Buyer) or (ii) permitting the Buyer to
enforce any rights arising with respect to Assets) as if they had been sold,
conveyed, assigned or transferred to the Buyer.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
Section 2.1 Organization. The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. The Seller has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Seller is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions in which applicable law does
not provide for such qualification, licensing or being in good standing and
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not, in the aggregate, have a Material
Adverse Effect (as defined below) on the Alexandria Business. A true, complete
and correct copy of the Certificate of Incorporation and By-laws of the Seller,
as in effect on the date hereof, has heretofore been delivered to the Buyer.
The Seller does not have any subsidiaries or any other equity interest in any
corporation, partnership, joint venture or other business entity which conducts
any of the Alexandria Business. "Material Adverse Effect" means a material
adverse effect on the business, operations, assets, results of operations, cash
flows, liabilities, prospects or condition (financial or otherwise) of the
Alexandria Business (other than effects of, or occasioned by, conduct
contemplated by this Agreement or customer reaction to the transactions
contemplated hereby, it being understood that the failure or refusal of any
Alexandria Employee (as defined in Section 4.7) to accept employment with
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the Buyer is considered conduct contemplated by this Agreement). A "subsidiary"
of an entity means any corporation, partnership, joint venture or other business
entity which the specified entity directly or indirectly owns, in the aggregate,
a majority of the general voting interest.
Section 2.2 Authority Relative to this Agreement. The Seller has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Seller and the consummation by the Seller of
the transactions contemplated by this Agreement have been duly and validly
authorized by the board of directors of the Seller and have been approved by the
stockholders of the Seller, and no other corporate proceedings on the part of
the Seller are necessary to authorize this Agreement or for the Seller to
consummate the transactions contemplated by this Agreement. This Agreement has
been duly and validly executed and delivered by the Seller and constitutes,
assuming the due execution and delivery of this Agreement by the Buyer, a valid
and binding agreement of the Seller, enforceable against the Seller in
accordance with its terms except that (i) enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws now or hereafter in
effect or by legal and equitable principles limiting or affecting the rights of
creditors generally, and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
Section 2.3 Consents and Approvals; No Violations. (a) No filing with,
and no permit, authorization, consent, registration, notice, approval or other
action of any court of competent jurisdiction, regulatory authority,
registration authority governmental body or other public body, domestic or
foreign (a "Governmental Entity") or any other third party (including any self-
regulatory organizations) is required to be made, obtained or given by the
Seller or any of its affiliates on or prior to the Closing Date in connection
with the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, by the Seller except: (i)
for the filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and the rules and regulations promulgated thereunder (the "HSR Act") and the
expiration or termination of the applicable waiting period thereunder, (ii) for
each of the filings, authorizations, consents, registrations, notices, approvals
and actions set forth in Section 2.3 of the Disclosure Schedule, or (iii) where
failure to obtain such consent, approval, registration, authorization or action,
or to make such filing or notification, would not interfere in any material way
with the ability of the Seller to consummate the transactions contemplated by
this Agreement. Except as set forth in Section 2.3 of the Disclosure Schedule,
neither the execution and delivery of this Agreement by the Seller nor the
consummation by the Seller of the transactions contemplated by this Agreement
nor compliance by the Seller with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the certificate
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of incorporation or by-laws of the Seller, (ii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, contract, agreement, permit, license, lease, arrangement or other
commitment or obligation to which the Seller is a party or by which the Seller
or any of the Assets may be bound, including any Intellectual Property Agreement
or (iii) violate any order, writ, injunction, decree, statute, treaty, rule or
regulation applicable to the Seller or any of the Assets, except in the case of
clauses (ii) or (iii) for violations, breaches or defaults which would not, in
the aggregate, have a Material Adverse Effect on the Alexandria Business and
which would not prevent or delay the consummation of the transactions
contemplated by this Agreement.
(b) Section 2.3(b) of the Disclosure Schedule sets forth all third
party consents or notifications necessary for the consummation by the Seller of
the transactions contemplated by this Agreement.
Section 2.4 Financial Statements. (a) Section 2.4(a) of the Disclosure
Schedule contains true and complete copies of the balance sheets (the "Audited
Balance Sheets") of the Seller at June 30, 1998 and 1997 and the related
statements of income and cash flow for the fiscal years then ended, together
with the related notes thereto and the related opinions of the independent
public accountants of the Seller, all of which have been prepared in accordance
with GAAP consistently applied during the periods involved, except as otherwise
noted therein or in the notes thereto. Such balance sheets (including the
related notes) present fairly the financial position of the Seller as of the
respective dates thereof, and such statements of income and cash flow (including
the related notes) present fairly the results of operations and cash flows of
the Seller for the respective periods then ended.
(b) Section 2.4(b) of the Disclosure Schedule contains true and
complete copies of unaudited statements of income of Seller's hardware business
and the Alexandria Business for the fiscal year ended June 30, 1998 as well as
the six months ended December 31, 1998 (the "Income Statements"). Except as set
forth in Section 2.4(c) below, such unaudited statements of income have been
prepared in accordance with GAAP consistently applied during the periods
involved, present fairly, in all material respects, the results of operations of
Seller's hardware business and the Alexandria Business for such periods, are
correct and complete in all material respects, and are consistent with the
Seller's books and records in all material respects.
(c) The Buyer and Seller acknowledge that for purposes of Seller's
preparation of the Income Statements for the Alexandria Business, revenue, cost
of goods sold and research and development cost were allocated between
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Seller's hardware business and the Alexandria Business on the basis of actual
revenue and expenses specifically attributable to the activity in question, but
some indirect costs, as well as selling, marketing, general and administrative
costs reflect a combination of actual costs (to the extent such costs could be
specifically attributed to the activity in question) and a proportionate
allocation of all other costs (based on the proportion that the revenue of each
activity bore to the total revenue of Seller during the period in question) and
provided further that such Income Statements are subject to normal year-end
adjustments and lack footnotes and other presentation items, and no provision
has been made for federal or state income taxes.
Section 2.5 No Undisclosed Liabilities. The Alexandria Business has no
liabilities (including, without limitation, any direct or indirect indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost or expense, fixed
or contingent, known or unknown, asserted or unasserted, liquidated or
unliquidated, secured or unsecured) (collectively, the "Undisclosed
Liabilities") and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand giving
rise to any Undisclosed Liabilities, except: (a) the Retained Liabilities, (b)
those liabilities and obligations set forth in Section 2.5 of the Disclosure
Schedule; and (c) those liabilities and obligations that would be set forth on a
balance sheet prepared in accordance with GAAP consistently applied for the
Alexandria Business for the period ended on the Closing Date (a "Closing Date
Balance Sheet") or incurred in the ordinary and usual course of business
consistent with past practice, provided that such ordinary course liabilities
are of a type and magnitude consistent with those liabilities incurred by the
Alexandria Business in accordance with its past practices.
Section 2.6 Absence of Certain Changes. (a) Except as set forth in
Section 2.6 of the Disclosure Schedule and except for the transactions
contemplated by this Agreement, since December 31, 1998, (A) the Seller has
conducted the Alexandria Business in the ordinary course of business consistent
with past practice and reasonable business practices, (B) the Seller has not
taken, or agreed to take, any of the actions set forth in Section 4.1 hereof
with respect to the Alexandria Business which would have a Material Adverse
Effect on any Asset or materially increase any Assumed Liability and (C) the
Seller has not entered into any transaction involving the Alexandria Business or
conducted the Alexandria Business other than in the ordinary course of business
consistent with past practice.
(b) Except for the transactions contemplated by this Agreement, since
December 31, 1998, there has not occurred any events or circumstances or changes
in the Alexandria Business that, individually or in the aggregate, have had, or
are reasonably likely to have, a Material Adverse Effect on the Alexandria
Business.
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Section 2.7 No Default. Except as set forth in Section 2.7 of the
Disclosure Schedule, there exists no default or violation (and no event has
occurred which with notice or lapse of time would constitute a default or
violation) on the part of Seller, or to the knowledge of Seller any other party,
of any term, condition or provision of (i) any Assumed Contracts or other
commitment or obligation to which the Seller is a party and which relates to the
Alexandria Business or the Assets or (ii) any order, writ, judgment, injunction,
decree or settlement applicable to the Seller and relating to the Alexandria
Business or the Assets, other than those defaults which, individually or in the
aggregate, would not have a Material Adverse Effect on the Alexandria Business.
Section 2.8 Litigation. (a) Except as set forth in Section 2.8(a) of the
Disclosure Schedule, there is no claim, action, suit, proceeding, charge or
investigation pending or, to the knowledge of the Seller, threatened to be
brought, before or involving any Governmental Entity or private arbitration
tribunal or self-regulatory authority (collectively, a "Proceeding"), including,
but not limited to, disciplinary action, Taxes, workers' compensation,
environmental matters, personal injury, employment discrimination or other
employee-related Proceedings, involving the Seller and relating to the
Alexandria Business or the Assets.
(b) Except as set forth in Section 2.8(b) of the Disclosure Schedule,
there are no outstanding orders, writs, judgments, injunctions, decrees or
settlements that apply, in whole or in part, to the Assets or the Alexandria
Business that restrict the use of the Assets or the conduct of the Alexandria
Business in any material respect or that will remain applicable to the
Alexandria Business following the Closing. As of the date hereof, there are no
suits, claims, actions, proceedings or investigations pending or, to the
knowledge of Seller, threatened, seeking to prevent, hinder, modify or challenge
the transactions contemplated by this Agreement.
(c) The Seller has delivered to the Buyer copies of all complaints,
answers, motions and responses and other documentation relating to any
Proceeding.
Section 2.9 Compliance with Applicable Law. (a) Except as set forth in
Section 2.9(a) of the Disclosure Schedule, the Assets include all permits,
licenses, variances, exemptions, orders, approvals and authorizations of all
Governmental Entities necessary for the lawful conduct of the Alexandria
Business (the "Permits"). All of the Permits of the Alexandria Business are set
forth in Section 2.9(a) of the Disclosure Schedule.
(b) Except as set forth in Section 2.9(b) of the Disclosure Schedule,
the Alexandria Business has been and is being conducted in compliance with and
the Seller has complied with all Permits, orders, writs, judgments, injunctions,
decrees and settlements and applicable laws, statutes, ordinances, codes, rules,
regula-
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tions and policies of any Governmental Entity or self-regulatory authority
(collectively, the "Applicable Laws"), and neither Seller nor any of its
subsidiaries has received notification of any asserted present or past failure
to so comply.
