<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19092
ROSS SYSTEMS, INC.
------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2170198
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1100 JOHNSON FERRY ROAD, SUITE 750, ATLANTA, GEORGIA 30342
- ---------------------------------------------------- -----
(Address of principal executive offices) (Zip code)
(404) 851-1872
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Outstanding
Class January 31, 1997
----- ----------------
Common stock, no par value 18,794,789
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This is page 1 of 18 pages.
Index to exhibits is on page 17.
<PAGE>
- --------------------------------------------------------------------------------
ROSS SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PAGE NO.
- --------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and six months ended December 31, 1996 and 1995 3
Condensed Consolidated Balance Sheets -
December 31, 1996 and June 30, 1996 4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
- --------------------------------------------------------------------------------
PART II OTHER INFORMATION
Item 2. Changes in Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
- --------------------------------------------------------------------------------
SIGNATURES 16
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software product licenses $ 6,162 $ 5,602 $ 12,959 $ 10,136
Consulting and other services 5,967 5,276 10,962 9,277
Maintenance 6,426 6,111 12,704 12,066
-------- -------- -------- ---------
Total revenues 18,555 16,989 36,625 31,479
-------- -------- -------- ---------
Operating expenses:
Costs of software product licenses 855 551 1,329 925
Costs of consulting,
maintenance and other services 6,927 5,905 13,326 12,482
Sales and marketing 4,611 5,410 9,020 11,160
Product development 2,937 3,046 6,103 6,136
General and administrative 1,598 1,727 3,499 3,524
Provision for uncollectible accounts 367 79 1,021 161
Amortization of other assets 160 98 320 194
-------- -------- -------- ---------
Total operating expenses 17,455 16,816 34,618 34,582
-------- -------- -------- ---------
Operating earnings (loss) 1,100 173 2,007 (3,103)
Other expenses, net (201) (368) (390) (671)
-------- -------- -------- ---------
Earnings (loss) before income taxes 899 (195) 1,617 (3,774)
Income tax expense 92 7 314 19
-------- -------- -------- ---------
Net earnings (loss) $ 807 $ (202) $ 1,303 $ (3,793)
-------- -------- -------- ---------
-------- -------- -------- ---------
Net earnings (loss) per common
and common equivalent share $ 0.04 $ (0.01) $ 0.07 $ (0.26)
-------- -------- -------- ---------
-------- -------- -------- ---------
Shares used in per share computation 19,384 14,336 19,044 14,322
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December 31, June 30,
1996 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,951 $ 1,862
Accounts receivable, less allowance
for doubtful accounts and returns 28,748 26,430
Prepaids and other current assets 1,931 1,724
Income taxes recoverable 133 670
--------- ---------
Total current assets 32,763 30,686
Property and equipment 4,918 4,022
Computer software costs 20,716 19,845
Other assets 4,545 3,496
--------- ---------
Total assets $ 62,942 $ 58,049
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of debt $ 9,721 $ 8,743
Accounts payable 6,346 5,406
Accrued expenses 6,458 7,853
Deferred revenues 14,608 17,219
--------- ---------
Total current liabilities 37,133 39,221
--------- ---------
Long-term debt, less current installments 334 36
--------- ---------
Shareholders' equity:
Common stock 72,751 67,435
Accumulated deficit (46,684) (47,987)
Cumulative translation adjustment (592) (656)
--------- ---------
Total shareholders' equity 25,475 18,792
--------- ---------
Total liabilities and shareholders' equity $ 62,942 $ 58,049
--------- ---------
--------- ---------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended
December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,303 $ (3,793)
Adjustments to reconcile net earnings (loss) to net cash
used for operating activities:
Depreciation and amortization of property and equipment 973 1,000
Amortization of computer software costs 3,249 2,716
Amortization of other assets 320 194
Provision for doubtful accounts and returns 1,021 161
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (2,491) 2,487
Prepaids and other current assets (185) 256
Income taxes recoverable 267 222
Accounts payable 545 1,286
Accrued expenses (2,172) (4,900)
Deferred revenues (2,923) (1,657)
Other, net (17) 4
-------- --------
Net cash used for operating activities (110) (2,024)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,036) (607)
Computer software costs capitalized (3,612) (4,206)
Acquisitions and divestitures 54 106
Other 185 (121)
-------- --------
Net cash used for investing activities (4,409) (4,828)
-------- --------
Cash flows from financing activities:
Net line of credit activity 787 4,687
Capital lease payments (113)
Proceeds from issuance of common stock 179 309
Proceeds from issuance of preferred stock 3,737
-------- --------
Net cash provided by financing activities 4,590 4,996
-------- --------
Effect of exchange rate changes on cash 18 (15)
-------- --------
Net increase (decrease) in cash and cash equivalents 89 (1,871)
Cash and cash equivalents at beginning of period 1,862 3,628
-------- --------
Cash and cash equivalents at end of period $ 1,951 $ 1,757
-------- --------
-------- --------
Noncash investing and financing activities:
Business acquisitions for common stock & forgiveness of debt $ 3,727 $ 1,495
-------- --------
-------- --------
Conversion of preferred stock $ 3,737
--------
--------
Capital lease additions $ 29
--------
--------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Ross Systems, Inc. (the "Company") reflect all adjustments of a normal recurring
nature which are, in the opinion of management, necessary to present a fair
statement of its financial position as of December 31, 1996, and the results of
its operations and cash flows for the interim periods presented. The Company's
results of operations for the three and six months ended December 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
These unaudited condensed financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, certain
information and footnote disclosures normally contained in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in conjunction
with the Consolidated Financial Statements and notes thereto included in the
Company's Annual Report to Shareholders on Form 10-K for the fiscal year ended
June 30, 1996.
Certain fiscal 1996 amounts have been reclassified to conform with the
fiscal 1997 financial statement presentation.
