<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
STERLING COMMERCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2623341
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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8080 NORTH CENTRAL EXPRESSWAY, SUITE 1100
DALLAS, TEXAS 75206
(214) 891-8680
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JEANNETTE P. MEIER
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
STERLING COMMERCE, INC.
8080 NORTH CENTRAL EXPRESSWAY, SUITE 1100
DALLAS, TEXAS 75206
(214) 891-8680
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
ROBERT L. ESTEP JEFFREY A. CHAPMAN
JAMES E. O'BANNON JAY H. HEBERT
JONES, DAY, REAVIS & POGUE VINSON & ELKINS L.L.P.
2300 TRAMMELL CROW CENTER 3700 TRAMMELL CROW CENTER
2001 ROSS AVENUE 2001 ROSS AVENUE
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
(214) 220-3939 (214) 220-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 14,375,000 $35.50 $510,312,500 $154,641
</TABLE>
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(1) Includes 1,875,000 shares which the Underwriters have the option to
purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee under
Rule 457(c).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JANUARY 28, 1997
[STERLING COMMERCE LOGO]
12,500,000 Shares
Common Stock
All of the shares of Common Stock offered hereby (the "Offering") are being
sold by Sterling Commerce, Inc. (together with its subsidiaries, the
"Company"). The Company's Common Stock is traded on the New York Stock Exchange
(the "NYSE") under the symbol "SE." On January 27, 1996, the last reported sale
price for the Common Stock on the NYSE was $35.00 per share. See "Price Range
of Common Stock and Dividend Policy."
--------
SEE "RISK FACTORS" COMMENCING ON PAGE 6 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
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Total(3)................................. $ $ $
</TABLE>
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(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,875,000 additional shares of Common Stock solely to cover over-
allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
Alex. Brown & Sons Goldman, Sachs & Co.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the public reference
facilities maintained by the Commission at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials can also be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission and that is located at http://www.sec.gov. Documents filed by the
Company can also be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain of the information contained
in the Registration Statement, and reference is hereby made to the
Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the Common Stock offered hereby.
Any statements contained herein concerning the provisions of any document are
not necessarily complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus (i) the
Company's Annual Report on Form 10-K for the period ended September 30, 1996,
as amended (the "1996 Form 10-K"), and (ii) the Company's Current Reports on
Form 8-K dated September 30, 1996 and December 18, 1996.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
Offering made hereby, shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such reports.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
exhibits expressly incorporated in such documents by reference). Requests
should be directed to: Sterling Commerce, Inc., 8080 North Central Expressway,
Suite 1100, Dallas, Texas 75206 (telephone: (214) 891-8680) prior to February
24, 1997, and thereafter at 300 Crescent Court, Suite 1200, Dallas, Texas
75201 (telephone: (214) 981-1100), Attention: Dawn C. Wheeler, Vice President,
Investor Relations.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements included elsewhere or
incorporated by reference in this Prospectus. This Prospectus (including the
documents incorporated by reference herein) contains forward-looking statements
that are based on the beliefs of, and estimates and assumptions made by and
information currently available to, the Company's management. Such statements
are subject to certain risks, uncertainties and assumptions. Actual results may
vary materially from those expected or anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this Prospectus. See "Certain Forward-Looking
Statements."
THE COMPANY
The Company is a leading provider of electronic data interchange ("EDI") and
other electronic commerce ("EC") products and services worldwide. The Company
develops, markets and supports electronic commerce software products and
provides electronic commerce services that enable businesses to engage in
business-to-business electronic communications and transactions. The Company
has been providing electronic commerce solutions for over 20 years and has
numerous customers in a broad range of industries including banking,
pharmaceuticals and retailing. As of September 30, 1996, the Company's
customers included 96 of the 100 largest U.S. industrial corporations, as
ranked by 1995 sales in Fortune magazine, and 99 of the top 100 U.S. commercial
banks, as ranked by deposits as of December 31, 1995, in American Banker
magazine. Selected customers of the Company include Cummins Engine Company,
Mobil Corporation, NationsBanc Services, Inc., The Pillsbury Company and Target
Stores.
Electronic commerce involves the automation of business-to-business
transactions through the use of telecommunications and computers to exchange
and process electronically commercial information and business transaction
documents. Due to the critical nature of these transactions, electronic
commerce requires reliable, secure, automated connectivity between businesses.
Electronic commerce typically involves software and value-added services to
perform essential business functions such as EDI, which facilitates uniform
communications with different trading partners, including suppliers, customers,
transportation carriers, banks and governmental agencies. In addition,
electronic commerce includes value-added services such as e-mail, electronic
funds transfer, electronic forms and bulletin board and catalog services.
Currently, EDI is the most widely utilized component of electronic commerce.
Advantages of electronic commerce include reduced clerical workload and
elimination of unnecessary paper handling; rapid, accurate and secure exchange
of time sensitive business information; reduced operating and inventory
carrying costs; and improved speed of ordering, delivering and paying for goods
and services.
The Company offers a comprehensive range of electronic commerce products and
services for the electronic commerce market. The Company continually strives to
understand the business requirements of the global electronic commerce market;
to address these requirements with flexible, reliable and secure electronic
commerce solutions; and to deliver these solutions in an effective and
efficient manner. The Company believes that many of today's business
organizations operate as extended enterprises that not only include an entity's
divisions, plant sites and sales offices, but also involve close partnering
relationships with customers, suppliers, banks and other trading partners. The
foundation for transacting business electronically is reliable and secure
communications software. Upon this foundation, solutions are provided for
messaging management, translation, managed services and automated payment
integration. The Company provides all of these solutions, among others, to
support the extended enterprise.
3
<PAGE>
The Company operates through five separate groups, four of which offer
distinct families of products and services in the United States and Canada and
one of which markets electronic commerce services and related products outside
of the United States and Canada. The Company believes that its decentralized
organizational structure promotes operating flexibility, improves
responsiveness to customer requirements and focuses management on achieving
revenue and profit objectives. The Commerce Services Group is a leading
provider of electronic commerce services and related software products, offered
under the COMMERCE family name, that facilitate the electronic exchange of
business transactions among multiple trading partners. The Interchange Software
Group is a leading provider of electronic commerce translation and gateway
messaging software, which makes message management and communications possible
across diverse systems. These products are marketed under the GENTRAN family
name. The Communications Software Group offers automated file transfer and
communications management solutions under the CONNECT family name that provide
the infrastructure for an enterprise's electronic commerce system. The Banking
Systems Group, with its VECTOR family of products, is a leading provider of
item processing and electronic payments software and related services for
financial institutions. The International Group markets electronic commerce
services and related software products outside of the United States and Canada,
primarily in Europe.
Prior to the Company's initial public offering in March 1996, the Company was
a wholly owned subsidiary of Sterling Software, Inc. (together with its
subsidiaries, "Sterling Software"). In September 1996, Sterling Software
declared a special dividend to its stockholders consisting of the distribution
(the "Distribution") of all shares of the Company's Common Stock then owned by
Sterling Software. As a result, effective September 30, 1996, the Company
ceased to be a subsidiary of Sterling Software. Under the International
Marketing Agreement, Sterling Software currently acts as the exclusive
distributor of the Company's interchange and communications software products
in markets outside the United States and Canada. See "Business--Sales and
Marketing " and "--Shared Management and Contractual Arrangements with Sterling
Software."
The Company's principal executive offices are currently located at 8080 North
Central Expressway, Suite 1100, Dallas, Texas 75206, and its telephone number
is (214) 891-8680. Effective February 24, 1997, the Company's principal
executive offices will be located at 300 Crescent Court, Suite 1200, Dallas,
Texas 75201 and its telephone number will be (214) 981-1100.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby................ 12,500,000
Common Stock to be outstanding after
the Offering (1).......................... 87,500,000
Use of proceeds by the Company............. Working capital and general corporate purposes,
including possible acquisitions
NYSE symbol................................ SE
</TABLE>
- --------
(1) Excludes the effects of the possible future issuance of up to 18,336,400
additional shares of Common Stock available for issuance pursuant to the
Company's 1996 Stock Option Plan as of December 31, 1996. See "Description
of Capital Stock--General."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,(1)
-------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $88,926 $117,813 $155,916 $203,578 $267,773
Income before restructuring
charge, other income and expense
and income taxes................ 14,933 29,001 46,405 72,028 95,205
Net income....................... 8,983 15,194 27,753 42,930 58,392
Pro forma earnings per common
share(2)........................ $ 0.59
Earnings per common share........ $ 0.77
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 77,159 $498,847
Total assets.......................................... 241,680 663,368
Stockholders' equity(3)............................... 138,187 559,875
</TABLE>
- --------
(1) The financial data reflect the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," for all
periods presented. The Company's operations have historically been included
in consolidated income tax returns filed by Sterling Software. Income tax
expense has been computed as if the Company filed separate income tax
returns.
(2) Assumes that 73,200,000 shares of Common Stock were outstanding.
(3) Excludes the effects of the possible future issuance of up to 18,336,440
additional shares of Common Stock available for issuance pursuant to the
Company's 1996 Stock Option Plan as of December 31, 1996. See "Description
of Capital Stock--General."
(4) Adjusted to give effect to the 87,500,000 shares of Common Stock assumed to
be outstanding after the Offering and the receipt by the Company of
approximately $421.7 million of net proceeds from the assumed sale by the
Company of 12,500,000 shares of Common Stock pursuant to the Offering, at
an assumed public offering price of $35.00 per share.
----------------
Except as otherwise indicated, the information in this Prospectus assumes
that the Underwriters' over-allotment option is not exercised. See
"Underwriting."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.