Section 2.10 Taxes. (a) The Seller has duly and timely filed (and until
the Closing will duly and timely file) with the appropriate federal, state,
local or foreign taxing authorities all Tax Returns (as defined below) required
to be filed by or with respect to the Seller, and all such Tax Returns are true,
correct and complete in all respects. Except as set forth in Section 2.10(e) of
the Disclosure Schedule, no extension of time within which to file any Tax
Return has been requested or granted, which such Tax Return has not since been
filed.
(b) Seller has timely paid, or provided adequate reserves for, all
Taxes which are related to the Assets or the Alexandria Business and are due
(whether or not shown as due on a Tax Return), or claimed or asserted by any
taxing authority to be due. There is no unpaid Tax due and payable the
nonpayment of which could have a Material Adverse Effect on any of the Assets or
the Alexandria Business or could reasonably be expected to cause the Buyer to
incur any material liability.
(c) There are no Liens for Taxes upon any of the assets of the Seller
except for statutory Liens for current Taxes not yet due.
(d) The Seller has complied (and until the Closing Date will comply)
in all material respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes and has, within the time and in
the manner prescribed by law, withheld from employee compensation and any other
payments for which withholding is required and paid over to the proper
Governmental Entity all amounts required to be so withheld and paid over under
all applicable laws, rules and regulations. Payees classified as independent
contractors were properly so classified. The Alexandria Business maintains in
its files the appropriate valid exemption certificates related to all sales to
customers on which sales Tax was not collected. All purchases on which sales or
use Tax were not paid were properly exempt from such Taxes.
(e) Except as set forth in Section 2.10(e) of the Disclosure
Schedule, (i) there has been no issue raised or adjustment proposed (and none is
pending) by any Tax authority with respect to Taxes attributable to the Assets
or the Alexandria Business, (ii) there is no pending Tax audit or examination
of, nor any action, suit, investigation, claim, deficiency or assessment
asserted with respect to the Assets or the Alexandria Business and (iii) there
are no extensions of the time in which to assess Taxes with respect to the
Assets or the Alexandria Business. Any such audit, examination, action, suit,
investigation, claim, deficiency or assessment shown in
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Section 2.10(e) of the Disclosure Schedule is being contested in good faith
through appropriate proceedings for which adequate reserves have been provided.
(f) Except as set forth in Section 2.10(e) of the Disclosure
Schedule, there are no outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns that have been given by the Seller.
(g) The Seller is not a party to any agreement, contract, arrangement
or Plan that would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code as a
result of the transactions contemplated by this Agreement.
(h) For purposes of this Agreement, (i) the term "Tax" or "Taxes"
shall mean any and all taxes, charges, fees, levies or other like assessments,
including, but not limited to, income, transfer, gains, gross receipts, profits,
windfall profits, gift, severance, ad valorem, social security, unemployment,
disability, premium, recapture, credit, occupation, service use, leasing,
leasing use, transfer, estimated, stamp, excise, inventory, property (real,
personal or intangible), custom duty, sales, use, license, withholding, payroll,
employment, capital stock, franchise taxes or similar taxes (including any
interest accrued thereon or penalties, additions or fines attributable thereto
or attributable to any failure to comply with any requirement regarding Tax
Returns and any interest in respect of such penalties, additions or fines,
imposed by the United States, or any state, local or foreign government or
subdivision or agency thereof, whether computed on a unitary, combined or any
other basis); and (ii) the term "Tax Return" shall mean any report, return
document, declaration or other filing required to be supplied to any taxing
authority or jurisdiction or information with respect to Taxes imposed upon or
attributable to the operations of the Alexandria Business including, without
limitation, any supporting schedules or attachments and amendments thereto.
Section 2.11 Employee Benefit Plans; ERISA. (a) Section 2.11(a) of the
Disclosure Schedule contains a true and complete list of the Plans (as defined
below). Neither the Seller nor any ERISA Affiliate has any formal plan or
commitment, whether legally binding or not, to create any additional Plan or
modify or change any existing Plan that would affect any employee or terminated
employee of the Seller or any ERISA Affiliate. For purposes of this Agreement,
the term "Plan" shall mean any bonus, incentive, deferred compensation,
insurance, severance, termination, retention, change of control, employment,
stock option, stock appreciation, stock purchase, phantom stock or other equity-
based, performance, vacation, retiree benefit plan, program, agreement or
arrangement (including, but not limited to, any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), sponsored, maintained, con-
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tributed to or required to be contributed to by the Seller or any trade or
business which together with the Seller would be deemed a "single employer"
within the meaning of section 4001 of ERISA (each, an "ERISA Affiliate"), for
the benefit of any current or former employee of the Alexandria Business, or any
ERISA Affiliate, whether formal or informal and whether legally binding or not.
(b) Except as set forth on Section 2.11(b) of the Disclosure
Schedule, with respect to each Plan, the Seller has heretofore delivered to the
Buyer true and complete copies of each of the following documents:
(i) a copy thereof (including all amendments thereto) or description
of the Plan if it is not a written Plan;
(ii) a copy of the annual report, if required under ERISA, with
respect thereto for the last two years;
(iii) a copy of the most recent Summary Plan Description, together
with each summary of material modifications, required under ERISA with respect
thereto and all material written communications to employees or former employees
with respect thereto;
(iv) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to be qualified under
section 401 of Code; and
(v) if the Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement and the latest financial
statements thereof.
(c) There has been no (i) "reportable event" (as defined in Section
4043 of ERISA), or event described in Section 4041, 4042, 4062, 4063, 4064 or
4069 of ERISA, or (ii) termination or partial termination, withdrawal or partial
withdrawal with respect to any of the Plans that the Seller maintains or
contributes to or has maintained or contributed to. No Plan is subject to Title
IV of ERISA and the Seller has not incurred any liability (including contingent
liability) under Title IV of ERISA with respect to any Plan, within the past
five years ending on the last day of the most recent Plan year, as applicable,
ended prior to the Closing Date.
(d) All contributions with respect to all Plans of the Seller or any
ERISA Affiliate that are subject to Code Section 412 or ERISA Section 302 have
been or will be timely made and there is no Lien under Code Section 412(n).
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(e) Neither the Seller nor any ERISA Affiliate contributes to, is
required to contribute to (or has contributed to or has been required to
contribute to within the past six years ending on the Closing Date) a
"multiemployer plan," as such term is defined in ERISA Section 3(37).
(f) Neither the Seller, any ERISA Affiliate, any of the Plans, any
trust created thereunder nor, to the best knowledge of the Seller any trustee or
administrator thereof has engaged in a transaction or has taken or failed to
take any action in connection with which the Seller, any ERISA Affiliate, any of
the Plans, any such trust, any trustee or administrator thereof, or any party
dealing with the Plans or any such trust could be subject to either a civil
penalty assessed pursuant to section 409 or 502(i) of ERISA or a tax imposed
pursuant to section 4975, 4976 or 4980B of the Code, except for such instances
of noncompliance as would not, individually or in the aggregate, have a Material
Adverse Effect on the Alexandria Business.
(g) Each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including but not limited
to ERISA and the Code, except for such instances of noncompliance as would not,
individually or in the aggregate, have a Material Adverse Effect on the
Alexandria Business.
(h) Each Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained thereunder
are exempt from taxation under Section 501(a) of the Code.
Section 2.12 Intellectual Property. (a) Section 2.12(a) of the
Disclosure Schedule sets forth a complete and accurate list of all:
(i) Patents, Trademarks, Software (other than off-the-shelf
commercial software programs having an acquisition price of less than $10,000),
and Copyrights that constitute Intellectual Property (with Alexandria
Intellectual Property and Third Party Intellectual Property grouped separately
on the Disclosure Schedule), indicating for each item whether it is owned,
licensed or otherwise obtained (indicating how obtained) by the Seller or any of
its affiliates.
(ii) Contracts and agreements (whether oral or written) of any kind
to which the Seller or any of its affiliates is a party or otherwise bound, (A)
granting or obtaining any right to use or practice any rights under any
Intellectual Property, or (B) restricting the Seller's or any of its affiliates'
rights to use any Intellectual Property, including license agreements,
development agreements, distribution and reseller agreements, settlement
agreements, consent to use agreements, and covenants not to sue (collectively,
the "Intellectual Property Agreements").
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(b) With respect to the Alexandria Software set forth in Section
2.12(a)(i) of the Disclosure Schedule, such Software was developed, or is in
development, either (i) by employees of the Seller or any of its affiliates
within the scope of their employment or (ii) by independent contractors who have
assigned their rights to the Seller or an affiliate of the Seller pursuant to
written agreements. In each agreement in which the Seller or a Seller affiliate
has licensed or otherwise granted rights to any Products to third parties, the
Seller or Seller affiliate has not (A) failed to limit its liability to no more
than the amount of the fees paid pursuant to the agreement; nor (B) warranted as
to the performance or functionality of the applicable Product other than
stating, at most, that such Product would perform in accordance with its
documentation and/or specifications.
(c) (i) The Intellectual Property Agreements are valid and binding
obligations of all parties thereto, enforceable in accordance with their terms,
except that enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws now or hereafter in effect or by legal and
equitable principles limiting or affecting the rights of creditors generally,
and there exists no event or condition which will result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default by any party under any such Intellectual Property Agreement.
(ii) All rights to Third Party Intellectual Property that are
required of, or used by, the Seller or any of its affiliates in connection with
the Alexandria Business as currently conducted, or proposed or contemplated to
be conducted, are secured to the Seller or one of its affiliates, as
appropriate, pursuant to the Intellectual Property Agreements set forth in
Section 2.12(c) of the Disclosure Schedule. No royalties, honoraria or other
fees are payable by the Seller or any of its affiliates to any third parties for
the use of or right to use any Intellectual Property, except pursuant to the
Intellectual Property Agreements.
(iii) Neither the Seller nor any of its affiliates has licensed,
sublicensed or otherwise granted any rights in or to any Intellectual Property
other than pursuant to the Intellectual Property Agreements.