B) ACCOUNTS RECEIVABLE
As of the dates shown, accounts receivable consisted of the following (in
thousands):
December 31, June 30,
1996 1996
---- ----
Trade accounts receivable $30,543 $29,064
Less allowance for doubtful accounts and returns (1,795) (2,634)
------- -------
$28,748 $26,430
------- -------
------- -------
C) PROPERTY AND EQUIPMENT
As of the dates shown, property and equipment consisted of the following
(in thousands):
December 31, June 30,
1996 1996
---- ----
Computer equipment $ 12,535 $ 11,506
Furniture and fixtures 4,047 3,667
Leasehold improvements 2,083 1,729
-------- --------
18,665 16,902
Less accumulated depreciation and amortization (13,747) (12,880)
-------- --------
$ 4,918 $ 4,022
-------- --------
-------- --------
6
<PAGE>
D) BUSINESS ACQUIRED
On December 30, 1996, the Company acquired a 100% ownership interest in
Ross Iberica, its distributor in Spain and Portugal for the past five years, in
exchange for shares of the Company's common stock valued at approximately
$1,400,000. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of the acquired business have been
included in the Company's results of operations since the date of acquisition.
The pro forma effects on total revenues, net earnings, and net earnings per
share of including this subsidiary in the Company's Consolidated Statement of
Operations from the beginning of fiscal 1997 and 1996 are not significant.
E) NEW ACCOUNTING PRONOUNCEMENTS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" ("Statement 123"). Statement 123 encourages, but does not
require, the recognition of expense for stock-based awards based on their fair
value on the date of grant. Upon adoption of Statement 123 on July 1, 1996, the
Company has continued to account for all employee stock-based compensation,
including stock options, using the "intrinsic value" method under APB 25 rather
than the "fair value" approach encouraged by Statement 123. However, as
required by Statement 123, the Company will provide pro forma disclosures of
what net earnings and net earnings per share would have been had the new fair
value method been used.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
VARIABILITY OF QUARTERLY RESULTS
The Company's software product license revenues can fluctuate from quarter
to quarter depending upon, among other things, such factors as overall trends in
the United States and international economies, new product introductions by the
Company, hardware vendors and other software vendors, and customer buying
patterns. Because the Company typically ships software products within a short
period after orders are received, and therefore maintains a relatively small
backlog, any weakening in customer demand can have an almost immediate adverse
impact on revenues and operating results. Moreover, a substantial portion of
the revenues for each quarter is attributable to a limited number of sales and
tends to be realized in the latter part of the quarter. Thus, even short delays
or deferrals of sales near the end of a quarter can cause substantial
fluctuations in quarterly revenues and operating results. Finally, certain
agreements signed during a quarter may not meet the Company's revenue
recognition criteria resulting in deferral of such revenue to future periods.
Because the Company's operating expenses are based on anticipated revenue levels
and a high percentage of the Company's expenses are relatively fixed, a small
variation in the timing of the recognition of specific revenues can cause
significant variation in operating results from quarter to quarter.
EQUITY FINANCING TRANSACTIONS
The Company completed a private placement of equity securities subsequent
to the end of the quarter. Please refer to "Liquidity and Capital Resources"
for a description of this transaction.
RESULTS OF OPERATIONS
REVENUES
Total revenues for the quarter ended December 31, 1996 increased 9% to
$18,555,000 from $16,989,000 in the same quarter of fiscal 1996. Software
product license revenues increased 10%, consulting and other services revenues
increased 13%, and maintenance revenues increased 5% over the same quarter of
the prior year.
For the six month period ended December 31, 1996, total revenues increased
16% to $36,625,000 versus $31,479,000 in the same period of fiscal 1996.
Software product license revenues increased 28%, services revenues increased
18%, and maintenance revenues increased 5% from prior year results.
Software product license revenues were $6,162,000 for the quarter, an
increase of $560,000 from the same period in fiscal 1996. Software product
license revenues in the North American and the European, Asian/Pacific Rim
("International") markets increased from prior year results, with North America
increasing 12%, or $378,000, Europe increasing 2%, or $48,000, and Asian/Pacific
Rim markets increasing 36% or $134,000. European software product license
revenues would have decreased slightly except for the Company's acquisition of
its Spanish distributor during the quarter. The Company's open
systems/client-server products represented 96% of total software product license
revenues in the quarter compared to 93% in the same quarter of fiscal 1996.
Software product license revenues from the Company's Renaissance CS Financials
Series increased $1,450,000, or 89%, over the same quarter of the
8
<PAGE>
prior year and posted the largest increase among the Company's open
systems/client-server products. For the six month period ended December 31,
1996, software product license revenues increased $2,823,000, or 28%, from the
prior year. The Company experienced increases of 2%, or $101,000, and 569%, or
$2,924,000, in the North American and Asian/Pacific Rim markets, respectively.
partially offset by decreases in Europe of $202,000, or 6%. The Asian/Pacific
Rim software product license revenues for the first quarter of fiscal 1997
include one large contract that contributed significantly to this increase. For
the six months, the Company's open systems/client-server products represented
approximately 96% of total software product license revenues, up from 93% for
the same period in the prior year.
Consulting and other services revenues for the second quarter of fiscal
1997 increased 13% to $5,967,000 from $5,276,000 in the same period of fiscal
1996. Revenues from consulting and other services (which are typically
recognized as performed) are generally correlated with software product license
revenues (which are typically recognized upon delivery), so that when software
product license revenues fluctuate, future period services revenues generally
show a corresponding fluctuation. For the quarter, North American services
revenues increased by $382,000, or 11%. International services revenues
increased $309,000 or 17% principally as a result of the addition of the
Asia/Pacific Rim market which accounted for $170,000 of the increase. For the
six month period ended December 31, 1996, services revenues increased 18%, or
$1,685,000 from the same period of the prior year. The Company believes that
the increase in consulting and other services revenues during the six month
period was attributable to increases in software product license revenues during
fiscal 1996 and 1997.
Maintenance revenues for the quarter increased by 5%, to $6,426,000 from
$6,111,000 in the second quarter of fiscal 1996. For the six month period ended
December 31, 1996, maintenance revenues increased $638,000, or 5%, over fiscal
1996 results. The Company believes that the increase in maintenance revenues
for the three and six month periods is a result of a increase in the number of
maintenance customers for the Company's newer open systems/client-server
products.
While International revenues as a percentage of total revenues remained
constant at 36% for the second quarters of fiscal 1997 and 1996, International
revenues as a percentage of total revenues for the six months ended December 31,
1996 increased to 38% from 33% for the same period in fiscal 1996. This
increase is due primarily to the revenues attributable to the Asian/Pacific Rim
market which increased to approximately $4.0 million for the six months ended
December 31, 1997 from $568,000 for the same period in the prior year as a
result of the aforementioned significant contract. Overall, European revenues
as a percentage of total revenues for the six months ended December 31, 1996
declined by 5% from the prior year as a result of decreases in software product
license and services revenues.