Competition. The electronic commerce market is very competitive. Numerous
companies supply electronic commerce products and services, and several
competitors target specific customer requirements for which the Company
presently is, or may seek to become, a provider. The Company's competitors
include both large companies with substantially greater resources than the
Company and small, specialized companies that compete in one or more
particular market niches. Competitors that offer products and/or services that
compete with various of the Company's products and services include, among
others, Advantis Systems, Inc. (a joint venture between Sears, Roebuck & Co.
and IBM); AT&T; Computer Associates International, Inc.; EDS; General Electric
Information Systems; Harbinger Corporation; Premenos Technology Corp.;
QuickResponse Services, Inc.; and a joint venture between British
Telecommunications Plc and MCI Communications Corporation; as well as the
internal programming staffs of various businesses engaging in electronic
commerce.
The Company expects competition to increase in the future from both existing
competitors and other companies that may enter the Company's existing or
future markets. The Company believes that its ability to compete successfully
in the electronic commerce market depends on numerous factors, both within and
outside its control, including product performance, functionality and
reliability, price and customer service and support. There can be no assurance
that new or established competitors will not offer products and services that
are superior to and/or lower in price than those of the Company. In addition,
the Company could face increased competition to the extent the Internet gains
further acceptance as a method of conducting electronic commerce. See "--The
Internet" and "Business--Competition."
Factors Affecting Operating Results; Potential Fluctuations in Quarterly
Results. The Company's future quarterly operating results may vary and reduced
levels of earnings or losses could be experienced in one or more quarters.
Fluctuations in the Company's quarterly operating results could result from a
variety of factors, including changes in the levels of revenues derived from
sales of software products and electronic commerce services, the timing of new
product and service announcements by the Company or its competitors, changes
in pricing policies by the Company or its competitors, market acceptance of
new and enhanced versions of the products and services of the Company or its
competitors, the size and timing of significant orders, changes in operating
expenses, changes in the Company's strategy, the introduction of alternative
technologies, the effect of potential acquisitions and industry and general
economic factors. The Company has limited or no control over many of these
factors. In addition, a somewhat greater portion of the Company's revenues
tends to be recognized in the fourth fiscal quarter as a result of a number of
factors, including the Company's incentive compensation structure for its
sales personnel (under which, opportunities to earn higher commissions
applicable to sales in excess of annual quotas and to realize other benefits
associated with the achievement of such quotas are at their greatest during
the fourth fiscal quarter). In 1995 and 1996, approximately 29.7% and 30.0%,
respectively, of the Company's total revenues were recognized in the fourth
fiscal quarter. See "Selected Financial Data--Quarterly Results of
Operations."
The Company operates with virtually no product order backlog because its
software products typically are shipped shortly after orders are received. As
a result, revenues in any quarter are substantially dependent on the quantity
of such products licensed in that quarter. The Company's expense levels are
based, in part, on its expectations as to future revenues. If revenue levels
are below expectations, the Company's operating results are likely to be
adversely affected unless the Company is willing and able to reduce its
expenses proportionally. As a result of the foregoing factors, comparisons of
results of operations between particular periods are not necessarily
meaningful and historical results of operations are not necessarily indicative
of future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Company's 1996 Form 10-K
and incorporated herein by reference.
6
<PAGE>
Technological Change; Dependence on New Products and Related Risks. The
electronic commerce industry is characterized by rapid technological change,
frequent new product and service introductions and evolving industry
standards. The Company's future success will depend in significant part on its
ability to anticipate industry standards, continue to apply advances in
electronic commerce product and service technologies, enhance existing
products and services and introduce and acquire new products and services on a
timely basis to keep pace with technological developments. There can be no
assurance that the Company will be successful in developing, acquiring or
marketing new or enhanced products or services that respond to technological
change or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
acquisition or marketing of such products or services or that its new or
enhanced products and services will adequately meet the requirements of the
marketplace and achieve market acceptance. Any delay or failure in the
introduction of new or enhanced products or services, or the failure of such
products or services to achieve market acceptance, could have a material
adverse effect on the business, results of operations and financial condition
of the Company.
Software products as complex as those used in the electronic commerce
industry may contain undetected errors or failures when first introduced or
when new versions are released. If software errors are discovered after
introduction, the Company could experience delays or lost revenues during the
period required to correct these errors. There can be no assurance that,
despite testing by the Company and by current and potential customers, errors
will not be found in new products or releases after commencement of commercial
shipments, resulting in loss of, or delay in, market acceptance, which could
have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Business--Product Development."
Growth Through Acquisitions. The Company's growth has been significantly
enhanced through acquisitions of other businesses, products and licenses.
Following the Offering, the Company will have significant cash resources,
which may be used for acquisitions. The inability of the Company to make
appropriate acquisitions on attractive terms (whether for cash, Company
securities or both) could make it more difficult for the Company to achieve
growth levels consistent with those historically achieved. Moreover, there can
be no assurance as to the Company's ability to make appropriate acquisitions,
the timing thereof or the ultimate benefits therefrom to the Company.
Furthermore, the Company will not be eligible to account for any acquisition
as a pooling of interests prior to October 1998, two years following the
completion of the Distribution. The use of the purchase method of accounting
for an acquisition may result in the recording of goodwill, which would be
required to be amortized by the Company over a period of time. Such
amortization would reduce the Company's reported earnings and, consequently,
could adversely affect the market price of the Common Stock.
The Internet. The Internet is an interconnected global network of computer
systems linked together through a common protocol. The Company and certain of
its existing competitors have introduced products and services that are
intended to enable businesses to engage in electronic commerce over the
Internet, and other companies are expected to do so in the future. The use of
the Internet as a vehicle for electronic commerce raises numerous issues,
including reliability, data security and data integrity, and has not yet
become widely accepted. There can be no assurance that any such products and
services introduced by the Company will adequately meet the requirements of
the marketplace or achieve market acceptance. Moreover, new competitors, which
could include media and telecommunications companies, may increasingly offer
products and services that utilize the Internet in competition with the
Company's product and service offerings. To the extent that the Internet gains
further acceptance as a method of conducting electronic commerce, the Company
believes that the Internet will provide the Company with expanded
opportunities. However, there can be no assurance that the Company's efforts
to exploit any such opportunities will be successful or that any increased
usage of the Internet for electronic commerce or increased competition will
not adversely affect the business, results of operations and financial
condition of the Company.
International Growth and Marketing. Historically, sales of the Company's
electronic commerce services and related products outside the United States
and Canada have not been significant. The Company's ability to successfully
expand its services business internationally will depend upon, among other
things, its ability to attract and retain both talented and qualified
managerial, technical and sales
7
<PAGE>
personnel and electronic commerce services customers outside the United States
and Canada and its ability to continue to effectively manage its domestic
operations while focusing on international expansion. Moreover, the Company's
ability to successfully implement its international services strategy will
require additional improvements to its infrastructure and management
information systems, particularly its international customer support systems.
International operations are subject to certain inherent risks, including
unexpected changes in regulatory requirements and tariffs, longer payment
cycles, increased difficulties in collecting accounts receivable and
potentially adverse tax consequences. To the extent international sales are
denominated in foreign currencies, gains and losses on the conversion to U.S.
dollars of accounts receivable and accounts payable arising from international
operations may contribute to fluctuations in the Company's results of
operations. The Company has not entered into any hedging or other arrangements
for the purpose of guarding against the risk of currency fluctuations but will
consider entering into such arrangements should its exposure to such risk
increase significantly. In addition, sales in Europe and certain other parts of
the world typically are adversely affected in the third calendar quarter of
each year because many customers reduce their business activities in the summer
months. See "Business--Sales and Marketing."
Pursuant to an agreement between the Company and Sterling Software (the
"International Marketing Agreement"), Sterling Software acts as the exclusive
distributor (directly and through subdistributors) of the Company's interchange
and communications software products in markets outside the United States and
Canada and is responsible for sales, marketing and first level support of such
products in those markets. The International Marketing Agreement, which expires
in March 1999, provides for the payment to the Company of royalties equal to
50% of the revenue that Sterling Software derives from licenses of the
Company's interchange and communications software products and related product
support services, with the balance of such revenue to be retained by Sterling
Software. During fiscal 1996, the Company received aggregate royalties from
Sterling Software of approximately $20.7 million. See "Business--Shared
Management and Contractual Arrangements with Sterling Software."
Ability to Attract Qualified Personnel. The Company's business is dependent
upon its ability to attract and retain highly qualified managerial, technical
and sales personnel. Competition for such personnel is intense. There can be no
assurance that the Company can retain its key managerial, technical and sales
personnel or that it can attract, assimilate or retain such personnel in the
future. The inability of the Company to attract and retain such personnel could
have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Business--Employees" and "--Shared
Management and Contractual Arrangements with Sterling Software."
Dependence on Data Center. The operations of the Company's Commerce Services
Group are dependent upon the Company's ability to protect its computer
equipment and the information stored in its data center against damage that may
be caused by fire, power loss, telecommunications failures, unauthorized
intrusion, computer viruses and disabling devices and other similar events. The
Company is party to a disaster recovery agreement that provides an alternative
off-site computer system for use in such disastrous events, and the Company has
taken precautions to protect itself and its customers from events that could
interrupt delivery of certain of the Company's electronic commerce services.
These precautions include, among others, backup power generation equipment,
fire protection and physical security systems and an early warning detection
and fire extinguishing system. Notwithstanding such precautions, there can be
no assurance that a fire or other natural disaster, including national,
regional or local telecommunications disruptions, would not result in a
prolonged disruption of the Company's electronic commerce services. The Company
is currently covered under a business interruption insurance policy. However,
even if lost revenues or increased costs experienced by the Company during the
pendency of any disruption of its services business were substantially
recovered under any such insurance policy (as to which, depending upon the
circumstances, there can be no assurance), longer term revenue losses not
recoverable under such policies could result from possible losses of customers
and, consequently, could have a material adverse effect on the business,
results of operations and financial condition of the Company.