(iv) There is no restriction or limitation on the right of the Seller
and its affiliates to transfer any of the Alexandria Intellectual Property or
the Intellectual Property Agreements to Buyer and upon Closing, there will be no
restriction or limitation on the right of the Seller and its affiliates to
transfer to the Buyer any of the Alexandria Intellectual Property or
Intellectual Property Agreements.
(d) Except as set forth on Section 2.12(d) of the Disclosure
Schedule:
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(i) The Seller or a Seller affiliate owns, or has a valid right to
use, free and clear of all Liens (as defined in Section 2.17(b) of this
Agreement), all of the Alexandria Intellectual Property. The Alexandria
Intellectual Property and the Third Party Intellectual Property constitute all
intellectual property of any sort Related to the Alexandria Business. The Seller
or a Seller affiliate is listed in the records of the appropriate United States,
state, or foreign registry as the sole current owner of record for each
application and registration of Alexandria Intellectual Property listed on
Section 2.12(a)(i) of the Disclosure Schedule.
(ii) The Alexandria Intellectual Property and, to the Seller's
knowledge, the Third Party Intellectual Property, is subsisting, in full force
and effect, and has not been cancelled, expired, or abandoned, and, is valid and
enforceable.
(iii) During the past three (3) years there has not been, and there
is no currently pending or, to the Seller's knowledge, threatened Proceeding (A)
involving the Alexandria Intellectual Property or, to the best of the Seller's
knowledge, any Third Party Intellectual Property, or (B) alleging that the
activities or the conduct of the Alexandria Business infringes, misappropriates,
dilutes, violates or otherwise constitutes the unauthorized use or exploitation
of (either directly or indirectly, such as through contributory infringement or
inducement to infringe) (collectively, "Infringe" or "Infringes") the
intellectual property rights of any third party or challenging the Seller or a
Seller affiliate's ownership, use, validity, enforceability or registrability of
any Intellectual Property. There are no settlements, forebearances to sue,
consents, judgments, or orders or similar obligations other than contained in
the Alexandria Intellectual Property Agreements which (X) restrict the Seller or
any of its affiliates' rights to use in any way any Intellectual Property, (Y)
restrict the Seller or any of its affiliates' business or operations in order to
accommodate a third party's intellectual property rights or (Z) permit any third
parties to use any Alexandria Intellectual Property.
(iv) The conduct of the Alexandria Business as currently conducted or
proposed or contemplated to be conducted does not Infringe any intellectual
property rights owned or controlled by any third party. To the Seller's
knowledge, no third party is Infringing any Alexandria Intellectual Property and
no such Proceedings, or Proceedings relating to the Intellectual Property
Agreements, have been brought against any third party by the Seller or any of
its affiliates.
(v) The Seller and its affiliates take reasonable measures to protect
the confidentiality of Trade Secrets, including requiring employees and other
parties having access to Trade Secrets to execute written non-disclosure
agreements which adequately protect the Alexandria Intellectual Property, and
Third Party Intellectual Property for which the Seller or any of its affiliates
has confidentiality obligations, from unauthorized use or disclosure ("Non-
Disclosure Agreements"). To the Seller's
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knowledge, no Trade Secret has been disclosed or authorized to be disclosed to
any third party other than in the ordinary course of business consistent with
past practice, including pursuant to a Non-Disclosure Agreement. To the Seller's
knowledge, no party to any Non-Disclosure Agreement is in breach or default
thereof.
(vi) Except to the extent specifically contemplated by this
Agreement, no stockholder or current or former partner, director, officer, or
employee of the Seller or any of its affiliates (or any respective predecessors
in interest) will, after giving effect to the transactions contemplated herein,
own or retain any right, title or interest in or to use any of the Alexandria
Intellectual Property.
Section 2.13 Transactions with Affiliates. Except as set forth in Section
2.13 of the Disclosure Schedule, none of the Seller's stockholders, directors,
officers, employees or other affiliates have been involved in any Alexandria
Business arrangement or relationship with the Alexandria Business within the
past two years other than as employees of Seller, and none of the Seller's
stockholders, directors, officers, employees or other affiliates own any asset,
tangible or intangible, which is used in the Alexandria Business.
Section 2.14 Contracts. (a) Section 2.14(a) of the Disclosure Schedule
sets forth a true and correct list or description of all of the Assumed
Contracts.
(b) The Seller has delivered or made available to the Buyer true and
complete copies of all Assumed Contracts and each Intellectual Property
Agreement described or set forth in Section 2.12(a) of the Disclosure Schedule.
(c) Except as set forth in Section 2.14(c) of the Disclosure
Schedule, each Assumed Contract and each Intellectual Property Agreement
described or set forth in Section 2.12(a) of the Disclosure Schedule is in full
force and effect, has not been modified or amended except as set forth in
Section 2.14(c) of the Disclosure Schedule and constitutes the legal, valid and
binding obligation of the Seller as a party thereto, in accordance with the
terms of such agreement. The Seller is not in breach or default in any material
respect under any Assumed Contract or Intellectual Property Agreement nor, to
the knowledge of Seller, is any other party to any Assumed Contract or
Intellectual Property Agreement in breach or default thereunder in any material
respect. The Seller has not given or received a notice of default under any
Assumed Contract or any Intellectual Property Agreement.
Section 2.15 Relations with Employees. (a) Except as set forth in
Section 2.15(a) of the Disclosure Schedule, there is no unfair labor practice or
discrimination charge or complaint or other proceeding pending or, to the best
knowledge of the Seller, threatened against the Seller relating to the
Alexandria Business before any Governmental Entity. The Seller's relations with
the Alexandria Employees is good.
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(b) Section 2.15(b) of the Disclosure Schedule, sets forth a list of
Alexandria Employees, and such employees' current salary and bonus arrangements.
Section 2.16 Assets Necessary to Alexandria Business. The Assets include
all of the assets, properties and rights with which the Seller has conducted the
Alexandria Business during the twelve month period prior to the date hereof and
such Assets are sufficient to run the Alexandria Business as it is presently
being conducted or proposed or contemplated to be conducted by the Seller.
Section 2.17 Title to Properties. (a) Except as set forth in Section
2.17(a) of the Disclosure Schedule, the Seller has good and marketable title to
the Assets free and clear of all Liens, other than Permitted Liens, or other
ownership interest therein.
(b) "Liens" means any mortgage, pledge, lien (statutory or
otherwise), security interest, easement, right of way, covenant, claim,
restriction, right, option, conditional sale or other title retention agreement,
charge or encumbrance of any kind or nature, except for Permitted Liens.
"Permitted Liens" means (i) Liens for current taxes not yet due and payable or
(ii) mechanics', carriers', workers' and other similar Liens arising or incurred
in the ordinary course of business consistent with past practice, which,
individually or in the aggregate, are not substantial in amount, do not
materially detract from the value of or materially interfere with the present
use of any of the Assets subject thereto or materially impair the conduct of the
Alexandria Business.
Section 2.18 Accounting Controls. The books and records of the Alexandria
Business are maintained in accordance with good business practice and reflect
all transactions in a lawful manner. All assets and liabilities of the
Alexandria Business and all transactions thereof have been recorded on the books
and records of the Alexandria Business in accordance with GAAP and good business
practice and accurately present in all material respects the transactions
described therein.
Section 2.19 Accounts Receivable. All Accounts Receivable or other
receivables acquired by the Buyer at the Closing will represent sales actually
made or services actually delivered in the ordinary course of business
consistent with past practice, and all Accounts Receivable and other receivables
are reflected on the books and records of the Seller, net of reserves, which
will be adequate and will be calculated in accordance with GAAP and the past
practices of the Seller. Except to the extent reserved or reflected against in
the Closing Date Statement of Net Book Assets, to the knowledge of Seller, there
is no reason why any Account Receivable or other receivable would not be
collectible in the ordinary course of business.
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Section 2.20 Inventory. The Inventory held by the Alexandria Business was
acquired or produced and has been maintained in the ordinary course of the
conduct of the Alexandria Business consistent with past practice. At the
Closing, good and marketable title to all of the Inventory will vest in Buyer
free and clear of all Liens.
Section 2.21 Restrictions. Except as disclosed in Section 2.21 of the
Disclosure Schedule, Seller is not a party to any indenture, agreement,
contract, commitment, lease, plan, license, permit, authorization or other
instrument, document or understanding, oral or written, or subject to any
judgment, order, writ, injunction, decree or award which materially adversely
affects or materially restricts or, so far as Seller can now reasonably foresee,
may in the future have a Material Adverse Effect on, or materially restrict, the
business, operations, assets, properties, prospects or condition (financial or
otherwise) of, the Alexandria Business or the conduct thereof after consummation
of the transactions contemplated hereby.
Section 2.22 Brokers and Finders. None of the Seller or any affiliate of
the Seller has employed any broker, financial advisor or finder or incurred any
liability for any broker, financial advisory or finders' fees in connection with
this Agreement or the transactions contemplated hereby, except for Scott Lehman
and his affiliates whose fees and expenses will be paid by the Seller.
Section 2.23 Completeness of Disclosure. No representation or warranty by
the Seller in this Agreement nor any certificate, schedule, statement, document
or instrument furnished to or to be furnished to Buyer in connection with the
negotiation, execution or performance of this Agreement or the Letter Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated herein or therein or
necessary to make any statement herein or therein not misleading.
Section 2.24 Year 2000 Compliance.
(a) For purposes of this Agreement,
(i) "Date Data" means any date information and any data that is
derived from or dependent on date information;
(ii) "Date-Sensitive System" means any Software, microcode, hardware,
system, device or component that Processes any Date Data and that is Related to
the Alexandria Business (including any Products and any other Alexandria
Software, and including any such Date-Sensitive Systems on order by the Seller
or any of its affiliates);
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(iii) "Process" means all functions, including but not limited to
accepting as input, sequencing, calculating, storing, displaying and generating
as output such Date Data, whether performed on a stand-alone basis or in
combination with any other Software, microcode, hardware, system, device or
component;
(iv) "Year 2000 Compliant" means (A) with respect to Date Data, that
such Data is in proper format and accurate for all dates within the Year 2000
Window (including taking into account leap year considerations); and (B) with
respect to Date-Sensitive Systems, that each such System correctly Processes all
Date Data for all dates within the Year 2000 Window (including taking into
account leap year considerations) without any loss of functionality,
interoperability or performance, and whether used on a stand-alone basis or in
combination with any other software, microcode, hardware, system, device or
component.