OPERATING EXPENSES
Costs of software product licenses include expenses related to royalties
paid and product documentation and packaging. Royalty expenses will vary from
quarter to quarter based on the mix of products being sold. Many of the
Company's newer products have royalty obligations associated with them that had
not existed previously. Costs of software product licenses for the quarter
increased by 55% to $855,000 from $551,000 in fiscal 1996. For the six months
ended December 31, 1996, the cost of software product licenses increased 44% to
$1,329,000 from $925,000 in fiscal 1996. For the three and six month periods
ended December 31, 1996, royalty expenses increased over the same period in the
prior year by 61% and 56%, respectively. This increase is directly related to
the increase in the Company's software product license revenues for the same
periods. The Company's gross profit margin resulting from software product
license revenues for the second quarter of fiscal 1997 was 86%, down from 90% in
the same quarter of fiscal 1996. For the six months ended December 31, 1996,
the margin was 90% as compared to
9
<PAGE>
91% for the same period in the prior year. Increases in royalty expenses led to
the decline in these margins for the three and six month periods.
Costs of consulting, maintenance and other services include expenses
related to consulting and training personnel, personnel providing customer
support pursuant to maintenance agreements, and other costs of sales. Costs of
consulting, maintenance and other services increased by 17% to $6,927,000 in the
second quarter of fiscal 1997, as compared to $5,905,000 in the second quarter
of fiscal 1996. The quarterly increase principally resulted from an increase in
personnel-related expenses of approximately $600,000, increases in expenses
related to outside consultants of approximately $115,000 and increases in
facilities and supplies related expenses of approximately $300,000 over the same
period in the prior year. For the six months ended December 31, 1996, costs of
consulting, maintenance and other services increased 7% to $13,326,000 from
$12,482,000 in the same period of fiscal 1996. The increase for the six month
period was due largely to increases in personnel-related expenses of
approximately $600,000 and increases in expenses related to outside consultants
of approximately $280,000 compared to the same period in the prior year. The
Company uses outside consultants to supplement Company personnel in meeting peak
customer consulting demands. The Company's gross profit margin resulting from
consulting, maintenance and other services revenues for the second quarter of
fiscal 1997 was 44%, down from 48% in the same quarter of fiscal 1996. For the
six months ended December 31, 1996, the gross profit margin was 44% as compared
to 42% for the same period of the prior year. The deterioration in the gross
profit margin for the three month period was due largely to the increase in
personnel expenses related to the hiring and training of new services and
consulting personnel, and the time required until these new personnel begin to
generate revenue. The improvement in the gross profit margin for the six month
period was achieved through the previously discussed revenue increases,
partially offset by the increases in consulting and other services expenses
discussed above.
Sales and marketing expenses for the quarter ended December 31, 1996
decreased by 15%, to $4,611,000 from $5,410,000 in the prior year. For the six
month period, sales and marketing expenses decreased by 19% from $11,160,000 to
$9,020,000. The majority of the decline was due to decreases in
personnel-related expenses from fiscal 1996 to 1997 . For the quarter ended
December 31, 1996, personnel-related expenses declined approximately $960,000
from the prior year as a result of decreases in sales and marketing personnel,
offset by an increase of approximately $115,000 in marketing expenses related to
the promotion of new products. For the six months ended December 31, 1996,
personnel-related expenses decreased approximately $1,731,000 and related
facilities and administration expenses decreased approximately $234,000 from the
prior year. The three and six month decreases in personnel related expenses is
a direct result in the Company's effort, over the past year, to streamline its
sales and marketing efforts by targeting a limited number of markets such as
process manufacturing, healthcare, and not-for-profit entities.
Product development expenses decreased by 4%, to $2,937,000, in the second
quarter of fiscal 1997 from $3,046,000 in the same quarter of the prior year.
For the six month period ended December 31, 1996, these expenses decreased by
1%, to $6,103,000, from $6,136,000 in the same period last year. The following
table summarizes product development expenditures (in thousands):
10
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expenses $2,937 $3,046 $6,103 $6,136
Amortization of previously capitalized
software development costs (1,662) (1,375) (3,249) (2,716)
------ ------ ------ ------
Expenses, net of amortization $1,275 $1,671 $2,854 $3,421
Capitalized software development costs 2,166 2,066 3,612 4,206
------ ------ ------ ------
Total expenditures $3,441 $3,737 $6,466 $7,627
------ ------ ------ ------
------ ------ ------ ------
Total expenditures as a
percent of total revenues 18.5% 21.9% 17.7% 24.2%
------ ------ ------ ------
------ ------ ------ ------
Capitalized software, net of amortization,
as a percent of total expenditures 14.6% 18.5% 5.6% 19.5%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
As a percentage of total revenues, fiscal 1997 product development
expenditures decreased from 1996 expenditures. Product development expenditures
during fiscal 1997 have been primarily focused on continued enhancements to
existing products and developing new products. During the six months ended
December 31, 1996, software development costs capitalized included amounts
attributable to the development of Renaissance CS Financial and Human Resource
series, developing and enhancing versions of GEMBASE, the Company's fourth
generation language, and the porting of Renaissance CS to operate with the
Windows NT platform.
General and administrative expenses for the quarter ended December 31, 1996
decreased by 7%, to $1,598,000 from $1,727,000 in the prior year. For the six
month period, total general and administrative expenses remained relatively
unchanged. A major cause of the decrease in these expenses from the same
quarter in the prior year was a reduction of approximately $100,000 in legal
expenses and approximately $226,000 in facilities related expenses. These
reductions were partially offset by an increase of approximately $150,000 in
business taxes and fees.
In the three month period ended December 31, 1996, the Company recorded a
provision for doubtful accounts and returns of $367,000. The provision consisted
of the following components: (a) $167,000 for five specific customer accounts
receivable which the Company identified as being potentially uncollectible as a
result of payment history or possible disputes, and (b) $200,000 in adjustments
to the Company's general allowance for doubtful accounts and returns.