8
<PAGE>
Limited Protection of Proprietary Technology; Risks of Infringement and Loss
of Licenses. The Company relies primarily on a combination of copyright,
patent and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect its intellectual property rights. The
Company seeks to protect its software, documentation and other written
materials principally under trade secret and copyright laws, which afford only
limited protection. The Company routinely enters into non-disclosure and
confidentiality agreements with employees, contractors, consultants and
customers. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or
to obtain and use information that the Company regards as proprietary. There
can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not
independently develop similar technology. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as the laws of the United States. The Company does not believe that any
of its products infringe on the proprietary rights of third parties in any
material respect. There can be no assurance, however, that third parties will
not claim infringement by the Company with respect to current or future
products. Any such claim, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect on the
business, results of operations and financial condition of the Company.
Licenses for a number of software products have been granted to the Company
for its own use or for remarketing to its customers. In the aggregate, these
licenses are material to the business of the Company. Although management
believes that the risk that the Company will lose a significant number of
licenses is remote, such a loss could have a material adverse effect on the
business, results of operations and financial condition of the Company. See
"Business--Intellectual Property Rights."
Relationship with Sterling Software. Four of the directors of the Company
are also directors of Sterling Software. In addition, three of the executive
officers of the Company are also executive officers of Sterling Software.
Accordingly, such persons do not expend all of their professional time on
behalf of the Company and may have conflicts of interest with respect to
matters potentially or actually involving or affecting the Company and
Sterling Software. Further, the Company and Sterling Software entered into a
number of agreements in anticipation of the Company's initial public offering.
As a result of Sterling Software's then-existing ownership in the Company, the
terms of such agreements were not the result of arm's-length negotiations. See
"Business--Shared Management and Contractual Arrangements with Sterling
Software."
Government Regulatory and Industrial Policy Risks. Current U.S. and Canadian
regulations and laws governing the telecommunications industry generally do
not apply to providers of electronic commerce services and products. Except
for government regulations in certain foreign countries (which may affect the
provision of certain of the Company's services or use of certain of its
products) and regulations governing the ability of the Company to disclose the
contents of communications by its customers, there are no government
regulations pertaining to the pricing, service characteristics or
capabilities, geographic distribution or quality control features of the
Company's electronic commerce services or products. There exists, however, the
risk that governmental policies affecting the electronic commerce industry
could be implemented by executive order, legislation, administrative order or
otherwise. If such policies are adopted, they could have a material adverse
effect on the business, results of operations and financial condition of the
Company.
Although the Company does not believe that import and export control
regulations currently create significant impediments to the Company's
international growth strategy, such regulations are applicable to certain of
the Company's software products, and could interfere with such growth in the
future. See "Business--Government Regulations."
9
<PAGE>
Certain Antitakeover Provisions. The Company's Certificate of Incorporation
and Bylaws and applicable law contain provisions that may have the effect of
delaying, deterring or preventing a change in control of the Company. In
addition, the Company's Certificate of Incorporation authorizes the issuance
of up to 150,000,000 shares of Common Stock and 50,000,000 shares of Preferred
Stock. The Board will have the power to determine the price and terms under
which any such additional capital stock may be issued and to fix the terms of
such Preferred Stock, and existing stockholders of the Company will not have
preemptive rights with respect thereto. The Company has also adopted a Rights
Plan, which is intended to deter certain takeover practices or takeover bids.
See "Description of Capital Stock."
USE OF PROCEEDS
Assuming a public offering price of $35.00 per share, the net proceeds to
the Company from the sale of shares of Common Stock pursuant to the Offering,
after underwriting discounts and commissions and estimated offering expenses,
will be approximately $421.7 million (or approximately $485.0 million if the
over-allotment option is exercised in full). Such net proceeds will be added
to the Company's working capital and used for general corporate purposes,
which may include acquisitions. Pending such use, the Company currently
intends to invest the net proceeds of the Offering in short-term, investment
grade debt securities and other marketable securities. While the Company is
presently in negotiations to acquire a European communications software
company for a cash purchase price of less than $5 million, the Company does
not presently have any material pending acquisitions.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted to give effect to the completion of the
Offering and the receipt by the Company of the estimated net proceeds
therefrom, assuming a public offering price of $35.00 per share. See "Use of
Proceeds." This table should be read in conjunction with the Company's
consolidated financial statements and the other information included and
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt............................................ $ -- $ --
Stockholders' equity:
Preferred Stock, $.01 par value; 50,000,000 shares
authorized............................................. -- --
Common Stock, $.01 par value; 150,000,000 shares
authorized, 75,000,000 shares issued; 87,500,000
issued, as adjusted(1)................................. 750 875
Additional paid-in capital.............................. 98,111 519,674
Retained earnings....................................... 39,326 39,326
-------- --------
Total stockholders' equity............................ 138,187 559,875
-------- --------
Total capitalization................................ $138,187 $559,875
======== ========
</TABLE>
- --------
(1) Excludes the effect of the possible future issuance of up to 18,336,400
additional shares of Common Stock available for issuance pursuant to the
Company's 1996 Stock Option Plan as of December 31, 1996. See "Description
of Capital Stock--General."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock trades on the NYSE under the symbol "SE." The following
table sets forth the high and low sales prices per share of Common Stock as
reported on the NYSE, for all periods since March 8, 1996, the date the Common
Stock began trading on the NYSE on a when issued basis.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Year Ended September 30, 1996:
Quarter Ended:
March 31, 1996................................................ $30 7/8 $28 3/4
June 30, 1996................................................. $45 $30 1/8
September 30, 1996............................................ $37 1/8 $28
Year Ended September 30, 1997:
Quarter Ended:
December 31, 1996............................................. $35 3/4 $25 1/2
March 31, 1997 (through January 27, 1997)..................... $38 5/8 $34 1/2
</TABLE>
On January 27, 1997, the closing sales price of the Common Stock on the NYSE
was $35.00 per share.
The Company's current intention is to retain any available earnings for use
in the operation and expansion of its business. Accordingly, the Company does
not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. Further, under the terms of the Company's Revolving Credit
and Term Loan Agreement, the Company is prohibited from making distributions
in the form of dividends on Common Stock.
11
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the Company's consolidated financial statements and the other information
included or incorporated by reference in this Prospectus. The data for the
years ended September 30, 1994, 1995 and 1996 have been derived from the
audited consolidated financial statements included in the 1996 Form 10-K
incorporated by reference in this Prospectus. See "Incorporation of Certain
Documents by Reference." The data for the year ended September 30, 1993 has
been derived from audited consolidated financial statements of the Company and
the data for the year ended September 30, 1992 has been derived from unaudited
consolidated financial statements of the Company. The unaudited consolidated
financial statements have been prepared by the Company on a basis consistent
with the Company's audited consolidated financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of such data.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,(1)
----------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Products....................... $32,376 $ 43,509 $ 56,291 $ 67,603 $ 87,527
Product support................ 23,268 29,875 37,953 46,190 56,229
Services....................... 28,794 39,523 53,246 78,063 103,269
Royalties from affiliated
companies..................... 4,488 4,906 8,426 11,722 20,748
------- -------- -------- -------- --------
Total revenue................. 88,926 117,813 155,916 203,578 267,773
Costs and expenses:
Cost of sales:
Products and product support... 11,958 15,884 23,020 23,713 28,647
Services....................... 8,635 11,673 13,262 17,837 25,771
------- -------- -------- -------- --------
Total cost of sales........... 20,593 27,557 36,282 41,550 54,418
Product development and
enhancement................... 9,413 6,478 12,497 14,807 15,553
Selling, general and
administrative ............... 43,987 54,777 60,732 75,193 102,597
Restructuring charges.......... -- 3,638 -- -- --
------- -------- -------- -------- --------
Total costs and expenses ..... 73,993 92,450 109,551 131,550 172,568
------- -------- -------- -------- --------
Income before other income
(expense) and income taxes..... 14,933 25,363 46,405 72,028 95,205
Other income (expense).......... 38 (40) (150) (478) 1,217
------- -------- -------- -------- --------
Income before income taxes ..... 14,971 25,323 46,255 71,550 96,422
Provision for income taxes...... 5,988 10,129 18,502 28,620 38,030
------- -------- -------- -------- --------
Net income...................... $ 8,983 $ 15,194 $ 27,753 $ 42,930 $ 58,392
======= ======== ======== ======== ========
Pro forma earnings per common
share(2)....................... $ 0.59
========
Earnings per common share....... $ 0.77
========
<CAPTION>
SEPTEMBER 30,(1)
----------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(3)............. $ 2,485 $ (3,438) $ 2,198 $ 3,692 $ 77,159
Total assets................... 77,319 87,271 100,638 128,978 241,680
Other noncurrent liabilities... 3,639 4,020 6,151 5,680 7,523
Stockholder's net investment... 38,650 37,498 43,051 53,187 --
Stockholders' equity(4)........ -- -- -- -- 138,187
</TABLE>
- --------
(1) The financial data reflect the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," for all
periods presented. The Company's operations have historically been
included in consolidated income tax returns filed by Sterling Software.
Income tax expense has been computed as if the Company filed separate
income tax returns.
(2) Assumes that 73,200,000 shares of Common Stock were outstanding.
(3) Prior to the consummation of the Company's initial public offering in
March 1996, substantially all of the excess cash generated by the
Company's operations was regularly remitted to Sterling Software pursuant
to Sterling Software's centralized cash management program.
(4) Excludes the effects of the possible future issuance of up to 18,336,400
additional shares of Common Stock available for issuance pursuant to the
Company's 1996 Stock Option Plan as of December 31, 1996. See "Description
of Capital Stock--General."