(v) "Year 2000 Window" means all dates before on or after January 1,
2000, except that with respect to versions 4.00 and higher of Alexandria (not
including version 5.00), Year 2000 Window means January 1, 1910 through December
31, 2009, inclusive.
(vi) "Customer Data" means data stored on the tapes used in tape
libraries managed by the Products, other than (A) management and control data
for such tapes and tape libraries, and (B) data modified by the Products.
(b) Except as set forth in Section 2.24(b) of the Disclosure
Schedule, the Seller represents and warrants that, as of the Closing Date, all
Date Data and Date-Sensitive Systems Related to the Alexandria Business, other
than versions of Alexandria lower than version 4.00, are Year 2000 Compliant and
that the Seller or a Seller affiliate has obtained written representations or
assurances from each entity that (i) provides Date Data or Date-Sensitive
Systems Related to the Alexandria Business, (ii) Processes Date Data Related to
the Alexandria Business, or (iii) otherwise provides any material product or
service that is Related to the Alexandria Business and that is dependent on Date
Data or Date-Sensitive Systems, that all of such entities' Date Data and Date-
Sensitive Systems are Year 2000 Compliant. Notwithstanding any of the foregoing
in this Section 2.24(b), Seller makes no Year 2000 Compliance representation or
warranty relating to Customer Data.
(c) Except as set forth in Section 2.24(c) of the Disclosure
Schedule, neither the Seller nor any of its affiliates has at any time (i) made
any representations or warranties concerning the Year 2000 Compliance of any
Products or any Date Data or Date-Sensitive Systems Related to the Alexandria
Business, nor (ii) made any disclosures or statements to any third parties
regarding the Year 2000 Compliance of the Products or the Alexandria Business,
other than substantially as set forth in Section 2.24(c) of the Disclosure
Schedule, nor (iii) offered or agreed to
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provide, or suggested that it shall or may make available, any upgrades or fixes
to any Products, at no or reduced cost or fees, in connection with Year 2000
Compliance.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE BUYER
Parent and the Buyer represent and warrant to the Seller as follows:
Section 3.1 Organization. Each of Parent and the Buyer is a corporation
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as now being conducted.
Section 3.2 Authority Relative to this Agreement. Each of Parent and the
Buyer has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement by Parent and the Buyer and the
consummation by Parent and the Buyer of the transactions contemplated by this
Agreement have been duly and validly authorized and no other corporate
proceedings on the part of Parent and the Buyer are necessary to authorize this
Agreement or to consummate the transactions contemplated by this Agreement.
This Agreement has been duly and validly executed and delivered by Parent and
the Buyer and constitutes, assuming the due execution and delivery of this
Agreement by the Seller, Thompson and Sausa, a valid and binding agreement of
Parent and the Buyer, enforceable against Parent and the Buyer in accordance
with its terms except that (i) enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws now or hereafter in effect or
by legal and equitable principles limiting or affecting the rights of creditors
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 3.3 Consents and Approvals; No Violations. Except for the
applicable requirements of the HSR Act, no consent, approval, authorization, or
other action by, or filing with or notification to, any Governmental Entity or
other third party is required to be made or obtained by Parent and the Buyer on
or prior to the Closing Date in connection with the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, by Parent and the Buyer except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not interfere in any material way with the ability of Parent
and the Buyer to consummate the transactions contemplated by
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this Agreement. Neither the execution and delivery of this Agreement by Parent
and the Buyer nor the consummation by Parent and the Buyer of the transactions
contemplated by this Agreement nor compliance by Parent and the Buyer with any
of the provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or by-laws of Parent or the Buyer,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, contract, agreement,
permit, license, lease, arrangement or other commitment or obligation to which
Parent or the Buyer is a party or by which Parent or the Buyer or any of their
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, statute, treaty, rule or regulation applicable to Parent or the Buyer or
any of their properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults which would not prevent or delay the
consummation of the transactions contemplated by this Agreement.
Section 3.4 Adequacy of Funds. The Buyer has, or will as of the Closing
have, access to sufficient resources to pay the Purchase Price in accordance
with Article I hereof.
Section 3.5 Brokers and Finders. Parent and the Buyer have not employed
any broker, financial advisor or finder or incurred any liability for any
broker, financial advisory or finders' fees in connection with this Agreement or
the transactions contemplated hereby except for Broadview International, LLC
whose fees and expenses will be paid by Parent.
ARTICLE IV
COVENANTS
Section 4.1 Conduct of the Alexandria Business. During the period from
the date hereof to the Closing, except as otherwise provided for in, or
contemplated by, this Agreement or except with the prior written consent of the
Buyer (which consent may be withheld in the Buyer's sole discretion), the Seller
covenants and agrees that it shall cause the Alexandria Business to be operated
only in the ordinary course of business consistent with past practice and to:
(a) hold, use, operate, preserve, protect, repair and maintain the
Assets in a commercially reasonable manner consistent with Seller's past
practice;
(b) use all reasonable efforts to retain and preserve the
relationships with and the goodwill of, the present and potential customers,
suppliers and
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employees of the Alexandria Business and others having business relations with
the Alexandria Business;
(c) promptly (but in no event later than the second business day
after Seller has knowledge) advise Buyer in writing of the commencement of, and
of any threat to commence (of which Seller has knowledge), any suit, claim,
action, arbitration, legal or administrative proceeding, governmental
investigation or Tax audit relating to or involving the Alexandria Business or
the Assets;
(d) comply in all material respects with the provisions of all
Assumed Contracts, Permits and applicable laws;
(e) not enter into any contract, or terminate, modify or amend in any
material respect or waive any material right under any contract, except in the
ordinary course of the conduct of the Alexandria Business consistent with
Seller's past practice;
(f) not (i) enter into any contract (other than customer agreements
on Seller's standard forms or that do not otherwise contain provisions
materially more adverse to Seller or any of its subsidiaries than those
customarily accepted by Seller and its subsidiaries in the ordinary course of
the conduct of the Alexandria Business) that would involve the payment or
receipt of more than $50,000 or (ii) terminate, modify or amend in any material
respect or waive any material right under any contract entered into with Buyer's
consent pursuant to clause (i) of this Section 4.1(f);
(g) not sell, consume, amortize, dispose of or encumber, or enter
into any agreement for the sale, disposition or encumbrance of, all or any
portion of any rights, properties or assets that, absent such sale, consumption,
amortization or disposition, would be included in the Assets as of the Closing,
except in the ordinary course of the conduct of the Alexandria Business
consistent with Seller's past practice;
(h) except for Permitted Liens and Liens in existence on the date
hereof which will be relieved or released prior to the Closing, not grant,
create or permit to exist any Liens on any of the Assets;
(i) not (i) increase in any manner the rate of compensation or
benefits of any Alexandria Employee, (ii) make or agree to make any payment
pursuant to any Plan, including any payment of any pension, retirement
allowance, severance or other employee benefit, for the benefit of any
Alexandria Employee, (iii) adopt or enter into any additional Plan, or
employment or consulting agreement, for the benefit of or with any Alexandria
Employee, or (iv) terminate the employment of
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any Alexandria Employee prior to the Closing except, in any such case, as
required by law or under the terms of any existing agreement or any existing
Plan;
(j) not surrender, modify, amend, waive, forfeit or otherwise
adversely affect any material right under any of the Permits or Alexandria
Intellectual Property;
(k) not enter into any compromise or settlement of any litigation,
action, suit, claim, proceeding or investigation that (i) would result in the
imposition of any Lien or other restriction affecting any of the Assets, (ii)
would be binding on Buyer, or (iii) otherwise relates to or affects the
Alexandria Business or the Assets;
(l) not modify or amend its accounting policies, practices and
procedures or the manner in which the books, records and financial statements of
Seller pertaining to the Alexandria Business or the Assets are prepared and
maintained;
(m) except in the ordinary course of the conduct of the Alexandria
Business consistent with Seller's past practice, not (i) delay or defer the
payment or discharge of any liability or obligation that, if not paid or
discharged prior to the Closing, would constitute an Assumed Liability, (ii)
accelerate or use any special efforts to collect any portion of any account
receivable or other amount due to Seller or any of its subsidiaries that, if not
collected prior to the Closing, would constitute an Asset, or (iii) take or omit
to take any other action, in the case of any of the matters referred to in the
foregoing clauses (i) and (ii), with the purpose or effect of increasing the
Assumed Liabilities or reducing the Assets to the benefit of Seller and the
detriment of Buyer and/or the Alexandria Business;
(n) not make any Tax elections or settle or compromise any Tax
liability or, except as required by law, change any Tax methods, policies or
procedures which relate to the Assets or the Alexandria Business; and
(o) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action which would make any representation or warranty
of the Seller contained in this Agreement untrue or incorrect as of the date
when made or as of any future date or which could prevent the satisfaction of
any condition to Closing set forth in Article V hereof.
Section 4.2 Access to Information. (a) The Buyer may make or cause to be
made such additional investigation of the business and properties of the Seller
and its financial and legal conditions as the Buyer deems reasonably necessary
or advisable to further familiarize themselves therewith. The Seller shall, and
the Seller shall cause its employees to, permit the Buyer and its accountants,
counsel and other rep-
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resentatives to have, during the period from the date hereof to the Closing
Date, reasonable access to the premises, clients, employees, books and records
of the Seller, relating to the Alexandria Business (including such books and
records as relate to any of their Taxes), for all periods prior to or as of the
Closing Date, during normal business hours and upon reasonable notice. The
Seller shall, and the Seller shall cause its employees to, furnish the Buyer
with such financial and operating data and other information with respect to the
business and properties of the Seller as the Buyer from time to time may
reasonably request.
(b) No investigation pursuant to this Section 4.2 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
Section 4.3 Disclosure Supplements. From time to time prior to the
Closing, the Seller shall promptly supplement or amend the Disclosure Schedule
with respect to any matter, condition or occurrence hereafter arising which, if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in the respective disclosure schedule. No supplement
or amendment shall be deemed to cure any breach of any representation or
warranty made in this Agreement or have any effect or be taken into
consideration for the purpose of determining satisfaction of the conditions set
forth in Article V hereof or the compliance by the Seller with any covenant set
forth herein or the indemnification provided for in Article VII hereof.