For the comparable period in fiscal 1996, the Company recorded a provision
for doubtful accounts and returns of $79,000. The provision consisted of the
following components: (a) $(72,000) for (i) 18 specific customer accounts
receivable resulting from payments of amounts previously reserved, partially
offset by other amounts which the Company identified as being potentially
uncollectible as a result of payment history or possible disputes, and (ii)
adjustments to the Company's general provision for uncollectible accounts
receivable; (b) credits of $98,000 issued by the Company to 12 customers; and,
(c) $53,000 for 4 customers related to resolution of other disputes.
Amortization of other assets increased to $160,000 in the second quarter of
fiscal 1997 from $98,000 in the same period last year. For the six month
period, amortization of other assets was $320,000, compared to $194,000 in the
same period of the prior year. Amortization related to the purchase of the
Company in 1988 and its subsequent acquisitions of other products and companies.
During fiscal 1996, the Company acquired a former distributor's customer base
for approximately $749,000. The related asset is being amortized over three
years.
11
<PAGE>
OTHER EXPENSE, NET
Other expense for the three months ended December 31, 1996 was $201,000, as
compared to $368,000 in the same period of fiscal 1996. For the six month
period ended December 31, 1996, other expense was $390,000, as compared to other
income of $671,000 in the same period of fiscal 1996. Fiscal 1997 amounts
primarily consisted of interest expense. The decrease was due to lower average
debt balances during fiscal 1997 further impacted by declines in interest rates.
INCOME TAX EXPENSE
During the second quarter of fiscal 1997, the Company recorded income tax
expense of $92,000 compared with an income tax expense of $7,000 recorded during
the same period in fiscal 1996. For the six months ended December 31, 1996, the
Company recorded income tax expense of $314,000 as compared to an income tax
expense of $19,000 in the same period of fiscal 1996. Income tax expense for
both periods include withholding taxes accrued in certain foreign jurisdictions
where the Company had no available net operating losses. The increase in fiscal
1997 is due largely to significant foreign sales resulting in withholding taxes
and a provision for alternative minimum taxes in North America.
LIQUIDITY AND CAPITAL RESOURCES
While the Company required $110,000 for operating activities and $4,409,000
for investing activities (primarily capitalized software costs), the Company
financed its continuing operations through funds received in private equity
financings and available credit facilities for the six moths ended December 31,
1996. At December 31, 1996, the Company had $,1,951,000 of cash and cash
equivalents and $9,392,000 outstanding against a $10,000,000 revolving credit
facility. Borrowings under the credit facility are collateralized by
substantially all assets of the Company.
On December 29, 1995, the Company entered into a Subscription Agreement
(the "Agreement") with a foreign institutional investor pursuant to which the
investor purchased 500,000 shares of the Company's Series A Preferred Stock for
an aggregate purchase price of $2,000,000. In connection with this transaction,
the investor granted the Company options (the "Options") to require the investor
to purchase shares of the Company's Preferred Stock with an aggregate value of
$4,000,000 during the period from and including July 1, 1996 through and
including December 30, 1998. The Company created and reserved 500,000 shares of
its Series B Preferred Stock and 500,000 shares of its Series C Preferred Stock
for issuance and sale to the investor upon exercise of the Options. In
addition, the Company granted the investor a warrant (the "Warrant") to purchase
400,000 shares of the Company's Common Stock at an exercise price of $5.576 per
share during the period from and including July 1, 1997 through and including
December 29, 2000.
Pursuant to the Agreement, the Company exercised its first Option on July
8, 1996. Concurrently, the investor also agreed to invest an additional
$2,000,000 under terms similar to those in the Agreement. In exchange for the
additional investment, the Company granted the investor a warrant for an
additional 640,000 shares of the Company's Common Stock. This warrant is
exercisable during the period from and including July 1, 1997 through and
including December 29, 2000, and will be exercisable at a price between $6.46
and $8.00 per share. The gross proceeds from the July 1996 transactions were
$4,000,000. At December 31, 1996, the Company still had one Option to require
the investor to invest $2,000,000. This Option was exercised on January 6, 1997
when the investor purchased 200 shares of the Company's newly created Series E
Preferred Stock. Refer to Part II, Item 2, "Changes in Securities."
12
<PAGE>
On October 8, 1996 the investor converted all 500,000 shares of their
Series B Preferred Stock into 374,650 shares of the Company's Common Stock.
The conversion price was approximately $5.34 per share.
On October 24, 1996 the investor converted all 500,000 shares of their
Series C Preferred Stock into 359,800 shares of the Company's Common Stock.
The conversion price was approximately $5.56 per share.
The Company's ability to meet its cash requirements for operations and
recurring capital expenditures will depend upon funds expected to be generated
from operations, amounts available under its line of credit facility, in
addition to the funds already received from the private equity financing
described above. The Company is also presently investigating alternative
sources of capital available to strengthen its balance sheet and improve its
liquidity. The Company believes it is likely that any amounts raised in
connection with these investigations would require the issuance of additional
shares of its Common Stock.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
An amendment to the Company's Restated Articles of Incorporation to
increase the number of authorized shares of common stock by 10,000,000 shares
was approved by the shareholders in the annual meeting on November 20, 1996.
On January 6, 1997, the Company sold 200 shares of its Series E Preferred
Stock to a foreign institutional investor for an aggregate purchase price of $2
million. The Series E Preferred Stock has rights, preferences and privileges
that are senior to the Company's Common Stock, as more fully described in the
Certificate of Determination for the Series E Preferred Stock and the
Subscription Agreement, both filed as exhibits hereto. See Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders was held on November 20, 1996.
The following table shows voting information for each item voted upon:
WITHHELD/
FOR AGAINST ABSTAINED
--- ------- ---------
NOMINEES FOR
ELECTION AS DIRECTORS
Dennis V. Vohs 15,634,202 93,868
Mario M. Rosati 15,635,205 101,865
Bruce J. Ryan 15,639,619 97,451
J. Patrick Tinley 15,640,925 96,145
A. David Tory 15,634,276 102,794
AMENDMENT TO 1991
EMPLOYEE STOCK
PURCHASE PLAN 15,145,907 439,608 151,555
AMENDMENT TO THE
COMPANY'S RESTATED
ARTICLES OF
INCORPORATION 15,028,415 531,033 177,622
CONFIRMATION OF
AUDITORS 15,636,453 44,031 56,586
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 11 - Computation of Per Share Earnings
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1996
ITEMS 1, 3 AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.