12
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth the Company's statement of operations data
for each of the eight quarters ended September 30, 1996, including such
amounts expressed as a percentage of total revenue. This unaudited quarterly
information has been prepared on the same basis as the Company's audited
consolidated financial statements included in the 1996 Form 10-K incorporated
by reference in this Prospectus and, in the opinion of management, reflects
all adjustments (consisting only of normal recurring entries) necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1994 1995 1995 1995 1995 1996 1996 1996
-------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Products............... $14,346 $13,931 $16,339 $22,987 $16,063 $19,145 $22,295 $30,024
Product support........ 10,466 11,367 11,872 12,485 13,477 13,784 14,093 14,875
Services............... 18,010 18,780 19,957 21,316 23,127 24,463 27,384 28,295
Royalties from
affiliated companies.. 2,274 2,197 3,469 3,782 3,483 4,684 5,453 7,128
------- ------- ------- ------- ------- ------- ------- -------
Total revenue......... 45,096 46,275 51,637 60,570 56,150 62,076 69,225 80,322
Costs and expenses:
Cost of sales:
Products and product
support............... 5,274 5,381 5,893 7,165 6,348 7,081 6,977 8,241
Services............... 4,318 4,267 4,340 4,912 5,568 6,255 6,718 7,230
------- ------- ------- ------- ------- ------- ------- -------
Total cost of sales... 9,592 9,648 10,233 12,077 11,916 13,336 13,695 15,471
Product development and
enhancement........... 3,599 4,032 3,706 3,470 3,288 3,777 4,187 4,301
Selling, general and
administrative........ 17,303 16,535 19,284 22,071 20,255 22,905 27,684 31,753
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............. 30,494 30,215 33,223 37,618 35,459 40,018 45,566 51,525
------- ------- ------- ------- ------- ------- ------- -------
Income before other
income (expense) and
income taxes........... 14,602 16,060 18,414 22,952 20,691 22,058 23,659 28,797
Other income (expense).. (59) (113) (171) (135) (210) 1 521 905
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 14,543 15,947 18,243 22,817 20,481 22,059 24,180 29,702
Provision for income
taxes ................. 5,817 6,379 7,297 9,127 8,192 8,824 9,430 11,584
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 8,726 $ 9,568 $10,946 $13,690 $12,289 $13,235 $14,750 $18,118
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1994 1995 1995 1995 1995 1996 1996 1996
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF REVENUE:
Revenue:
Products............... 31.9% 30.1% 31.6% 38.0% 28.6% 30.8% 32.2% 37.4%
Product support........ 23.2 24.6 23.0 20.6 24.0 22.2 20.4 18.5
Services............... 39.9 40.6 38.7 35.2 41.2 39.4 39.6 35.2
Royalties from
affiliated companies.. 5.0 4.7 6.7 6.2 6.2 7.6 7.8 8.9
------- ------- ------- ------- ------- ------- ------- -------
Total revenue......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of sales:
Products and product
support............... 11.7 11.7 11.4 11.9 11.3 11.4 10.1 10.3
Services............... 9.6 9.2 8.4 8.1 9.9 10.1 9.7 9.0
------- ------- ------- ------- ------- ------- ------- -------
Total cost of sales... 21.3 20.9 19.8 20.0 21.2 21.5 19.8 19.3
Product development and
enhancement........... 8.0 8.7 7.2 5.7 5.9 6.1 6.0 5.3
Selling, general and
administrative........ 38.4 35.7 37.3 36.4 36.1 36.9 40.0 39.5
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............. 67.7 65.3 64.3 62.1 63.2 64.5 65.8 64.1
------- ------- ------- ------- ------- ------- ------- -------
Income before other
income (expense) and
income taxes........... 32.3 34.7 35.7 37.9 36.8 35.5 34.2 35.9
Other income
(expense) ............. (0.1) (0.2) (0.4) (0.2) (0.3) 0.0 0.7 1.1
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 32.2 34.5 35.3 37.7 36.5 35.5 34.9 37.0
Provision for income
taxes ................. 12.9 13.8 14.1 15.1 14.6 14.2 13.6 14.4
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. 19.3% 20.7% 21.2% 22.6% 21.9% 21.3% 21.3% 22.6%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
13
<PAGE>
BUSINESS
The Company is a leading provider of electronic data interchange and other
electronic commerce products and services worldwide. The Company develops,
markets and supports electronic commerce software products and provides
electronic commerce services that enable businesses to engage in business-to-
business electronic communications and transactions. The Company has been
providing electronic commerce solutions for over 20 years and has numerous
customers in a broad range of industries including banking, pharmaceuticals
and retailing. As of September 30, 1996, the Company's customers included 96
of the 100 largest U.S. industrial corporations, as ranked by 1995 sales in
Fortune magazine, and 99 of the top 100 U.S. commercial banks, as ranked by
deposits as of December 31, 1995, in American Banker magazine. Selected
customers of the Company include Cummins Engine Company, Mobil Corporation,
NationsBanc Services, Inc., The Pillsbury Company and Target Stores.
The Company offers a comprehensive range of electronic commerce products and
services for the electronic commerce market. The Company continually strives
to understand the business requirements of the global electronic commerce
market; to address these requirements with flexible, reliable and secure
electronic commerce solutions; and to deliver these solutions in an effective
and efficient manner. The Company believes that many of today's business
organizations operate as extended enterprises that not only include an
entity's divisions, plant sites and sales offices, but also involve close
partnering relationships with customers, suppliers, banks and other trading
partners. The foundation for transacting business electronically is reliable
and secure communications software. Upon this foundation, solutions are
provided for messaging management, translation, managed services and automated
payment integration. The Company provides all of these solutions, among
others, to support the extended enterprise.
The Company operates through five separate groups, four of which offer
distinct families of products and services in the United States and Canada and
one of which markets electronic commerce services and related products outside
of the United States and Canada. The Company believes that its decentralized
organizational structure promotes operating flexibility, improves
responsiveness to customer requirements and focuses management on achieving
revenue and profit objectives. The Commerce Services Group is a leading
provider of electronic commerce services and related software products
offered, under the COMMERCE family name, that facilitate the electronic
exchange of business transactions among multiple trading partners. The
Interchange Software Group is a leading provider of electronic commerce
translation and gateway messaging software, which makes message management and
communications possible across diverse systems. These products are marketed
under the GENTRAN family name. The Communications Software Group offers
automated file transfer and communications management solutions under the
CONNECT family name that provide the infrastructure for an enterprise's
electronic commerce system. The Banking Systems Group, with its VECTOR family
of products, is a leading provider of item processing and electronic payments
software and related services for financial institutions. The International
Group markets electronic commerce services and related software products
outside of the United States and Canada, primarily in Europe.
The Company generates revenue from four sources: services, products, product
support and royalties. Services revenue consists primarily of transaction fees
for services from the COMMERCE family and is recognized at the time the
service is performed. Products revenue is primarily derived from license fees
from the Company's software product groups--GENTRAN, CONNECT and VECTOR--and
is recognized at the time of product delivery, provided no significant future
vendor obligations exist and collection is probable. Product support revenue
consists primarily of fees from product support agreements that provide
customers with updated or enhanced versions of the Company's software products
as they become available and telephone access to the Company's technical
personnel. Product support revenue is deferred and recognized ratably over the
term of the applicable product support agreement, which is generally from one
to three years. Royalty revenue consists primarily of royalties from Sterling
Software relating to international licenses of the Company's software products
and related product support agreements. See "--Shared Management and
Contractual Arrangements with Sterling Software."
14
<PAGE>
A majority of the Company's software customers enter into product support
agreements and renew such agreements upon expiration. Moreover, although most
COMMERCE service agreements are cancelable upon 30 days' notice, the Company's
experience is that once customers initiate use of the Company's COMMERCE
services, they tend to continue to use them. Accordingly, revenue from product
support and COMMERCE services is considered recurring revenue. In fiscal 1996,
recurring revenue represented 57% of the Company's total revenue.
ELECTRONIC COMMERCE
Electronic commerce involves the automation of business-to-business
transactions through the use of telecommunications and computers to exchange
and process electronically commercial information and business transaction
documents. Due to the critical nature of these transactions, electronic
commerce requires reliable, secure, automated connectivity between businesses.
Electronic commerce typically involves software and value-added services to
perform essential business functions such as EDI, which facilitates uniform
communications with different trading partners, including suppliers,
customers, transportation carriers, banks and government agencies. In
addition, electronic commerce includes value-added services such as e-mail,
electronic funds transfer, electronic forms and bulletin board and catalog
services. Currently, EDI is the most widely utilized component of electronic
commerce. Advantages of electronic commerce include reduced clerical workload
and elimination of unnecessary paper handling; rapid, accurate and secure
exchange of time sensitive business information; reduced operating and
inventory carrying costs; and improved speed of ordering, delivering and
paying for goods and services.
A report by International Data Corporation indicates that the worldwide
market for electronic commerce was an estimated $1.5 billion in revenues in
1995 and is estimated to increase to almost $4.0 billion by 2000, an average
annual growth rate of approximately 21%.
Groups of companies that regularly trade with each other generate
significant repetitive business transactions. These trading communities are
natural prospects for electronic commerce. Many large companies within a
trading community increasingly recommend or require that their trading
partners engage in electronic commerce, particularly EDI, as the primary
method of communicating business documents. Large companies within a trading
community often are described as "hubs" and their trading partners as
"spokes." A hub company and its trading partners communicate through
electronic networks, traditionally using value-added service providers, which
utilize either their own proprietary network or third-party networks.
Alternatively, some trading communities use a private network owned and
operated by the hub company.
Hub companies typically decide to engage in electronic commerce for one or
more of the following reasons: (i) to reduce inventories by shortening the
time required to notify vendors and replenish stocks; (ii) to reduce the
administrative handling costs of documents that they send or receive from
their suppliers or customers; and (iii) to improve customer support and
service levels. For these reasons, a hub company often adopts a stated
business objective that all of its trading partners use EDI as the principal
means of communicating business documents. These trading partners or spoke
companies, in turn, often expand the use of electronic commerce by requesting
or requiring their trading partners to communicate through EDI. The expansion
of the number of trading partners adopting EDI increases the number of
potential software customers and subscribers for EDI services.