Section 4.4 Best Efforts. (a) Upon the terms and subject to the
conditions of this Agreement, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable including, but not
limited to, (i) the preparation and filing of all forms, registrations and
notices required to be filed to consummate the transactions contemplated by this
Agreement and the taking of such actions as are necessary to obtain any
requisite approvals, consents, orders, exemptions or waivers by any third party
or Governmental Entity and (ii) using their reasonable best efforts to cause the
satisfaction of all conditions to Closing. Each party shall promptly consult
with the other with respect to, provide any necessary information with respect
to and provide the other (or its counsel) copies of, all filings made by such
party with any Governmental Entity or any other information or document supplied
by such party to a Governmental Entity or third party in connection with this
Agreement and the transactions contemplated by this Agreement. The Seller and
the Buyer shall, with respect to a threatened or pending preliminary or
permanent injunction or other order, decree or ruling or statute, rule,
regulation or executive order that would adversely affect the ability of the
parties hereto to consummate the transactions contemplated by this
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Agreement, use their respective reasonable best efforts to prevent the entry,
enactment or promulgation thereof, as the case may be.
(b) Prior to the Closing, the Seller shall promptly notify the Buyer
in writing of the occurrence (or non-occurrence) of any event or the existence
of any circumstance of which the Seller has knowledge, the occurrence (or non-
occurrence) or the existence of which would be likely to cause any
representation or warranty contained in Article II hereof to be untrue or
inaccurate in any material respect and of any material failure of the Seller to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder.
(c) Each party hereto shall promptly inform the other of any
communication from any Governmental Entity or self-regulatory authority
regarding any of the transactions contemplated by this Agreement. If any party
or affiliate thereof receives a request for additional information or
documentary material from any such Governmental Entity or self-regulatory
authority with respect to the transactions contemplated by this Agreement, then
such party will endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other party, an
appropriate response in compliance with such request.
Section 4.5 Further Assurances. (a) From time to time after the Closing,
without additional consideration, the Seller will execute and deliver such
further instruments and take such other action as may be necessary to make
effective the transactions contemplated by this Agreement, including by
executing assignments, acknowledgments, and consents and other instruments of
transfer, and by providing information and access to personnel and records and
cooperating with and assisting the Buyer in collecting the Accounts Receivables.
Without limiting the generality of the foregoing, Seller shall, on behalf of and
as agent for Buyer, collect all of the Shared Accounts Receivables and promptly
(but in any event within two business days) remit to Buyer the proceeds relating
to the Alexandria Business collected under any Shared Accounts Receivables.
(b) If, following the Closing, the Seller finds in its possession any
assets or rights which should have been transferred hereunder or the Seller
receives any payment due the Buyer or any mail (including but not limited to any
payments or collections of Accounts Receivables) of the Buyer which are included
in the Assets or the Assumed Liabilities, the Seller shall promptly deliver to
the Buyer any of such of the foregoing. If after the Closing, the Buyer finds
in its possession any assets or rights which are not included in the Assets or
Assumed Liabilities, the Buyer shall promptly deliver to the Seller any of such
of the foregoing; provided, that the Buyer may receive and open all mail
addressed to the Seller and deal with the contents thereof in its discretion to
the extent that such mail and the contents thereof relate to the Alexandria
Business, the Assets or any of the Assumed Liabilities.
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Section 4.6 Exclusivity. Recognizing that the Buyer's investigations of
the Seller and its businesses, and the negotiation and drafting of this
Agreement and the other agreements, documents and instruments to be executed by
the Buyer in connection herewith have to date required and will continue to
require the Buyer to expend significant time, effort and money, and to induce
the Buyer to execute and deliver this Agreement and proceed with the
transactions contemplated hereby, as long as this Agreement is in effect and for
a period of 30 days after its termination, Seller and its subsidiaries shall
not, and will not permit any of their shareholders, officers, directors, agents
or affiliates to, directly or indirectly, initiate, solicit or encourage
(including by way of providing any non-public information concerning the
Alexandria Business to any person), any inquiries or the making of any proposal,
or have any negotiations or discussions, or enter into (or authorize) any
agreement or agreement in principle, or announce any intention to do any of the
foregoing, with respect to a merger, stock purchase, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
Assets other than in the ordinary course of business of, or any significant
equity interest in, the Alexandria Business other than as contemplated hereby
(an "Acquisition Transaction"). Seller shall notify Buyer immediately if any
such inquiries or proposals are received by, any such information is requested
from, or any such negotiations or discussions are sought to be initiated or
continued with Seller or any of its subsidiaries. Except to the extent that
Seller or Thompson is bound by an existing (on the date hereof) nondisclosure
agreement prohibiting such disclosure, such notice shall include the identity of
the party making, and the terms of (including delivery of copies thereof), any
inquiry or proposal relating to an Acquisition Transaction. Seller will keep
Buyer fully informed of the status of, and any modification to, any such inquiry
or proposal. Seller will immediately cease any existing discussions or
negotiations with any third party relating to an Acquisition Transaction.
Section 4.7 Employee Matters.
Schedule 2.15(b) sets forth a list of all employees of Seller whom
Seller and Buyer have agreed are employees of the Alexandria Business (the
"Alexandria Employees"). The parties hereto agree that they will consult and
cooperate with each other for the purpose of including additional employees of
Seller on Section 2.15(b) of the Disclosure Schedule and, upon the mutual
agreement of the parties hereto prior to the Closing, any such additional
employee shall be added to Section 2.15(b) of the Disclosure Schedule, and for
purposes of this Agreement shall be considered an Alexandria Employee. At the
Closing, the Buyer will offer to employ all of the Alexandria Employees. Seller
will cooperate with and assist Buyer in recruiting and encouraging the
Alexandria Employees to transition their employment to Buyer effective as of the
Closing Date. Without limiting the generality of the preceding sentence, Seller
shall, if requested by Buyer, make clear to any Alexandria Employee identified
by Seller that continuing their employment with Seller past the
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Closing Date will not be permitted. The Buyer will be responsible for any
severance or termination payments owing to the Alexandria Employees following
the Closing. To the fullest extent legally permissible and consistent with its
existing benefit programs, Buyer shall accord the Alexandria Employees full past
service credit. As soon as practicable after the Closing Date, but in no event
later than 90 days after the Closing Date, the Buyer shall establish or
designate a defined contribution plan and trust intended to qualify under
Section 401(a) and Section 501(a) of the Code (the "Buyer's Savings Plan").
Seller shall direct the trustee of the Spectra Logic Corp. 401(k) Plan to
transfer to the trustee of the Buyer's Savings Plan the cash value of the
account balances under the Spectra Logic Corp. 401(k) Plan as of the date of
transfer in respect of all Alexandria Employees who accept employment with the
Buyer (the "Affected Employees"). Upon such transfer, Buyer's Savings Plan shall
assume all liabilities for all accrued benefits under the Spectra Logic Corp.
401(k) Plan in respect of all Affected Employees that are transferred to the
Buyer's Savings Plan and the Spectra Logic Corp. 401(k) Plan shall be relieved
of all liabilities for such accrued benefits. The Buyer and the Seller shall
cooperate in the filing of documents required by the transfer of assets and
liabilities described herein. Notwithstanding anything contained herein to the
contrary, no such transfer shall take place until the 31st day following the
filing of all required Forms 5310-A in connection therewith.
Section 4.8 Tax Matters. (a) The Seller shall be responsible for the
timely payment of all transfer Taxes arising out of, in connection with or
attributable to the transactions effected pursuant to this Agreement. The
Seller shall prepare and timely file all Tax Returns required to be filed in
respect of transfer Taxes (including, without limitation, all notices required
to be given with respect to bulk sales taxes) and timely pay the transfer Tax
shown as due on such Tax Return; provided, however, that the Buyer shall be
permitted to prepare any such Tax Returns that are the primary responsibility of
the Buyer under applicable law.
(b) Any payment made or treated as made pursuant to Article VII
hereof shall be treated for Tax purposes consistently by the Buyer and the
Seller as an adjustment of the Purchase Price.
Section 4.9 Satisfaction of Liabilities. (a) Prior to the Closing, any
amount owed by any stockholder, director, officer or other affiliate of the
Seller to the Alexandria Business shall be repaid to the Seller.
(b) From and after the Closing, (i) the Seller shall satisfy in a
timely manner all Retained Liabilities and (ii) the Buyer shall satisfy in a
timely manner all Assumed Liabilities.
Section 4.10 Non-Competition. (a) As a material inducement to Buyer's
entry into this Agreement, and as further consideration for the covenants of the
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Buyer contained herein, and in consideration of an aggregate payment of
$6,000,000, of which $5,000,000 shall be paid to Thompson and $1,000,000 to
Sausa at the Closing (collectively, the "Non-Compete Payment"), during the
period beginning on the Closing Date and ending on the fifth anniversary of the
Closing Date, the Seller and its affiliates, Thompson and Sausa, shall not,
directly or indirectly, engage or invest in, organize or participate in the
organization of any entity if such entity is engaged in or to be engaged in, or
provide financial, technical or other assistance to, any other person or entity
for the purpose of facilitating the engagement or investment by such other
person or entity in, competition with Buyer (as defined below) anywhere in the
world (other than passive investments in the form of direct or indirect
ownership of less than 5% of the equity interests in any entity engaged in
competition with the Buyer). For purposes of this Section 4.10, "competition
with the Buyer" means the business, conduct or activity of designing,
developing, marketing, selling, delivering, licensing, supporting, maintaining
or otherwise providing, or of assisting or participating in the design,
development, marketing, sale, delivery, licensing, support, maintenance or
provision of, storage management software (including any such software that is
similar in function to any of the Software or the Products), or providing any
related consulting services (including any such consulting services that are
similar to those performed in connection with the conduct of the Alexandria
Business) in connection with the conduct of the Alexandria Business as it is
currently conducted, with reasonable extensions thereof; provided, however, that
nothing in this Section 4.10 shall prohibit Seller from developing, offering or
supporting software or device drivers (1) whose functionality is limited to (A)
the monitoring, maintenance, configuration or administration of hardware
manufactured by Seller or a third party operating under a license from Seller
(collectively, "Spectra Logic Hardware"), or (B) enabling Spectra Logic Hardware
to interact with other software, and (2) under circumstances where Seller
receives no additional value or consideration, directly or indirectly, as a
result of offering such software or device drivers along with Spectra Logic
Hardware. For the avoidance of any doubt, it is the intention of the parties
that clauses (1) and (2) in the immediately preceding proviso clause be
construed and interpreted as conjunctive in nature. Seller may approach Parent
or Buyer on a confidential basis to ascertain whether Parent or Buyer is of the
opinion that any proposed activity of Seller would contravene or potentially
contravene the provisions of this Section 4.10. Buyer or Parent will respond in
good faith to any such inquiry and will communicate its opinion to Seller within
30 days of receipt of Seller's inquiry, which response will be considered in
good faith by Seller.