15
<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.
ROSS SYSTEMS, INC.
Date: February 13, 1997 /S/ JAMES A. WATTS, JR.
------------------------------------------
James A. Watts, Jr.
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
16
<PAGE>
ROSS SYSTEMS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Description Page
- ------- ------------------------------------------------------------ ----
<S> <C> <C>
3.1 Restated Articles of Incorporation of Registrant (1). . . . . . . . . . . . ---
3.2 Certificate of Determination of Rights, Preferences and Privileges of
Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock of Ross Systems, Inc. (2) . . . . . . . . . . . . . . . . . ---
3.3 Bylaws, as amended (3). . . . . . . . . . . . . . . . . . . . . . . . . . . ---
3.4 Certificate of Determination of Rights, Preferences and Privileges of
Series E Preferred Stock of Ross Systems, Inc.. . . . . . . . . . . . . . . ---
10.1 Subscription Agreement dated June 28, 1996 between Registrant and
Fletcher International Limited (4). . . . . . . . . . . . . . . . . . . . . ---
10.2 Amendment No. 1 dated July 8, 1996 to the December 29, 1995
Subscription Agreement and the June 28, 1996 Subscription
Agreement between Registrant and Fletcher International Limited (4) . . . . ---
11.1 Statement regarding Computation of Per Share Earnings . . . . . . . . . . . 18
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . ---
</TABLE>
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the exhibit filed with Registrant's Quarterly
Report on Form 10-Q for the period ended December 31, 1995, as amended by
the exhibits filed by the Registrant's Current Report on Form 8-K dated
February 13, 1996.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1996 filed May
6, 1996.
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed September 27, 1993.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q filed November 8, 1996.
17
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF DETERMINATION OF RIGHTS,
PREFERENCES, PRIVILEGES AND RESTRICTIONS OF
SERIES E PREFERRED STOCK
OF
ROSS SYSTEMS, INC.
The undersigned, James A. Watts, Jr. and Steven L. Berson, do hereby
certify that:
A. They are the duly elected and acting Vice President of Finance and
Administration and Chief Financial Officer, and Assistant Secretary,
respectively, of Ross Systems, Inc., a California corporation (the
"Corporation").
B. Pursuant to the authority conferred upon the Board of Directors by the
Restated Articles of Incorporation of the Corporation, the said Board of
Directors on November 20, 1996, adopted the following resolution creating a
series of 200 shares of Preferred Stock designated as Series E Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the Restated Articles of Incorporation, the Board of
Directors does hereby provide for the issue of a series of Preferred Stock of
the Corporation to be designated "Series E Preferred Stock" initially consisting
of 200 shares, and to the extent that the designations, powers, preferences and
relative and other special rights and the qualifications, limitations and
restrictions of the Series E Preferred Stock is not stated and expressed in the
Restated Articles of Incorporation, does hereby fix and herein state and express
such designations, powers, preferences and relative and other special rights and
the qualifications, limitations and restrictions thereof, as follows (all terms
used herein which are defined in the Restated Articles of Incorporation shall be
deemed to have the meanings provided therein):
1. DESIGNATION AND AMOUNT. The series of Preferred Stock authorized
herein shall be designated as "Series E Preferred Stock". The Series E
Preferred Stock is referred to herein as the "Series E Preferred". The number
of shares constituting the Series E Preferred shall be two hundred (200).
2. REDEMPTION.
(a) RIGHT OF REDEMPTION. Subject to Section 2(b) below, at any time
after the earlier of (i) the NASDAQ Stock Market has suspended trading of the
Corporation's shares of Common Stock, such suspension continues for a period of
ten (10) Business Days (as defined in
<PAGE>
Section 3(d)(i) below), and such suspension continues on the date on which a
Redemption Notice (as defined in Section 2(c) below) is delivered pursuant to
this Section 2, or (ii) three (3) years from the applicable Original Issuance
Date (as defined in Section 3(d)(i) below) of any share of Series E Preferred,
or (iii) the fifteenth (15th) Business Day prior to the closing of a Change of
Control Transaction (as defined in Section 3(b)(i) below), upon the written
request of any holder of shares of Series E Preferred (the "Preferred
Shareholders") (in the case of subsections 2(a)(i) or (iii) above) or upon the
request of any holder of shares of Series E Preferred (in the case of subsection
2(a)(ii) above), the Corporation shall, to the extent of funds legally available
therefor, redeem any shares of Series E Preferred eligible for redemption for
which a request for redemption has been made. The price per share to be paid by
the Corporation upon redemption of the shares of Series E Preferred pursuant to
this Section 2 shall be an amount (the "Redemption Payment") equal to:
(X) $10,000 per share of Series E Preferred, adjusted
proportionately for any combinations, consolidations or subdivisions of, or
stock distributions with respect to, such share (the "Redemption Price"), plus
(Y) an amount per share equal to two percent (2%) per year of
the Redemption Price, compounded annually and computed from and including the
applicable Original Issuance Date thereof to but excluding the Redemption Date
(as defined below) thereof, plus
(Z) any declared but unpaid dividends thereon from and including
the applicable Original Issuance Date thereof to but excluding the Redemption
Date thereof.
(b) TERMINATION OF REDEMPTION OBLIGATION. The Corporation's
obligation to redeem any share of Series E Preferred pursuant to this Section 2
shall terminate in the event that the Weighted Average Price (as defined in
Section 3(d)(i) below) on thirty (30) consecutive Business Days during the six
(6) month period beginning forty-five (45) Business Days after the applicable
Original Issuance Date for the Series E Preferred shall be greater than seventy
five percent (75%) of the Weighted Average Price for the five (5) Business Days
immediately prior to the applicable Original Issuance Date for the Series E
Preferred.
(c) NOTICE OF REDEMPTION.
(i) Each Preferred Shareholder who holds shares of Series E
Preferred eligible for redemption and desires that the Corporation redeem such
shares shall mail to the principal office of the Corporation by certified mail a
notice of redemption setting forth the number of shares of Series E Preferred
the Preferred Shareholder desires to have redeemed and the form of Redemption
Payment for such shares (either cash or in the form of shares of Common Stock as
set forth in Section 2(e) below) (a "Redemption Notice").