In a typical EDI transaction, a trading partner (the "sending partner")
first generates, with its computer, the business data used for the completion
of a particular set of documents, described by EDI standards as a transaction
set. Transaction sets include requests for quotes, purchase orders, invoices,
shipping notices, remittance advices and other related documents and messages.
Second, a translation software program on the sending partner's computer
converts the data into a standard EDI format. Third,
15
<PAGE>
this information is electronically transmitted directly to the intended
trading partner's computer (the "receiving partner") or to a central computer
system of a value-added service provider. Value-added service providers
receive documents for subsequent delivery to the receiving partner, connect
many types of computer hardware and communications devices, convert multiple
transaction sets from one industry standard to another and maintain security
by reducing the possibility of unauthorized access to critical business
information. Finally, a translation software program on the receiving
partner's computer converts the document or transaction set from a standard
EDI format into the format required by the receiving partner.
The adoption of electronic commerce products and services by a typical
organization tends to be an evolutionary process. The first stage involves
automating existing business processes, usually at the insistence of the
largest trading partners within a particular industry. At this stage,
departments within the organization typically replace paper processes with
electronic processes. During the second stage, the organization is either
changing existing processes or integrating new processes into its business,
usually in conjunction with the business strategy of a major trading partner.
For example, the organization may be a major supplier required to provide
just-in-time inventory to a manufacturer, quick response to a retailer or
efficient consumer response to a grocer. These activities tend to be
implemented at the corporate rather than the departmental level of the
organization and may involve other entities such as suppliers, shippers or
banks in the use of electronic commerce processes. In the third stage, the
organization integrates electronic commerce into its core business strategies.
For example, the organization may require its suppliers to provide just-in-
time inventory, quick response or efficient consumer response and,
additionally, integrate all of its key business partners in the process.
The electronic commerce market requires a broad range of integrated product
and service solutions with differing degrees of sophistication, rather than
isolated products or services. Most current offerings in the electronic
commerce market are narrowly designed to target specific computer platforms or
specific industry applications and, accordingly, do not provide a total
solution.
THE STERLING COMMERCE SOLUTION
The Company offers a comprehensive range of electronic commerce products and
services for the electronic commerce market. The Company continually strives
to understand the business requirements of the global electronic commerce
market; to address these requirements with flexible, reliable and secure
electronic commerce solutions; and to deliver these solutions in an effective
and efficient manner. The Company's products and services include
communications, translation and message management software, managed services,
value-added applications and closely-related professional services. The
Company believes that its ability to offer a broad array of products across
all major computing systems and to provide value-added services by selectively
utilizing multiple transmission networks, including telecommunications
carriers, public data networks and the Internet, gives it a competitive
advantage in addressing the needs of the electronic commerce market. The
Company has been providing electronic commerce solutions for over 20 years and
has numerous customers in a broad range of industries including banking,
pharmaceuticals and retailing. The Company is recognized as a leading provider
of EDI and other electronic commerce products and services worldwide.
16
<PAGE>
PRODUCTS AND SERVICES
The foundation for transacting business electronically throughout an
extended enterprise is reliable and secure communications software. Upon this
foundation, solutions are provided for messaging management, translation
software, managed services and automated payment integration. The Company
offers four distinct families of products that address targeted market
segments. A brief description of each family of products is included in the
following table.
<TABLE>
<CAPTION>
COMMERCE GENTRAN CONNECT VECTOR
- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
A family of A family of gateway A family of A family of
electronic commerce message handling and automated file financial electronic
value-added EDI translation transfer and commerce and bank
services, software, software communications automation software
catalogs and related management software
products
</TABLE>
COMMERCE. The COMMERCE family offers over a dozen service and software
solutions to facilitate the electronic exchange of business transactions and
documents. Serving businesses in many different industries, COMMERCE:Network
provides an electronic messaging system with mailbox facilities to accommodate
the exchange of EDI documents, electronic business forms, e-mail messages and
attachments and the posting of technical or reference data. COMMERCE: Network
accepts all of the most commonly used protocols for EDI and e-mail exchanges.
Along with many standard services, COMMERCE:Network offers value-added
services that help companies conduct business electronically with their
trading partners. These services include programs that assist companies in
implementing electronic commerce with their trading partners; strategic
consulting to help define electronic commerce solutions that address a
company's needs; and shared applications to help trading communities and
companies to leverage common applications. Other value-added services include
extended customer support, product training and education. Software products
include COMMERCE:Connection, a Windows-based suite of products that provides
integrated access to a full range of electronic commerce services including
EDI, e-mail, file transfer and electronic libraries. With COMMERCE:Connection,
a company can communicate many types of business documents electronically from
CAD/CAM drawings to trading partner policies to price lists. This product can
also be used to relay business transactions, distribute software and collect
sales and database information. COMMERCE products and services are marketed to
targeted vertical industry groups which include the primary markets of
pharmaceuticals, hardlines, grocery, healthcare, insurance, retail, train-
truck-ship transportation, automotive, entertainment, telecommunications,
chemical and petroleum, paper and packaging, banking and government. As of
September 30, 1996, there were over 13,600 COMMERCE customer sites worldwide.
GENTRAN. The GENTRAN family of products offers software solutions for
electronic commerce gateway messaging and EDI translation. GENTRAN software
automates the flow of internal business transactions within organizations and
between organizations and their customers and suppliers. GENTRAN translators
and intelligent messaging servers are available for the major operating
systems and platforms such as UNIX, Windows, Windows NT, AS/400 and IBM
mainframes. GENTRAN was designed for high-volume, commercial traffic and
supports any-to-any formatted message exchange across platforms. This makes
GENTRAN an excellent tool for linking disparate applications and for the
intelligent dissemination of information received via the World Wide Web (the
"Web"). The GENTRAN family of products is packaged into three categories of
electronic commerce business solutions: EDI Complete, for companies that need
plug-and-play EDI with expert consultants to assist them through the start-up
process; EC Messaging Gateway or EC Gateway for the Internet, for companies
that need a full electronic commerce solution that integrates with core
enterprise applications; and EC Desktop Solutions, for those who want to
supply vendors, customers or distributors with push-button, EDI-enabled
applications that make it easier to do business with their trading partners.
Key products include GENTRAN:Server, a sophisticated electronic commerce
gateway that recognizes, manages and routes all types of business messages;
GENTRAN:Director for Windows-based EDI processing; GENTRAN:Mentor, which uses
expert systems technology and graphical navigation to fully automate EDI
mapping; and GENTRAN:Basic, the base EDI translation product for the mainframe
and HP3000 platforms, that translates data from internal formats into standard
formats for EDI processing. GENTRAN products were installed at over 3,900
customer sites as of September 30, 1996.
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CONNECT. The CONNECT family of software products is a complete suite of
automated file transfer and communications management solutions that support a
wide variety of protocols. The CONNECT family of products provides an
enterprise-wide solution that integrates seamlessly with existing operations
and supports the addition of new applications, databases, hardware and
software. These products offer prompt access to information and the highest
levels of security for a company's computer data and network. CONNECT:Direct
is primarily used to move large volumes of data with focus on high
performance, security, reliability and intelligent automation. CONNECT:Direct
addresses the information needs of electronic commerce between internal
departments and offices and external customer and client locations.
CONNECT:Mailbox is used primarily to move information between companies with a
focus on wide connectivity. The software works independently of applications,
platforms and protocols, and provides open connections throughout the network
to any host, midrange or remote workstation or value-added service provider.
CONNECT products were installed at over 2,500 customer sites as of
September 30, 1996.
VECTOR. The VECTOR family of products enables banks to provide to their
corporate customers integrated trade-payment processing services for both
paper-based check payments and electronic payments. VECTOR:Connexion provides
financial EDI payment services. VECTOR:Banker provides PC-based cash
management and electronic payment software for medium and small sized banks.
VECTOR products also automate several key functions in banks, including item
processing applications such as statement sorting, research and adjustments,
check fraud control, electronic check presentment, return item processing and
signature verification. As of September 30, 1996, approximately 2,000 VECTOR
systems have been installed at approximately 830 customer sites worldwide,
including 99 of the top 100 U.S. banks, as ranked by deposits as of December
31, 1995 in American Banker magazine.
Internet. The Company provides electronic commerce solutions that enable
enterprises to conduct business with their trading partners over the Internet
in a safe, reliable environment. These solutions fall under four broad
categories: (i) Web-based catalog search and select, (ii) purchase and order
fulfillment by browser access of Web sites, (iii) key encryption and firewall
software, and (iv) Internet-enablement of existing products and services. The
Internet enables enterprises to reach segments of their trading partner bases
that were not previously accessible by traditional means of electronic
commerce. To the extent that the Internet gains further acceptance as a method
of conducting electronic commerce, the Company expects the Internet to broaden
the electronic commerce market and provide additive business to the Company.
SALES AND MARKETING
Each of the Company's Commerce Services, Interchange Software,
Communications Software and Banking Systems Groups has its own sales and
marketing organizations. These organizations license and market the Company's
products and services in the United States and Canada through a combination of
direct sales, telesales and telemarketing. The Company's International Group,
headquartered in Paris, France, markets electronic commerce services and
related products outside the United States and Canada, primarily in Europe
(directly and through distributors). The Company's Banking Systems Group
markets its software products and product support services worldwide. The
Company has implemented a comprehensive, performance-based system of sales
commissions, awards and recognition designed to compensate and motivate its
sales force.
Pursuant to the International Marketing Agreement with Sterling Software,
Sterling Software acts as the exclusive distributor (directly and through
subdistributors) of the Company's interchange and communications software
products in markets outside the United States and Canada and is responsible
for sales, marketing and first level support of such products in those
markets. Sterling Software presently maintains offices throughout Europe and
in Tokyo, Japan and Sydney, Australia and has relationships with agents and
distributors in Asia (other than Japan), Central and South America, Eastern
Europe, the Middle East, Mexico and South Africa.