(b) The Seller and its affiliates, Thomson and Sausa, during the
period beginning on the Closing Date and ending on the fifth anniversary of the
Closing Date, shall not solicit for hire or employment, or hire or employ, any
Alexandria Employee to work for Seller or its affiliates or any entity that is
in competition with Buyer. During the period beginning on the Closing Date and
ending on the fifth anniversary of the Closing Date, Buyer shall not solicit for
hire or employment, or
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hire or employ, any employee of Seller (other than the Alexandria Employees) to
work for Buyer.
(c) Seller, Thompson and Sausa acknowledge that any breach of the
covenant set forth in paragraph (a) or (b) of this Section 4.10 will result in
irreparable damage to the Buyer for which the Buyer will have no adequate remedy
at law and, accordingly, that the Buyer shall be entitled to an injunction
restraining Seller, Thompson or Sausa from such breach; provided, however, that
resort to such injunctive relief shall not be exclusive of any other remedy at
law, in equity or otherwise, and shall not preclude the recovery by Buyer of
monetary damages or other relief in addition thereto. In the event that the
covenant set forth in paragraph (a) or (b) of this Section 4.10 shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of its extending for too long a period of time or to too large a geographic area
or by reason of being too extensive in any other respect or for any other
reason, such covenant shall be interpreted to extend only for the maximum period
of time and/or geographic area as to which it may be enforceable and/or to the
maximum extent in all other respects as to which it may be enforceable, all as
determined by such court.
Section 4.11 Consulting Agreement. On or before the date of the Closing,
Buyer and Thompson shall enter into a consulting agreement, substantially in the
form of Exhibit E hereto, providing, among other things, that in consideration
of an up-front lump sum payment to Thompson in the amount of $250,000 (the
"Consulting Payment") for a period of six months following the Closing Date,
Thompson shall devote, at Buyer's request, up to 50% of his business time to
consulting on matters related to the Alexandria Business, including introducing
Buyer and its employees to original equipment manufacturers used by or
associated with the Alexandria Business and customers of the Alexandria
Business. Thompson shall be reimbursed for costs and expenses incurred by him
in connection with providing such consulting services but, except for the
Consulting Payment, shall not receive any other compensation for such services.
Section 4.12 Office Space; Office Services. For 180 days following the
Closing Date and for no additional consideration, the Seller shall provide the
Buyer with adequate office space at the facilities of Seller located in and
around Boulder, Colorado so as to allow Sterling to operate the Alexandria
Business on a transitional basis for such 180 day period. Upon the request of
Buyer and for no additional consideration, the 180 day period specified in the
previous sentence shall be extended for one additional 30 day period. Seller
shall use reasonable efforts to provide the office space covered by this Section
4.12 in only one of the buildings at the facilities of Seller located in and
around Boulder, Colorado. While Buyer is occupying space in facilities of
Seller, Seller shall supply Buyer with customary office services, including,
without limitation, telephone (other than long distance charges, which shall
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be the responsibility of Buyer), copying, facsimile, mail, utilities, garbage
disposal and the like.
Section 4.13 Publicity; Web Site Matters. (a) Unless required by law,
neither Seller (or its affiliates) nor Parent or Buyer (or their affiliates)
shall disseminate to any third party (including their employees, customers and
suppliers) any notices, press releases, or other communication concerning any
transaction contemplated by this Agreement without the approval of Parent or
Buyer (with respect to Seller or its affiliates) or Seller (with respect to
Parent or Buyer or their affiliates), which approval shall not be unreasonably
withheld or delayed.
(b) For a period of 180 days after the Closing Date, Seller shall
include prominent hyperlink(s) on the Seller Web Site home page and other
appropriate pages on the Seller Web Site so as to allow any visitor wishing to
obtain information concerning the Alexandria Business or any Products to be
automatically transferred with a single mouse click to a URL address to be
specified by Buyer.
(c) It is the express intent and understanding of the parties hereto
that the Assets to be transferred as part of the transaction contemplated by
this Agreement specifically include all content on the Seller Web Site relating
to any Products or that is otherwise Related to the Alexandria Business. In
order that Parent may be in a position to include such content in Parent's World
Wide Web site immediately following the Closing, Seller shall provide Parent
with an electronic copy of such content a reasonable period of time prior to the
anticipated Closing Date.
Section 4.14 Transition Technical and Product Fulfillment Assistance. (a)
For a period of 180 days after the Closing Date, the Seller or the appropriate
Seller subsidiary shall provide, as reasonably requested by Buyer, consulting,
instruction and training services and support to Buyer or Buyer affiliate
employees and contractors relating to the research, development, design, coding,
implementation, testing, installation, use and support of the Alexandria
Intellectual Property and the conduct of the Alexandria Business. Such services
and support shall be provided at no cost to Buyer for the first 60 days of such
180-day period and at Buyer's expense (at Seller's actual cost) thereafter.
(b) For a period of 180 days after the Closing Date, the Seller or
the appropriate Seller subsidiary shall provide, as reasonably requested by
Buyer, product fulfillment and distribution services to Buyer in the same manner
as it presently provides such services to the Alexandria Business, including
shipping of Products, replacement of inventory and assembly and packaging of
Products. Such services and support shall be provided by Seller at no cost to
Buyer for the first 90 days of such period and for each 30 day period thereafter
Buyer shall pay to Seller a mu-
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tually agreed upon amount (designed to approximate Seller's cost of providing
such services) for each 30 day period for which Buyer requests such services
from Seller.
Section 4.15 Recordation of Chain of Title. At the request of Buyer, to
the extent that the Seller is not the current record owner of any item of
Alexandria Intellectual Property included on the schedule referred to in Section
2.12(a) hereof, then the Seller shall, at its sole cost and expense, no later
than ninety days after such request, submit all necessary documentation in
recordable form to the appropriate registry in each applicable jurisdiction in
order to record the chain of title to the Seller.
Section 4.16 Product Reseller Agreement. On or before the Closing Date,
the Buyer and the Seller shall enter into a nonexclusive reseller agreement for
the re-licensing by the Seller of Products currently generally available, having
the terms set forth in the term sheet for the nonexclusive product reseller
agreement attached hereto as Exhibit F ("Product Reseller Agreement").
Section 4.17 Seller Product License. On or before the Closing Date, the
Buyer and the Seller shall enter into a customary fully paid-up, nonexclusive,
perpetual license for up to 100 copies of the Products and related
documentation, both as generally available from time to time, in object code
only, solely for (a) the Seller's internal information system back-up
requirements, and (b) development and testing of tape library and other
information storage hardware products developed and marketed by the Seller (with
such license entitling Seller to receive copies of future releases of the
products, without charge, and containing typical and user license and VAR
development and testing license terms and conditions), substantially in the form
of the License Agreement attached hereto as Exhibit G ("Seller Product
License").
Section 4.18 Satisfaction of Certain Indebtedness. At or prior to the
Closing, the Seller shall satisfy or pay or cause to be satisfied or paid any
and all capitalized lease obligations or other indebtedness with respect to any
of the Assets and shall cause the termination and release of any security
interests or Liens given by the Seller with respect thereto, and will assure
that good title to the equipment underlying such capital lease obligations or
other Assets is transferred to the Buyer as of the Closing Date.
ARTICLE V
CONDITIONS
Section 5.1 Conditions to Each Party's Obligations. The respective
obligation of each party to effect the transactions contemplated by this
Agreement shall
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be subject to the satisfaction or waiver, at or prior to the Closing, of the
following conditions:
(a) The applicable waiting period under the HSR Act shall have
expired or terminated.
(b) No action, suit or proceeding shall be pending or instituted
before any court or quasi-judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any self-regulatory authority
wherein an unfavorable injunction, order, decree, ruling or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
or (ii) cause the Buyer to owe material damages to any third party (and no such
injunction, judgment, order, decree, ruling or charge shall be in effect).
(c) No statute, rule, or regulation of any nature shall have been
enacted, entered, promulgated or enforced by any Governmental Entity, and shall
be in effect, which restrains or prohibits the transactions contemplated by this
Agreement.
Section 5.2 Conditions to Obligations of the Buyer. The obligation of the
Buyer to effect the transactions contemplated by this Agreement are further
subject to the satisfaction or waiver, at or prior to the Closing, of the
following conditions, which are for the benefit of the Buyer only and may only
be waived by the Buyer at or prior to the Closing in its sole discretion:
(a) The representations and warranties of the Seller in this
Agreement which are not qualified by "materiality" or "Material Adverse Effect"
shall be true and correct in all material respects and the representations and
warranties of the Seller which are qualified by "materiality" or Material
Adverse Effect" shall be true and correct, in each case as of the date hereof
and at and as of the Closing Date with the same effect as though such
representations and warranties had been made at and as of such time, other than
representations and warranties that speak as of a specific date or time (which
need only be true and correct as of such date or time).
(b) The Seller shall have performed and complied with all of its
covenants, undertakings and agreements required by this Agreement to be
performed or complied with by it prior to or at the Closing, except where the
failure to so perform or comply would not have a Material Adverse Effect on the
Alexandria Business or on Buyer's ability to operate the Alexandria Business
after the Closing.
(c) Except for the transactions contemplated by this Agreement, there
shall not have been any changes in the Alexandria Business since February 27,
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1999 that in the aggregate have had, or are reasonable likely to have, a
Material Adverse Effect on the Alexandria Business.
(d) The consent or approval of each third party listed on Schedule
5.2 hereof in connection with the transfer of the Assets or the Alexandria
Business shall have been obtained.
(e) All material Liens on and security interests in the Assets shall
be removed or released to the reasonable satisfaction of Buyer.
(f) The Buyer shall have received from the Seller a certificate,
dated the Closing Date, duly executed by the Chairman of the Board and Chief
Executive Officer and the President and Chief Operating Officer of the Seller,
satisfactory in form to the Buyer, to the effect of (a), (b), (c), (d) and (e)
above.