2
<PAGE>
(ii) In the event of a Change in Control Transaction (as defined
in Section 3(b) below), the Corporation shall give written notice (the "Change
In Control Transaction Notice") to the Preferred Shareholders of such
transaction at least fifteen (15) Business Days prior to the closing of such
transaction. Regardless of whether a Change in Control Transaction Notice has
been received, each Preferred Shareholder who holds shares of Series E Preferred
eligible for redemption and desires that the Corporation redeem such shares
shall mail to the principal office of the Corporation within ten (10) Business
Days after the giving of the Change in Control Transaction Notice a written
statement (also a "Redemption Notice") setting forth the number of shares of
Series E Preferred the Preferred Shareholder desires to have redeemed in
connection with to the closing of the Change in Control Transaction.
(iii) If the Corporation's obligation to redeem all or any
portion of the shares of the Series E Preferred to be redeemed is suspended
pursuant to Section 2(f), the shares to be redeemed shall be allocated among all
Preferred Shareholders requesting redemption pro rata based on the number of
shares of Series E Preferred specified in each Redemption Notice.
(d) REDEMPTION DATE. From and after the first Business Day after the
date on which a Redemption Notice is delivered pursuant to this Section 2 (a
"Redemption Date"), except as provided herein, all rights with respect to the
shares designated for redemption for which a Redemption Notice has been received
by the Corporation shall cease and terminate, and such shares shall not
subsequently be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever; PROVIDED, HOWEVER, that if payment of
the total Redemption Payment for any share of Series E Preferred pursuant to
Section 2(e) hereof is not made when due, the Redemption Date for such share of
Series E Preferred shall be postponed for purposes of this Section 2 until such
time as such Redemption Payment has been duly paid.
(e) PAYMENT.
(i) The Preferred Shareholders electing to have shares of Series
E Preferred redeemed shall be entitled to receive the Redemption Payment
therefor upon surrender of the certificates representing such shares, duly
endorsed with signatures guaranteed, at the principal office of the Corporation
or any transfer agent of the Series E Preferred. Any Redemption Payment made in
cash pursuant to this Section 2(e) shall be made in immediately available funds
upon surrender of such certificates prior to 12:00 P.M. local time at the
principal office of the Corporation or any transfer agent of the Series E
Preferred, and shall be made in next day funds upon surrender of such
certificates after 12:00 P.M. local time at the principal office of the
Corporation or any transfer agent of the Series E Preferred. In the event fewer
than all the shares represented by any such certificate are redeemed, the
Corporation shall cause to be issued a new certificate representing the
unredeemed shares. No fractional shares shall be redeemed.
(ii) Subject to Section 2(f) below, the Corporation shall pay the
Redemption Payment in cash or in shares of Common Stock of the Corporation in
accordance
3
<PAGE>
with the applicable Redemption Notice and the further provisions of this Section
2(e)(ii). In the event that the Preferred Shareholders elect to receive such
Redemption Payment in shares of Common Stock then the number of shares of Common
Stock issued shall be determined as follows:
(1) If such Redemption Notice is made pursuant to the
provisions of Section 2(a)(i) above, then the number of shares of Common Stock
shall be equal to the Redemption Payment divided by fifty percent (50%) of the
fair market value per share of Common Stock on the Redemption Date. The Afair
market value" per share of the Common Stock shall be the price per share
determined by an independent appraiser chosen by mutual agreement of the
Corporation and the holders of a majority of the then outstanding shares of
Series E Preferred.
(2) If such Redemption Notice is made pursuant to the
provisions of Sections 2(a)(ii) or (iii) above, then the number of shares of
Common Stock shall be equal to the Redemption Payment divided by eighty percent
(80%) of the Weighted Average Price for the thirty (30) Business Days
immediately preceding to the Redemption Date for such share.
(f) PAYMENT IN VIOLATION OF CORPORATIONS CODE. The Corporation's
obligation to redeem any Series E Preferred pursuant to this Section 2 is
suspended to the extent that such redemption would violate Sections 500-503 of
the California Corporations Code or any successor legislation or similar
statute. The Corporation shall nevertheless redeem as many shares pursuant to
this Section 2 as it can redeem without violating said statutes, and its
obligation to redeem the remaining shares shall be suspended only until such
time as the Corporation can satisfy in full its obligation pursuant to Section 2
hereof without violating said statutes.
3. CONVERSION. The holders of the Series E Preferred shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHTS TO CONVERT. Each share of Series E Preferred shall be
convertible, at the option of the holder thereof, on any Business Day after the
Original Issuance Date applicable for such share and prior to the close of
business on the applicable Redemption Date as may have been fixed with respect
to such share pursuant to Section 2(d) hereof, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $10,000 by
the applicable Conversion Price (determined as hereinafter provided) in effect
at the time of conversion (the "Conversion Ratio").
(b) AUTOMATIC CONVERSION.
(i) Each outstanding share of Series E Preferred which has not
been previously redeemed shall automatically be converted into fully paid and
non-assessable shares
4
<PAGE>
of Common Stock at its then effective Conversion Ratio immediately prior to the
closing of a merger or consolidation of the Corporation with any other
corporation (a "Change in Control Transaction"), other than a merger or
consolidation which would result in the voting securities of the Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or the closing of a
sale or disposition by the Corporation of all or substantially all the
Corporation's assets (other than to a subsidiary or subsidiaries of the
Corporation).
(c) MECHANICS OF CONVERSION.
(i) OPTIONAL CONVERSION. A Preferred Shareholder may exercise
the right of conversion pursuant to Section 3(a) hereof by delivering written
notice to the Corporation specifying the number of shares of Series E Preferred
to be converted into Common Stock and surrendering certificates representing
such shares, properly endorsed with signatures guaranteed, at the principal
office of the Corporation or any transfer agent of the Series E Preferred. The
conversion of shares of Series E Preferred into Common Stock pursuant to Section
3(a) hereof shall be deemed to occur immediately before the close of business on
the date of surrender of certificates duly endorsed with signatures guaranteed
representing the shares of Series E Preferred to be converted (an "Optional
Conversion Date"), and a person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as a record
holder of such shares of Common Stock from and including such date.