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CUSTOMERS
As of September 30, 1996, the Company's customers include 96 of the 100
largest U.S. industrial corporations, as ranked by 1995 sales in Fortune
magazine, and 99 of the top 100 U.S. commercial banks, as ranked by deposits
as of December 31, 1995, in American Banker magazine.
PRODUCT LICENSES AND PRODUCT SUPPORT
The Company's software products are licensed for perpetual use or for a
fixed term. The Company typically does not sell or otherwise transfer title to
its software products. The license agreements generally restrict the use of
the product to designated sites or central processing units and prohibit
reproduction, transfer or disclosure of the product. However, some license
agreements may cover multiple sites or multiple central processing units at
one site.
In addition to licensing the use of its software products to its customers,
the Company also often sells product support services to its customers.
Typically, the Company provides these services pursuant to product support
agreements having terms ranging generally from one to three years. The
Company's product support agreements provide customers with updated or
enhanced versions of the Company's software products as they become available
and telephone access to the Company's technical personnel.
PRODUCT DEVELOPMENT
The Company's product development strategy is to enhance existing products
and to introduce new products based upon current and anticipated customer
needs. In addition, the Company has made a number of acquisitions to expand
the array of products and services available to its customers.
Each of the Company's Commerce Services, Interchange Software,
Communications Software and Banking Systems Groups performs its own product
development function. Each group's development lab operates as a profit
center, with revenues derived from royalties earned on products sold in the
domestic and international markets. The Company believes that this
organizational structure facilitates development cost control and focuses the
development function on customer needs. Gross product development costs in
1996, 1995 and 1994 were approximately $27.8 million, $24.9 million and $21.7
million, respectively, of which the Company capitalized approximately $12.3
million, $10.1 million and $9.2 million, respectively, as the cost of
developing and testing new or significantly enhanced software products.
Product development expense and the capitalization rate may fluctuate from
period to period depending, in part, upon the number and status of software
development projects in process.
The Company's disciplined approach to product development includes, among
other things, evaluating anticipated customer needs, analyzing the cost of
developing new products versus the cost of acquiring new products and
analyzing anticipated revenues from new and enhanced products. For example,
the Company may seek to acquire an existing product or to acquire a company
that owns an existing product rather than develop the product internally, and
in other instances the Company may contract with a third-party developer to
develop the product on the Company's behalf. Because of these and other
factors, the Company is unable to estimate future product development costs.
COMPETITION
The electronic commerce market is very competitive. Numerous companies
supply electronic commerce products and services, and several competitors
target specific customer requirements for which the Company presently is, or
may seek to become, a provider. The Company's competitors include both large
companies with substantially greater resources than the Company and small,
specialized companies that compete in one or more particular market niches.
Competitors that offer products and/or services that compete with various of
the Company's products and services include, among others, Advantis Systems,
Inc. (a joint venture between Sears, Roebuck & Co. and IBM); AT&T; Computer
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Associates International, Inc.; EDS; General Electric Information Systems;
Harbinger Corporation; Premenos Technology Corp.; QuickResponse Services,
Inc.; and a joint venture between British Telecommunications Plc and MCI
Communications Corporation; as well as the internal programming staffs of
various businesses engaging in electronic commerce.
The Company expects competition to increase in the future from both existing
competitors and other companies that may enter the Company's existing or
future markets. The Company believes that its ability to compete successfully
in the electronic commerce market depends on numerous factors, both within and
outside its control, including product performance, functionality and
reliability, price and customer service and support. There can be no assurance
that new or established competitors will not offer products and services that
are superior to and/or lower in price than those of the Company. In addition,
the Company could face increased competition to the extent the Internet gains
further acceptance as a method of conducting electronic commerce.
INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily on a combination of copyright, patent and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its intellectual property rights. The Company routinely
enters into non-disclosure and confidentiality agreements with employees,
contractors, consultants and customers. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent
as the laws of the United States. However, the Company believes that, due to
the rapid pace of innovation within the electronic commerce industry, factors
such as the technological and creative skills of its personnel are more
important in establishing and maintaining a leadership position within this
industry than are the various legal protections afforded its technology.
The Company does not believe that any of its products infringe on the
proprietary rights of third parties in any material respect. Licenses for a
number of software products have been granted to the Company for its own use
or for remarketing to its customers. In the aggregate, these licenses are
material to the business of the Company, but the Company believes that the
loss of any one of these licenses would not materially affect the Company's
results of operations or financial position.
The COMMERCE, GENTRAN, CONNECT and VECTOR families of product names used
herein are registered or unregistered trademarks owned by the Company.
SHARED MANAGEMENT AND CONTRACTUAL ARRANGEMENTS WITH STERLING SOFTWARE
Introduction. The Company was incorporated in December 1995 as a subsidiary
of Sterling Software. The Company completed its initial public offering on
March 13, 1996. Pursuant to that offering, the Company sold to the public
1,800,000 previously unissued shares of Common Stock and Sterling Software
sold to the public 12,000,000 of the 73,200,000 shares of Common Stock then
owned by it.
In contemplation of the Company's initial public offering, among other
things: (i) Sterling Software caused to be transferred to the Company certain
assets relating to the electronic commerce business previously conducted by
Sterling Software, and (ii) the Company entered into contractual arrangements
with Sterling Software. See "--Intercompany Agreements."
On September 23, 1996, the Board of Directors of Sterling Software declared
a special dividend consisting of the distribution of all shares of Common
Stock held by Sterling Software on September 30, 1996, payable pro rata to the
holders of record of Sterling Software's common stock, as of the close of
business on such date. As a result, effective September 30, 1996, the Company
ceased to be a subsidiary of Sterling Software.
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Management. The Board of Directors of the Company (the "Board") currently
has seven members. Sam Wyly, Charles J. Wyly, Jr. and Evan A. Wyly are
directors of the Company and are also directors of Sterling Software. Sterling
L. Williams serves as Chairman of the Board of the Company and as President
and Chief Executive Officer and a member of the Board of Directors of Sterling
Software. In addition, Jeannette P. Meier serves as Executive Vice President,
General Counsel and Secretary of both companies and the Chief Financial
Officer of Sterling Software, and Phillip A. Moore serves as an Executive Vice
President of both companies. Neither the specific time period nor the capacity
or capacities in which such executive officers may continue to serve either
the Company or Sterling Software (or both) has been determined as of the date
of this Prospectus.
Directors and executive officers of the Company who are also directors or
executive officers of Sterling Software may have conflicts of interest with
respect to matters potentially or actually involving or affecting the Company
and Sterling Software, such as acquisitions, financings and other corporate
opportunities that may be suitable for the Company and Sterling Software. To
the extent that such opportunities arise, such directors and executive
officers may consult with their legal advisors and make a determination after
consideration of a number of factors, including whether such opportunity is
presented to any such director or executive officer in his or her capacity as
a director or executive officer of the Company, whether such opportunity is
within the Company's line of business or consistent with its strategic
objectives and whether the Company will be able to undertake or benefit from
such opportunity. In addition, determinations may be made by the Board of
Directors of the Company, when appropriate, by the vote of the disinterested
directors only. Notwithstanding the foregoing, there can be no assurance that
conflicts will be resolved in favor of the Company.
Intercompany Agreements. In anticipation of the Company's initial public
offering, the Company and Sterling Software entered into a number of
agreements (the "Intercompany Agreements") for the purpose of defining certain
relationships between them. As a result of Sterling Software's then-existing
ownership interest in the Company, the terms of such agreements were not the
result of arm's-length negotiation. The Intercompany Agreements include an
International Marketing Agreement, a Tax Allocation Agreement, an
Indemnification Agreement and a Space Sharing Agreement. The International
Marketing Agreement defines the terms pursuant to which Sterling Software acts
as the exclusive distributor through March 1999 of certain of the Company's
products in markets outside the United States and Canada. The International
Marketing Agreement provides for the payment of royalties by Sterling Software
to the Company equal to 50% of the revenue that Sterling Software derives from
licenses of the Company's interchange and communications software products and
related product support services. The Tax Allocation Agreement provides that
for periods during which the Company and/or its subsidiaries were included in
Sterling Software's consolidated federal income tax returns or consolidated,
combined or unitary state tax returns, the Company is required to pay to or is
entitled to receive from Sterling Software its allocable portion of the
consolidated, federal and state income tax liability or refunds, respectively.
Additionally, the Tax Allocation Agreement contains provisions for the
handling of tax controversies. The Indemnification Agreement provides that the
Company will indemnify Sterling Software and its directors, officers,
employees, agents and representatives for any liabilities resulting from or
arising out of certain acts, failures to act or the provision of incorrect
factual information by the Company in connection with the Internal Revenue
Service ruling request that would cause the Distribution to be taxable to
Sterling Software or its stockholders. The Indemnification Agreement also
provides that each party will indemnify the other party for certain other
liabilities, including those relating to the business, operations or assets
conducted or owned by the indemnifying party. The Space Sharing Agreement
defines the terms pursuant to which the Company and Sterling Software are
allowed to utilize a portion of certain of each other's office facilities for
a fee. Conflicts of interest may arise between the Company and Sterling
Software in a number of areas relating to the companies' ongoing
relationships. The Board will utilize such procedures in evaluating the terms
and provisions of the existing and any material future transactions between
the Company and Sterling Software and their respective affiliates as the Board
may determine appropriate in light of its fiduciary duties under applicable
state law.