(g) The Seller shall have delivered or caused to be delivered to the
Buyer each of the documents specified in Sections 1.7(a), (b), (c), (d), (g),
(h), (i) and (j) hereof.
Section 5.3 Conditions to Obligations of the Seller. The obligation of
the Seller to effect the transactions contemplated by this Agreement are further
subject to the satisfaction or waiver, at or prior to the Closing, of the
following conditions, which are for the benefit of the Seller only and may only
be waived by Seller at or prior to the Closing in its sole discretion:
(a) The representations and warranties of the Parent and the Buyer in
this Agreement shall be true and correct in all material respects as of the date
hereof and at and as of the Closing Date with the same effect as though such
representations and warranties had been made at and as of such time, other than
representations and warranties that speak as of a specific date or time (which
need only be true and correct in all material respects as of such date or time).
(b) The Buyer shall have performed and complied in all material
respects with all of its respective covenants, undertakings and agreements
required by this Agreement to be performed or complied with by it prior to or at
the Closing.
(c) The Seller shall have received from the Buyer a certificate,
dated the Closing Date, duly executed by the Secretary of the Buyer,
satisfactory in form to the Seller, to the effect of (a) and (b) above.
(d) The Buyer shall have delivered or caused to be delivered to the
Seller, Thompson or Sausa each of the documents and payments specified in
Sections 1.8(a), (b), (c) and (d) hereof.
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ARTICLE VI
TERMINATION AND AMENDMENT
Section 6.1 Termination. This Agreement may be terminated at any time
prior to the Closing by:
(a) Mutual consent of the Seller and the Buyer.
(b) Either the Seller or the Buyer if the Closing shall not have
occurred on or before ninety days from the execution of this Agreement, unless
the failure to consummate the Closing by such date shall be due to the action or
failure to act of the party seeking to terminate this Agreement; provided,
however, Buyer may unilaterally extend the 90-day period in this clause (b) by
up to three additional 30-day periods (for a maximum aggregate period of 180
days) upon the payment of $400,000 to Seller for each such additional 30-day
period.
(c) Either the Seller or the Buyer if any court of competent
jurisdiction or other competent Governmental Entity shall have issued a statute,
rule, regulation, order, decree or injunction or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such statute, rule, regulation, order, decree
or injunction or other action shall have become final and nonappealable.
(d) Either the Seller or Buyer upon the material breach of the other
party of its obligations hereunder after such breaching party has been given a
reasonable opportunity to cure such breach.
Section 6.2 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 6.1 hereof, all of the obligations and
liabilities of the parties under this Agreement shall terminate; provided,
however, that nothing in this Section 6.2 shall relieve any party from any
liability for any breach of this Agreement.
Section 6.3 Extension; Waiver. At any time prior to the Closing, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
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Neither the failure or the delay on the part of any party to exercise any right,
remedy, power or privilege under this Agreement shall operate as a waiver
thereof.
Section 6.4 Fees and Expenses. Except as otherwise provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, each party shall pay the fees and expenses of its respective
counsel, accountants, experts and other retained professionals and shall pay all
other expenses incurred by it in connection with the negotiation, preparation
and execution of the Letter Agreement, this Agreement and the consummation of
the transactions contemplated by this Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1 Survival Periods. (a) All representations and warranties of
the parties contained in this Agreement, the Disclosure Schedule, or any
certificate or instrument delivered in connection herewith shall survive the
Closing (even if the damaged party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect until 24 months from the Closing Date; provided, that the
representations and warranties set forth in Section 2.12 (Intellectual Property)
hereof, and Section 2.17 (Title to Properties) hereof, and the related sections
of the Disclosure Schedule, shall continue in full force and affect until five
years from the Closing Date, and that the representations and warranties set
forth in Section 2.10 (Taxes) hereof, and the related sections of the Disclosure
Schedule, shall survive until the date ninety days following the expiration of
the applicable statutes of limitation (including any extensions thereof) and the
covenants and agreements of the parties hereto shall survive the Closing in
accordance with their terms. In the event that an Indemnified Party (as defined
below) (x) receives notice of or identifies any matter which provides a
reasonable basis for a claim to indemnification hereunder within the applicable
period provided in this Section 7.1(a) and (y) provides notice to the
Indemnifying Party (as defined below) of the receipt of such notice or such
identification, and such claim shall not have been finally resolved before the
expiration of the applicable period referred to in this Section 7.1(a), any
representation, warranty, covenant or agreement that is the basis for such claim
shall continue to survive and shall remain a basis for indemnity as to such
claim until such claim is finally resolved. Notwithstanding the foregoing,
there shall be no period of time within which notice of or a claim for indemnity
must be provided with respect to those items set forth in Sections 7.2(a)(ii)
and 7.2(b)(ii) hereof. For purposes of this Agreement, the representations and
warranties of the Seller contained herein shall be deemed to include the
Disclosure Schedule. The Seller agrees that the Closing shall not in and of
itself constitute a waiver by the
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Buyer of any rights the Buyer may have with respect to any representations and
warranties.
(b) This Section 7.1 shall not limit any covenant or agreement of the
parties contained in this Agreement which by its terms contemplates performance
after the Closing.
Section 7.2 Indemnification. Subject to the other provisions of this
Article VII, from and after the Closing:
(a) The Seller shall indemnify and hold harmless Parent, the Buyer
and their respective affiliates, each of Parent's or the Buyer's and their
respective affiliates' directors, officers, employees, representatives and
agents, and each of the heirs, executors, successors and assigns of any of the
foregoing (collectively, the "Representatives"), from and against any and all
costs and expenses (including reasonable attorneys' fees), suits, proceedings,
judgments, fines, losses, claims, causes of action, liabilities, deficiencies,
demands, assessments and damages (collectively, "Damages") to the extent caused
by, resulting from, or arising from or relating to (i) any breach of any
representation or warranty or failure to perform any covenant, agreement or
undertaking made by or on behalf of the Seller under this Agreement, the
Disclosure Schedule or any of the certificates or documents contemplated by this
Agreement and delivered by the Seller in connection herewith or any allegation
of a breach of any of the foregoing by any third party; (ii) the Retained
Liabilities (whether known or unknown at the time of Closing); or (iii) any Tax
liability imposed in connection with any sale, transfer, assignment or
disposition of property (tangible or intangible) and any other sale, use or
similar Tax liability, in each case to the extent incurred, arising in or
attributable to, any transactions occurring or period ending on or before the
Closing Date.
(b) Parent and the Buyer shall jointly and severally indemnify and
hold harmless the Seller and its Representatives from and against any Damages to
the extent they arise out of or are the result of (i) any breach of any
representation or warranty or the failure to perform any covenant, agreement or
undertaking made by or on behalf of Parent or the Buyer under this Agreement, or
in any certificate or document contemplated by this Agreement or delivered by
Parent or the Buyer in connection herewith or any allegation of a breach of any
of the foregoing by any third party; or (ii) the Assumed Liabilities.
(c) The Seller and its Representatives, on the one hand, and Parent,
the Buyer and their Representatives, on the other hand, as the case may be, are
referred to herein as the "Indemnified Parties."
(d) Notwithstanding the foregoing, any indemnification in respect of
Damages under Section 7.2(a)(i) and Section 7.2(b)(i) shall be operative and
ef-
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fective only to the extent that such Damages, in the aggregate, exceed $50,000,
provided that once such amount is exceeded, the indemnification shall be
provided for all such Damages from the first dollar of such Damages.
(e) Required indemnification by the parties under this Section 7.2
with respect to Damages (other than indemnification for Assumed Liabilities and
the Retained Liabilities) shall be subject to a cap which shall equal
$33,000,000.
Section 7.3 Claims. (a) If an Indemnified Party intends to seek
indemnification pursuant to this Article VII, such Indemnified Party shall
promptly notify the Seller or Parent and the Buyer, as the case may be (the
"Indemnifying Party"), in writing of such claim describing such claim in
reasonable detail; provided, that the failure to provide such notice shall not
affect the obligations of the Indemnifying Party unless it is actually
prejudiced thereby, subject, however, to the time periods specified in Section
7.1 hereof. In the event that such claim involves a claim by a third party
against the Indemnified Party, the Indemnifying Party shall have ten days after
receipt of such notice to decide whether it will undertake, conduct and control,
through counsel of its own choosing and at its own expense, the settlement or
defense thereof, and if it so decides, the Indemnified Party shall cooperate
with it in connection therewith; provided, that the Indemnified Party may
participate in such settlement or defense through counsel chosen by it; and
provided further, that the fees and expenses of such counsel shall be borne by
the Indemnified Party. Notwithstanding anything in this Section 7.3(a) to the
contrary, the Indemnifying Party may, without the consent of the Indemnified
Party, settle or compromise any action or consent to the entry of any judgment
which includes as an unconditional term thereof the delivery by the claimant or
plaintiff to the Indemnified Party of a duly executed written release of the
Indemnified Party from all liability in respect of such action, which release
shall be reasonably satisfactory in form and substance to counsel for the
Indemnified Party; provided, that the Indemnifying Party shall not, without the
written consent of the Indemnified Party, settle or compromise any action in any
manner that, in the reasonable judgment of the Indemnified Party or its counsel,
would materially and adversely affect the Indemnified Party. If the Indemnifying
Party does not notify the Indemnified Party within ten days after the receipt of
the Indemnified Party's notice of a claim of indemnity hereunder that it elects
to undertake the defense thereof, the Indemnified Party shall have the right to
contest, settle or compromise the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement. So long as the Indemnifying Party
is contesting any such claim in good faith, the Indemnified Party shall not pay
or settle any such claim. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay or settle any such claim; provided, that so long as
the Indemnifying Party is contesting such claim in good faith, any such
settlement shall include as an unconditional term thereof the delivery by the
claimant or plaintiff to the Indemnifying Party of a duly executed written
release of the Indemnifying Party from all liability in respect of
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such action; and provided further, that in such event it shall waive any right
to indemnity therefor by the Indemnifying Party; and provided further, that the
Indemnified Party shall provide the Indemnifying Party reasonable advance notice
of any proposed settlement or payment and shall not pay or settle any claim if
the Indemnifying Party shall reasonably object.