(ii) AUTOMATIC CONVERSION. The conversion of the Series E
Preferred to Common Stock pursuant to Section 3(b) hereof shall be deemed to
occur immediately before the close of business on the date of closing of the
transaction referred to in Section 3(b), regardless of when the Preferred
Shareholders surrender their certificates representing the Series E Preferred.
A person entitled to receive shares of Common Stock issuable upon such
conversion (an "Automatic Conversion Date") shall be treated for all purposes as
a record holder of such shares of Common Stock from and including such date,
except that such person shall not be entitled to issuance of a certificate
representing such Common Stock until certificates duly endorsed with signatures
guaranteed representing the converted Series E Preferred have been duly
surrendered. In connection with an automatic conversion, the Corporation shall
promptly provide the holders of Series E Preferred notice of automatic
conversion setting forth: (A) a reasonably detailed summary of the nature of
the transaction giving rise to such automatic conversion; (B) the number of
shares of Series E Preferred that have been converted pursuant to this Section
3(c)(ii); (C) the computation of the Conversion Ratio used by the Corporation in
the conversion of such shares of Series E Preferred; (D) the number of shares of
Common Stock yielded by the conversion of such shares of Series E Preferred and
(E) the date from which such holder shall be treated as the holder of such
shares of Common Stock.
5
<PAGE>
(iii) ISSUANCE OF COMMON STOCK CERTIFICATE. The Corporation
shall, within five (5) Business Days after receipt of a certificate duly
endorsed with signatures guaranteed representing converted shares of Series E
Preferred pursuant to Sections 3(c)(i) or (ii) above, but not before the
applicable Automatic Conversion Date, as the case may be, if later, issue and
deliver at the principal office of the person entitled to delivery thereof a
certificate for the number of shares of Common Stock to which such person is
entitled and a check payable to such person in the amount of any cash payable in
lieu of any fractional shares of Common Stock.
(d) CONVERSION PRICE.
(i) DEFINITIONS. The following definitions shall apply:
(1) "BUSINESS DAY" shall mean any calendar day on which the
NASDAQ Stock Market or banks in the City of New York are open for business.
(2) "ORIGINAL ISSUANCE DATE" shall mean the date on which
the first share of Series E Preferred was originally issued by the Corporation.
(3) "WEIGHTED AVERAGE PRICE" shall mean, with respect to
any specified time period, the arithmetic average of the daily volume-weighted
average sale prices (rounded to the nearest tenth of a cent) of the shares of
Common Stock of the Corporation sold on the NASDAQ Stock Market, as reported by
Bloomberg L.P., or, if Bloomberg L.P. is not then reporting such information,
any successor service mutually agreed upon by the Corporation and the holders of
a majority of the then outstanding shares of Series E Preferred.
(ii) DETERMINATION OF CONVERSION PRICE. The Conversion Price,
with respect to each share of Series E Preferred shall be determined as follows:
(1) In the event that such share of Preferred Stock shall
be converted at any time on or prior to six (6) months from the applicable
Original Issuance Date, the Conversion Price for such share shall be equal to
one hundred one percent (101%) of the Weighted Average Price for the thirty (30)
Business Days ending two (2) Business Days prior to such conversion; provided,
however, that in no event shall such Conversion Price be greater than one
hundred fifteen percent (115%) of the Weighted Average Price for the first five
(5) of such thirty (30) Business Days.
(2) In the event that such share of Series E Preferred
shall be converted at any time after six (6) months from the applicable Original
Issuance Date, the Conversion Price for such share shall be equal to the lesser
of (A) one hundred fifteen percent (115%) of the Weighted Average Price for the
five (5) Business Days ending immediately prior to the applicable Original
Issuance Date for such share, or (B) one hundred one percent (101%) of the
Weighted Average Price for the last thirty (30) Business Days of the period
ending six (6) months after the applicable Original Issuance Date for such
share.
6
<PAGE>
(e) STOCK SPLITS, DIVIDENDS, RECLASSIFICATION, AND RECAPITALIZATION.
In the event the Corporation effects a split, subdivision, combination, or
consolidation of its Common Stock, whether by reclassification, distribution of
a dividend with respect to the outstanding Common Stock payable in shares of
Common Stock, or otherwise, or any recapitalization of the Common Stock,
provision shall be made (including adjustment of the applicable Conversion Price
then in effect and the number of shares of Common Stock issuable upon conversion
of the Series E Preferred) so that the Preferred Shareholders shall thereafter
be entitled to receive, upon conversion of the Series E Preferred, the number of
shares of stock or other securities or property of the Corporation or otherwise
to which a holder of Common Stock, holding the number of shares issuable upon
conversion of the Series E Preferred held by such Preferred Shareholder before
such event, would be entitled on such event. If the Common Stock issuable upon
conversion of the Series E Preferred shall be changed into the same or a
different number of shares of any other class or classes of stock or other
securities or property, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions of this Section
(including adjustment of the applicable Conversion Price then in effect and the
number of shares of Common Stock issuable upon conversion of the Series E
Preferred) with respect to the rights and interest thereafter of the Preferred
Shareholders, to the end that the provisions of this Section shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon conversion of the Series E
Preferred.
(f) NO IMPAIRMENT. The Corporation shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but shall at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Series E Preferred.
(g) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series E Preferred, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series E Preferred. If at any time the number of
authorized but unissued shares of Common Stock is not sufficient to effect the
conversion of all the then outstanding shares of Series E Preferred, the
Corporation shall forthwith take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient to such purpose.
(h) FRACTIONAL SHARES. No fractional shares shall be issued upon the
conversion of any share of Series E Preferred. All shares of Common Stock
(including fractions)
7
<PAGE>
issuable upon conversion of more than one share of Series E Preferred by a
holder of such stock shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after such
aggregation, the conversion would result in the issuance of a fractional share
of Common Stock, the Company shall, in lieu of issuing the fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors of the Corporation).
4. VOTING RIGHTS. Except as otherwise required by law or by Section 5
hereof, the holders of Common Stock shall have and possess the exclusive right
to notice of shareholders' meetings, and the exclusive voting rights and powers,
and the Preferred Shareholders shall not be entitled to notice of any
shareholders' meeting or to vote on the election of directors or on any other
matter.