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EXECUTIVE OFFICERS
The following information regarding the executive officers of the Company is
as of January 27, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sterling L. Williams........ 53 Chairman of the Board
Warner C. Blow.............. 59 President and Chief Executive Officer; Director
Jeannette P. Meier.......... 49 Executive Vice President, General Counsel and
Secretary
Phillip A. Moore............ 54 Executive Vice President
William W. Hymes............ 60 Senior Vice President and Group President
Paul L. H. Olson............ 46 Senior Vice President and Group President
Stephen R. Perkins.......... 52 Senior Vice President and Group President
J. Brad Sharp............... 39 Senior Vice President and Group President
Senior Vice President and Chief Financial
Steven P. Shiflet........... 49 Officer
Thomas A. Lutz.............. 56 Vice President and Group President
Albert K. Hoover............ 37 Vice President, Legal
James W. Hoyt............... 49 Vice President, Technology
Dawn Wheeler................ 37 Vice President, Investor Relations
G. Clark Woodford........... 49 Vice President, Business Development
John Blaine................. 34 Controller
</TABLE>
Sterling L. Williams has served as Chairman of the Board of the Company and
a director since December 1995 and served as Chief Executive Officer of the
Company from December 1995 until October 1996. Mr. Williams co-founded
Sterling Software in 1981, and since such time has served and continues to
serve as President, Chief Executive Officer and a director of Sterling
Software. Mr. Williams also currently serves as a director of INPUT, an
information technology market research company. Mr. Williams is a member of
the Executive Committee and the Stock Option Committee of the Board.
Warner C. Blow has served as Chief Executive Officer and a director of the
Company since October 1996 and as President since December 1995. From December
1995 until October 1996, Mr. Blow also served as Chief Operating Officer of
the Company. Prior to December 1995, Mr. Blow served as President of Sterling
Software's Electronic Commerce Group (the predecessor of the Company) from
July 1993 and as an Executive Vice President of Sterling Software from October
1989. Prior to July 1993, Mr. Blow also served as President of Sterling
Software's former EDI Group.
Jeannette P. Meier has served as Executive Vice President, General Counsel
and Secretary of the Company since December 1995. Ms. Meier also served as
Chief Financial Officer of the Company from June 1996 to January 1997. Ms.
Meier has served and continues to serve as Chief Financial Officer (since June
1996), Executive Vice President (since July 1993) and General Counsel and
Secretary (since 1985) of Sterling Software. Prior to July 1993, Ms. Meier
also served as Senior Vice President of Sterling Software.
Phillip A. Moore has served as Executive Vice President of the Company since
December 1995. Mr. Moore co-founded Sterling Software in 1981 and since such
time has served and continues to serve as a director of Sterling Software. Mr.
Moore has served and continues to serve as an Executive Vice President of
Sterling Software since December 1994. From July 1993 until December 1994, Mr.
Moore served as Executive Vice President, Technology of Sterling Software.
Prior to July 1993, Mr. Moore served as Senior Vice President, Technology of
Sterling Software.
William W. Hymes has served as Senior Vice President of the Company and
President of the Banking Systems Group since December 1995. Prior to March
1996, Mr. Hymes served as President of the Banking Systems Division of
Sterling Software's Electronic Commerce Group (the predecessor of the Company)
from July 1993. Prior to July 1993, Mr. Hymes served as President of the
former Directions Division of Sterling Software.
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Paul L. H. Olson has served as Senior Vice President of the Company and
President of the Commerce Services Group since December 1995. Prior to March
1996, Mr. Olson served as President of the Network Services Division of
Sterling Software's Electronic Commerce Group (the predecessor of the Company)
from August 1992. Prior to August 1992, Mr. Olson served as Group Vice
President of Business Development for Sterling Software's former EDI Group.
Stephen R. Perkins has served as Senior Vice President of the Company and
President of the Communications Software Group since December 1995. Prior to
March 1996, Mr. Perkins served as President of the Communications Software
Division of Sterling Software's Electronic Commerce Group (the predecessor of
the Company) from July 1993. Prior to July 1993, Mr. Perkins served as Vice
President of Development for Systems Center, Inc., a computer software company
that was acquired by Sterling Software in July 1993.
J. Brad Sharp has served as Senior Vice President of the Company and
President of the Interchange Software Group since December 1995. Prior to
March 1996, Mr. Sharp served as President of the Interchange Software Division
of Sterling Software's Electronic Commerce Group (the predecessor of the
Company) from August 1992. Prior to August 1992, Mr. Sharp served as Vice
President of Development of Sterling Software's former EDI Labs Division.
Steven P. Shiflet has served as Senior Vice President and Chief Financial
Officer of the Company since January 1997. From December 1995 until January
1997, Mr. Shiflet served as Vice President, Finance of the Company. Prior to
March 1996, Mr. Shiflet served as Group Vice President, Finance &
Administration of Sterling Software's Electronic Commerce Group (the
predecessor of the Company) from 1986.
Thomas A. Lutz has served as Vice President of the Company and President of
the International Group since December 1995. Prior to March 1996, Mr. Lutz
served as President of Sterling Software's Creative Data Systems Division from
October 1991. Prior to October 1991, Mr. Lutz served as Executive Vice
President of Sterling Software's Creative Data Systems Division. Mr. Lutz also
served as Group Vice President of Sterling Software's former EDI Group from
August 1990 to July 1993.
Albert K. Hoover has served as Vice President, Legal of the Company since
December 1995. Prior to March 1996, Mr. Hoover served as Vice President of
Sterling Software from May 1994 and Assistant General Counsel of Sterling
Software from June 1990.
James W. Hoyt has served as Vice President, Technology of the Company since
July 1996. Mr Hoyt served as Director of Product Architecture of Sterling
Software's Communications Software Division from July 1993 until March 1996
and of the Company's Communications Software Group from March 1996 until June
1996. Prior to July 1993, Mr. Hoyt served as Director of Product Architecture
for Systems Center, Inc., a computer software company that was acquired by
Sterling Software in July 1993.
Dawn Wheeler has served as Vice President, Investor Relations of the Company
since February 1996. Prior to March 1996, Ms. Wheeler served as Director of
Industry Relations of Sterling Software's Electronic Commerce Group (the
predecessor of the Company) from October 1994. Prior to October 1994, Ms.
Wheeler served in various capacities for Sterling Software's Network Services
Division from November 1988.
G. Clark Woodford has served as Vice President, Business Development of the
Company since December 1995. Prior to March 1996, Mr. Woodford served as Vice
President, Business Development of Sterling Software's Electronic Commerce
Group (the predecessor of the Company) from November 1993. Prior to November
1993, Mr. Woodford served as Vice President, National Accounts for the Network
Services Division of Sterling Software's Electronic Commerce Group (the
predecessor of the Company).
John Blaine has served as Controller of the Company since April 1996. From
February 1995 until April 1996, Mr. Blaine served as Director, Finance &
Administration for the France Division of Sterling
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Software's International Group. From July 1993 until February 1995, Mr. Blaine
served as Vice President, Finance and Administration for the former Americas
Division of Sterling Software's International Group. From September 1990 until
July 1993, Mr. Blaine served in various financial positions with Sterling
Software.
EMPLOYEES
The Company's business is dependent upon its ability to attract and retain
highly qualified managerial, technical and sales personnel, who are in limited
supply. The Company's operations could be adversely affected if it were to
lose the services of a significant number of qualified employees or if it were
unable to obtain additional qualified personnel when needed. To attract and
retain qualified employees, the Company strives to maintain excellent employee
relations, attractive office facilities and challenging working environments,
and offers competitive compensation and benefits packages. None of the
Company's employees are represented by a labor union. The Company has not
experienced any work stoppages and considers its employee relations to be
excellent.
At December 31, 1996, the Company employed approximately 1,340 full-time
employees.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Certificate of Incorporation provides that the authorized
capital stock of the Company consists of 150,000,000 shares of common stock,
par value $.01 per share ("Common Stock"), and 50,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"). Upon completion of the
Offering, 87,500,000 shares of Common Stock will be issued and outstanding
(89,375,000 if the over-allotment option is exercised in full), and no shares
of Preferred Stock will be issued or outstanding. As of the date of this
Prospectus, 18,336,400 shares of Common Stock are reserved for issuance under
the Company's 1996 Stock Option Plan and 1,500,000 shares of the Company's
Series A Junior Participating Preferred Stock, par value $.01 per share, are
reserved for issuance pursuant to the Rights Agreement, dated December 18,
1996, between the Company and The First National Bank of Boston, as rights
agent (the "Rights Plan"). See "--Rights Plan." Under the terms of the
Company's 1996 Stock Option Plan, the number of shares of Common Stock
available for issuance under such plan is automatically adjusted upward, if
necessary, as of the end of each calendar quarter, so that the aggregate
number of shares available for issuance under the Company's 1996 Stock Option
Plan is equal to 20% of the total number of outstanding shares of Common Stock
then outstanding, computed on a fully diluted basis.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share owned of
record on all matters voted upon by stockholders. Subject to preferential
rights that may be applicable to any Preferred Stock outstanding, holders of
Common Stock are entitled to receive dividends if, as and when declared by the
Board out of funds legally available therefor. See "Price Range of Common
Stock and Dividend Policy." In the event of a liquidation, dissolution or
winding-up of the Company, holders of Common Stock are entitled to share
equally and ratably in the assets of the Company, if any, remaining after the
payment of all liabilities of the Company and the liquidation preferences of
any outstanding Preferred Stock. Holders of the Common Stock have no
preemptive rights, cumulative voting rights or rights to convert their Common
Stock into any other securities, and there are no redemption or sinking fund
provisions with respect to the Common Stock.
The Common Stock is listed on the NYSE under the symbol "SE." The First
National Bank of Boston is the transfer agent and registrar for the Common
Stock.
PREFERRED STOCK
The Board has the authority to issue the authorized shares of Preferred
Stock in one or more series and to fix the designations, relative powers,
preferences, rights, qualifications, limitations and restrictions of all
shares of each such series, including without limitation dividend rates,
conversion rights, voting rights, redemption and sinking fund provisions,
liquidation preferences and the number of shares constituting each such
series, without any further vote or action by the stockholders. The issuance
of Preferred Stock could decrease the amount of earnings and assets available
for distribution to holders of Common Stock or adversely affect the rights and
powers, including voting rights, of the holders of Common Stock. The issuance
of Preferred Stock also could have the effect of delaying, deterring or
preventing a change in control of the Company without further action by the
stockholders.