Section 7.4 Compliance with Bulk Sales Laws. The Seller and the Buyer
hereby waive compliance by the Seller and the Buyer with the bulk sales law and
any other similar laws in any applicable jurisdiction in respect of the
transactions contemplated by this Agreement. Notwithstanding the foregoing, the
Seller shall indemnify the Buyer from, and hold it harmless against, any
liabilities, damages, costs and expenses resulting from or arising out of (i)
the parties' failure to comply with any of such laws in respect of the
transactions contemplated by this Agreement, or (ii) any action brought or levy
made as a result thereof, other than those liabilities which have been expressly
assumed, on such terms as expressly assumed, by Buyer pursuant to this
Agreement.
Section 7.5 Other Rights and Remedies Not Affected; Right of Set-off. The
indemnification rights of the parties under this Article VII are independent of
and in addition to such rights and remedies as the parties may have at law or in
equity or otherwise for any misrepresentation, breach of warranty or failure to
fulfill any agreement or covenant hereunder on the part of any party hereto,
including, without limitation, the right to seek specific performance,
rescission or restitution, none of which rights or remedies shall be affected or
diminished hereby.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if signed by the
respective person giving such notice or other communication (in the case of any
corporation the signature shall be by an authorized officer thereof) upon
receipt if delivered personally, telecopied (which is confirmed) or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to the Buyer or Parent, to:
Sterling Software, Inc.
300 Crescent Court, Suite 1200
Dallas, Texas 75201
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Attention: Don J. McDermett, Jr., Esq.
Telecopy: (214) 981-1265
with a copy to:
Skadden, Arps, Slate, Meagher & Flom llp
919 Third Avenue
New York, NY 10022
Attention: Richard J. Grossman, Esq.
Telecopy: (212) 735-2000
and
(b) if to the Seller or Nathan C. Thompson or Michael J. Sausa, to:
Spectra Logic Corporation
1700 North 55th Street
Boulder, Colorado 80301
Attention: Nathan C. Thompson
Telecopy: (303) 939-8844
with a copy to:
Ireland Stapleton
Suite 2600
1675 Broadway
Denver, Colorado 80202
Attention: John G. Lewis, Esq.
Telecopy: (303) 623-2062
Section 8.2 Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought.
Except as otherwise provided in this Agreement, any failure of any of the
parties to comply with any obligation, covenant, agreement or condition herein
may be waived by the party or parties entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
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Section 8.3 Headings. The article, section, paragraph and other headings
contained in this Agreement are inserted for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement.
Section 8.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.
Section 8.5 Entire Agreement; Assignment. (a) This Agreement, the
Confidentiality Agreement, dated February 2, 1999 (the "Confidentiality
Agreement"), and the schedules and exhibits hereto constitute the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersede and cancel all prior agreements, negotiations, correspondence,
undertakings, understandings and communications of the parties, oral and
written, with respect to the subject matter hereof, including the Letter
Agreement. The Confidentiality Agreement and all obligations arising thereunder
shall terminate as of the Closing Date.
(b) This Agreement shall not be assigned by a party hereto by
operation of law or otherwise; provided, that the Buyer may assign its rights
and obligations hereunder to any wholly owned subsidiary of Parent, but no such
assignment shall relieve Parent or the Buyer of their obligations hereunder if
such assignee does not perform such obligations.
Section 8.6 Governing Law. This Agreement, including all matters of
construction, validity and performance, shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
or to be performed entirely within such state.
Section 8.7 Publicity. Except as otherwise required by law, or the rules
and regulations of any national securities exchange or over-the-counter market,
for so long as this Agreement is in effect, none of Parent, the Buyer, the
Seller, or any of their respective officers, directors or affiliates shall
disclose or cause or permit the disclosure of any information with respect to
the transactions contemplated by this Agreement without the express prior
approval of the other party hereto. Notwithstanding the foregoing, the
provisions of this Section 8.7 shall terminate as to Parent and the Buyer and
its officers, directors and affiliates as of the Closing.
Section 8.8 Binding Nature; No Third Party Beneficiaries. This Agreement
shall be binding upon and inure solely to the benefit of the parties hereto and
their respective successors and permitted assigns. Except for the provisions of
Article VII which are intended for the benefit of, and to be enforceable by, any
of the Indemnified Parties and their respective successors, heirs and personal
representatives, nothing in this Agreement, express or implied, is intended to
or shall confer upon any
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other person or persons any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 8.9 Severability. This Agreement shall be deemed severable; the
invalidity or unenforceability of any term or provision of this Agreement shall
not affect the validity or enforceability of this Agreement or of any other term
hereof, which shall remain in full force and effect. If it is ever held that
any restriction hereunder is too broad to permit enforcement of such restriction
to its fullest extent, each party agrees that such restriction may be enforced
to the maximum extent permitted by law, and each party hereby consents and
agrees that such scope may be judicially modified accordingly in any proceeding
brought to enforce such restriction.
Section 8.10 Specific Performance. the parties hereto agree that if any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof and immediate injunctive relief, without the necessity of proving the
inadequacy of money damages as a remedy, in addition to any other remedy at law
or equity.
Section 8.11 Knowledge. For purposes of this Agreement, the terms
"knowledge of the Seller" or "to the Seller's knowledge" shall mean the
knowledge of any officer of the Seller, after making reasonable inquiry under
the circumstances.
Section 8.12 Accounting and Financial Terms. All references herein to any
financial or accounting terms shall be defined in accordance with GAAP unless
expressly stated to the contrary. All references to dollar amounts shall mean
U.S. dollars unless otherwise noted.
Section 8.13 Construction. (a) For the purposes hereof, (i) words in the
singular shall be held to include the plural and vice versa and words of one
gender shall be held to include the other genders as the context requires, (ii)
the words "hereof", "herein", and "herewith" and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole
(including all of the schedules and exhibits hereto) and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified, (iii) the words
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless otherwise specified, and (iv) the word
"or" shall not be exclusive.
(b) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
inter-
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pretation arises, this Agreement shall be construed as if drafted jointly by the
parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
(c) Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception in a manner which would alert a
reasonable person as to the nature of such exception. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item).
(d) Any reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires.
Section 8.14 Incorporation of Exhibits and Schedules. The exhibits and
schedules referred to in this Agreement are incorporated herein and made a part
hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
STERLING SOFTWARE, INC.
By: \s\ Don J. McDermett, Jr.
Name: Don J. McDermett, Jr.
Title: Senior Vice President
and General Counsel
STERLING SOFTWARE (U.S.A.), INC.
By: \s\ Don J. McDermett, Jr.
Name: Don J. McDermett, Jr.
Title: Vice President
SPECTRA LOGIC CORPORATION
By: \s\ Nathan C. Thompson
Name: Nathan C. Thompson
Title: Chairman and Chief
Executive Officer
\s\ Nathan C. Thompson
Nathan C. Thompson (Solely with respect to Sections 4.10 and 4.11 hereof)
\s\ Michael J. Sausa
Michael J. Sausa (Solely with respect to Section 4.10 hereof)
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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
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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
-11-
<PAGE>
thereof, and thereafter the holders of such shares shall look only to the
Corporation for payment of the redemption price thereof, but without interest.
(i) If less than all of the outstanding shares of the Series A Stock
are to be redeemed pursuant to the provisions of this Paragraph 4, the
particular shares to be redeemed shall be allocated as nearly pro rata as
practicable between Restricted Securities held by the Purchasers and the
remaining shares of Series A Stock, based upon the number of outstanding shares
Series A Stock which are Restricted Securities held by the Purchasers and the
remaining shares of Series A Stock. The Restricted Securities held by the
Purchasers to be redeemed shall be selected pro rata (or as nearly pro rata as
practicable) and the remaining shares of Series A Stock to be redeemed shall be
selected pro rata (or as nearly pro rata as practicable), by lot, or by any
other method that complies with the requirements of the principal national
securities exchange on which the shares of Series A Stock being redeemed are
listed at the discretion of the Corporation.
(j) Shares of the Series A Stock redeemed or otherwise purchased or
acquired by the Corporation shall not be reissued as shares of the Series A
Stock, but shall assume the status of authorized but unissued Preferred Stock,
$0.10 par value, of the Corporation.
5. Voting Rights. The holders of the Series A Stock shall have only
-------------
the voting rights expressly provided by applicable law, except that without the
written consent of each holder of Series A Stock, in no event shall the powers,
preferences or rights of, and the qualifications, limitations or restrictions
on, of the Series A Stock as set forth herein be modified or changed so as to
extend the maturity of any Series A Stock, reduce the amount of dividends to be
paid thereon, affect the terms of redemption of the Series A Stock or the
payment of dividends thereon or reduce the percentage of holders necessary to
otherwise modify or change the powers, preferences or rights of, and the
qualifications, limitations or restrictions on, of the Series A Stock as set
forth herein.
6. Election of Directors. The holders of the Series A Stock shall
---------------------
have the right to replace the Board of Directors of the Corporation in the event
that any quarterly dividend referred to in Paragraph 2(a) and required to be
declared on or prior to May 15, 1986 is not declared prior to its respective
Dividend Payment Date at a time when funds were legally available therefore.
-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>
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 Two Hundred Sixty Million
(260,000,000), consisting of Two Hundred Fifty Million (250,000,000)
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 31st day
of March, 1999.
By: /s/ DON J. MCDERMETT, JR.
-----------------------------------
Don J. McDermett, Jr.
Senior Vice President
1
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE STERLING SOFTWARE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999
<PERIOD-START> JAN-01-1999 OCT-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1999
<CASH> 439,982 439,982
<SECURITIES> 264,108 264,108
<RECEIVABLES> 211,983 211,983
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<CURRENT-ASSETS> 947,402 947,402
<PP&E> 76,537 76,537
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0 0
0 0
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<OTHER-SE> 905,297 905,297
<TOTAL-LIABILITY-AND-EQUITY> 1,243,931 1,243,931
<SALES> 192,386 366,845
<TOTAL-REVENUES> 192,386 366,845
<CGS> 70,545 141,653
<TOTAL-COSTS> 147,909 289,981
<OTHER-EXPENSES> 0 29,278
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 129 259
<INCOME-PRETAX> 53,273 65,186
<INCOME-TAX> 18,113 25,820
<INCOME-CONTINUING> 35,160 39,366
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<NET-INCOME> 35,160 39,366
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