5. PROTECTIVE PROVISIONS. The Corporation shall not do any of the things
set forth in this Section without first obtaining the approval of the holders of
at least a majority of the total number of shares of Series E Preferred
outstanding.
(a) CREATE NEW SECURITIES. For so long as at least 100 shares of
Series E Preferred (as adjusted proportionally for any combinations,
consolidations or subdivisions of, or stock distributions with respect to, such
shares) remain outstanding, create any new class or series of shares which would
rank senior to or, except as provided in Section 5(d) below, pari passu with,
the Series E Preferred with respect to the right to receive dividends, if any,
when due, redemption and distribution of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary;
(b) CHANGE RIGHTS OR AUTHORIZE SHARES. Alter or change the rights,
preferences, privileges, or restrictions of or on the Series E Preferred, or
increase or decrease the authorized number of shares of Series E Preferred; or
(c) AMEND CHARTER. Amend or repeal any provision of, or add any
provision to, this Corporation's Articles of Incorporation or Bylaws if such
action would adversely affect the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, the Series E Preferred.
(d) Notwithstanding any of the provisions of Section 5(a) above to
the contrary, for so long as at least 100 shares of Series E Preferred (as
adjusted proportionally for any combinations, consolidations or subdivisions of,
or stock distributions with respect to, such shares) remain outstanding, the
Corporation may create any new class or series of shares with such terms
(including the timing and amount of any dividend payment) as may be determined
by the Board of Directors which would rank pari passu with the Series E
Preferred in all cases as to the right to receive dividends, if any, when due,
redemption and distribution of assets upon liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, provided, however, that
(i) the Corporation may not issue more than $12,000,000 worth of shares
8
<PAGE>
of such new class or series without the prior approval of the holders of a
majority of the then outstanding shares of Series E Preferred voting together as
a single class, (ii) immediately upon issuance of any such shares Section 2(b)
above shall be of no further force and effect, as if it never had been a part of
this Certificate, and (iii) the Corporation shall give written notice to the
Preferred Shareholders of any such issuance within five (5) Business Days after
the date of issuance of such shares.
6. NOTICES. Any notice required by the provisions of this Certificate to
be given shall be deemed delivered upon the sooner of actual receipt or three
days after deposit in the Untied States mail if sent by certified mail, return
receipt requested, postage prepaid, or one day after deposit with an overnight
delivery service, charges prepaid, and if to the Preferred Shareholders or any
of them addressed to such holders of record at the addresses appearing on the
books of the Corporation, and if to the Corporation addressed to its principal
offices, to the attention of the Secretary of the Corporation.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this Corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Determination
of Rights, Preferences and Privileges in accordance with the foregoing
resolution and the provisions of California law and to take such actions as they
may deem necessary or appropriate to carry out the intent of the foregoing
resolution."
C. That the authorized number of shares of Series E Preferred of the
Corporation is 200, the number of shares constituting the Series E Preferred
(that is the series created by this Certificate and the resolution set forth
above) is 200 and that no such Series E Preferred has been issued.
D. That (i) on December 29, 1995 the Corporation issued 500,000 shares of
Series A Preferred Stock (the "Series A Preferred Stock"), (ii) on July 9, 1996
the Corporation issued 500,000 shares of Series B Preferred Stock (the "Series B
Preferred Stock"), and (iii) on July 9, 1996 the Corporation issued 500,000
shares of Series C Preferred Stock (the "Series C Preferred Stock"). As of the
date hereof, all of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock has been converted to Common Stock and no shares of the
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
remain outstanding. Accordingly, no vote by the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred stock was required to approve the
rights, preferences, privileges or restrictions of the Series E Preferred Stock
authorized pursuant to this Certificate.
[SIGNATURE PAGE FOLLOWS]
9
<PAGE>
We further declare under penalty of perjury under the laws of this State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Date: December 16, 1996.
--------------------------------------------
James A. Watts, Jr.
Vice President of Finance and Administration
and Chief Financial Officer
--------------------------------------------
Steven L. Berson, Assistant Secretary
10
<PAGE>
EXHIBIT 11
ROSS SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary Earnings:
Net earnings (loss) $ 807 $ (202) $ 1,303 $ (3,793)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average shares outstanding
during the period 18,471 14,336 18,161 14,322
Common and common stock equivalent
shares using the treasury stock method 599 - 413 -
---------- ---------- ---------- -----------
Total shares outstanding for purposes of calculating
primary earnings (loss) per share 19,070 14,336 18,574 14,322
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Primary earnings (loss) per common
and common stock equivalent share $ 0.04 $ (0.01) $ 0.07 $ (0.26)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Fully Diluted Earnings: (*)
Net earnings (loss) $ 807 $ (202) $ 1,303 $ (3,793)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average shares outstanding
during the period 18,471 14,336 18,161 14,322
Common and common stock equivalent
shares using the treasury stock method 913 - 883 -
---------- ---------- ---------- -----------
Total shares outstanding for purposes of calculating
fully diluted earnings (loss) per share 19,384 14,336 19,044 14,322
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Fully diluted earnings (loss) per common
and common stock equivalent share $ 0.04 $ (0.01) $ 0.07 $ (0.26)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
(*)This calculation for FY 1996 is submitted in accordance with Securities
Exchange Act of 1934 Realease No. 9083 although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in dilution of less than
3%.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 FINANCIAL STATEMENTS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q
FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,951
<SECURITIES> 0
<RECEIVABLES> 30,543
<ALLOWANCES> 1,795
<INVENTORY> 0
<CURRENT-ASSETS> 32,763
<PP&E> 18,665
<DEPRECIATION> 13,747
<TOTAL-ASSETS> 62,942
<CURRENT-LIABILITIES> 37,133
<BONDS> 0
0
0
<COMMON> 72,751
<OTHER-SE> (47,276)
<TOTAL-LIABILITY-AND-EQUITY> 62,942
<SALES> 18,555
<TOTAL-REVENUES> 18,555
<CGS> 855
<TOTAL-COSTS> 7,782
<OTHER-EXPENSES> 9,306
<LOSS-PROVISION> 367
<INTEREST-EXPENSE> 201
<INCOME-PRETAX> 899
<INCOME-TAX> 92
<INCOME-CONTINUING> 807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 807
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