RIGHTS PLAN
Pursuant to the Rights Plan, 1,500,000 shares of Series A Junior
Participating Preferred Stock, $.01 par value ("Junior Preferred Shares"), are
reserved for issuance. One right (a "Right") to purchase 1/100th of a Junior
Preferred Share (structured so as to be substantially the equivalent of a
share of Common Stock) is attached to each issued and outstanding share of
Common Stock, including the shares of Common Stock to be sold in the Offering.
Subject to certain conditions, each Right entitles the holder to purchase
1/100th of a Junior Preferred Share at a price (the "Purchase Price") of
$200.00 per 1/100th of a Junior Preferred Share (subject to adjustment).
In general, the Rights will not become exercisable, or transferable apart
from the shares of Common Stock, unless a person or group of affiliated or
associated persons becomes the beneficial owner of, or
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commences a tender offer that would result in beneficial ownership of, 15% or
more of the outstanding shares of Common Stock (any such person or group of
persons being referred to in the Rights Plan as an "Acquiring Person").
Thereafter, under certain circumstances, each Right (other than any Rights
that are or were beneficially owned by an Acquiring Person, which Rights will
be void) could become exercisable to purchase at the Purchase Price a number
of shares of Common Stock (or, in certain circumstances, the common stock of a
company into which the Company is merged or consolidated or to which the
Company sells all or substantially all of its assets) having a market value
equal to two times the Purchase Price. The Rights will expire on December 31,
2006, unless earlier redeemed by the Company at a redemption price of $.01 per
Right (subject to adjustment), or otherwise exchanged or amended in accordance
with the terms of the Rights Plan.
CERTAIN CORPORATE GOVERNANCE MATTERS
The Company's Certificate of Incorporation and Bylaws provide that the
directors of the Company are to be classified into three classes, with the
directors in each class serving for three-year terms and until their
successors are elected, except that the initial terms of the initial directors
of the Company will expire at the 1997, 1998 or 1999 annual meeting of the
stockholders of the Company, depending upon the particular class in which each
such director is placed. Any additional person selected to the Board will be
added to a particular class of directors to be determined at the time of such
election. In accordance with the Company's Certificate of Incorporation and
Bylaws, the number of directors in each class will be identical, or as nearly
as practicable thereto, based on the total number of directors then serving as
such. The Company's Certificate of Incorporation and Bylaws provide, in
general, that (i) the number of directors of the Company will be fixed by
resolution of the Board, (ii) the directors of the Company in office from time
to time will fill any vacancy or newly created directorship on the Board, with
any new director to serve in the class of directors to which he or she is so
elected, (iii) directors of the Company may be removed only for cause by the
holders of at least 75% of the Company's voting stock, (iv) stockholder action
can be taken only at an annual or special meeting of stockholders and not by
written consent in lieu of a meeting, and (v) special meetings of stockholders
may be called only by the Chairman of the Board or the President of the
Company or by a majority of the total number of directors of the Company and
the business permitted to be conducted at any such meeting is limited to that
brought before the meeting by the Chairman of the Board or the President of
the Company or by a majority of the total number of directors of the Company.
The Company's Bylaws also require that stockholders desiring to bring any
business before an annual meeting of stockholders deliver written notice
thereof to the Secretary of the Company not later than 60 days in advance of
the meeting of stockholders; provided, however, that in the event that the
date of the meeting is not furnished to stockholders in a notice or publicly
disclosed by the Company more than 65 days prior to the meeting, notice by the
stockholder to be timely must be delivered to the Secretary of the Company not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made. The Company's Bylaws further require that the notice by the
stockholder set forth a description of the business to be brought before the
meeting and certain information concerning the stockholder proposing such
business, including such stockholder's name and address, the class and number
of shares of the Company that are owned beneficially by such stockholder, and
any material interest of such stockholder in the business proposed to be
brought before the meeting.
Under applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL"), the approval of a Delaware corporation's board of
directors, in addition to stockholder approval, is required to adopt any
amendment to the corporation's certificate of incorporation, but a
corporation's bylaws may be amended either by action of its stockholders or,
if the corporation's certificate of incorporation so provides, its board of
directors. The Company's Certificate of Incorporation and Bylaws provide that
the provisions summarized above and the provisions relating to the
classification of the Board and nomination procedures may not be amended by
the stockholders, nor may any provision inconsistent therewith be adopted by
the stockholders, without the affirmative vote of the holders of at least 75%
of the Company's voting stock, voting together as a single class.
26
<PAGE>
The foregoing provisions of the Company's Certificate of Incorporation and
Bylaws, and the terms of the Rights Plan, may discourage or make more
difficult the acquisition of control of the Company by means of a tender
offer, open market purchase, proxy contest or otherwise. These provisions may
have the effect of discouraging certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire
control of the Company first to negotiate with the Company. The Company's
management believes that the foregoing measures provide benefits to the
Company and its stockholders by enhancing the Company's ability to negotiate
with the proponent of any unfriendly or unsolicited proposal to take over or
restructure the Company and that such benefits outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined in Section 203)
with a Delaware corporation for three years following the date such person
became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination, (ii) upon consummation of
the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time such transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer), or (iii) following the
transaction in which such person became an interested stockholder, the
business combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders by the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock of the
corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business
combinations proposed by an interested stockholder following the announcement
or notification of one of certain extraordinary transactions involving the
corporation and a person who had not been an interested stockholder during the
previous three years or who became an interested stockholder with the approval
of a majority of the corporation's directors and which transaction is approved
or not opposed by a majority of the board of directors then in office.
27
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Goldman, Sachs & Co., have severally
agreed to purchase from the Company the following respective numbers of shares
of Common Stock at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
<S> <C>
Alex. Brown & Sons Incorporated......................................
Goldman, Sachs & Co. ................................................
----------
Total............................................................ 12,500,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the Offering,
the offering price and other selling terms may be changed by the
Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 1,875,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 12,500,000, and the Company
will be obligated pursuant to the option to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of Common Stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 12,500,000 shares are being offered.
28
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
As of December 31, 1996, directors and executive officers of the Company
owned, directly or indirectly, an aggregate of 2,718,118 shares of Common
Stock and held options to acquire an additional 10,536,000 shares of Common
Stock. Such directors and executive officers have agreed not to offer, sell or
otherwise dispose of shares of Common Stock for a period of 90 days after the
date of this Prospectus without the prior consent of Alex. Brown & Sons
Incorporated.
Pursuant to the Underwriting Agreement, the Company has agreed not to offer,
sell or otherwise dispose of any shares of Common Stock for a period of 90
days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated.
Alex. Brown & Sons Incorporated has served in the past as a financial
advisor and underwriter for the Company.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Jones, Day, Reavis & Pogue, Dallas, Texas. Certain legal matters will be
passed upon for the Underwriters by Vinson & Elkins L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of Sterling Commerce, Inc. appearing
in Sterling Commerce, Inc.'s Annual Report (Form 10-K) for the year ended
September 30, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
CERTAIN FORWARD-LOOKING STATEMENTS
This Prospectus (including the documents incorporated herein by reference)
contains or may contain certain forward-looking statements and information
that are based on beliefs of, and information currently available to, the
Company's management as well as estimates and assumptions made by the
Company's management. When used in this Prospectus, words such as
"anticipate," "believe," "estimate," "expect," "future," "intend," "plan" and
similar expressions as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the industries served by the Company, the
costs of product development and other risks and uncertainties, including, in
addition to any uncertainties specifically identified in the text surrounding
such statements, uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory
circumstances and conditions and actions taken or omitted to be taken by third
parties, including the Company's stockholders, customers, suppliers, business
partners, competitors, and legislative, regulatory, judicial and other
governmental authorities and officials. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results or outcomes may vary significantly from those
anticipated, believed, estimated, expected, intended or planned.
29
<PAGE>
GLOSSARY OF SELECTED ELECTRONIC COMMERCE TERMS
CUSTOMER TRACKING SYSTEM--A system for tracking customer service calls
and/or customer accounts, usually in the form of a mainframe- or PC-based
software application.
DIAL-UP LINES AND INTERFACE--Dial-up lines are ordinary phone lines that are
part of the switched network used by a phone company to handle all types of
calls, including data communications transmissions. A dial-up interface is a
temporary software connection established via the switched telephone network.
E-MAIL--Electronic mail. The electronic transmission of text messages, or a
software application that enables such transmission, over the Internet or
other networked systems.
EDI--Electronic data interchange. The automated, computer-to-computer
exchange of structured business data, such as purchase orders and invoices,
between a company and its trading partners.
ELECTRONIC FORMS--In software applications, a presentation element (such as
a window or box) with predefined areas for entering and changing information.
Forms ease the creation and exchange of electronic documents, including EDI
documents.
ELECTRONIC FUNDS TRANSFER OR EFT--Electronic payment in which the transfer
of funds from the transaction parties' bank accounts is automated.
ELECTRONIC COMMERCE OR EC--The automation of business-to-business
transactions through the use of telecommunications and computers to exchange
and process commercial information and business transaction documents.
INTERNET--A worldwide network of computer networks that began with
technology and equipment funded by the U.S. Department of Defense in the
1970s. TCP/IP is the basic communications protocol for the Internet.
INTRANET--A collection of Internet-related technologies, including TCP/IP,
used within an organization or group of organizations to develop, store and
present information.
LAN--Local Area Network. A network designed to interconnect PCs within a
local environment. One of a variety of communications technologies used to
link computers together in a single building, business or campus environment.
ONLINE BULLETIN BOARD SERVICES--A bulletin board system is an online
information and message-passing center for dial-up computer users. Typical
services include message transfer or chat forum centers for uploading or
downloading files and programs.
PROTOCOL--A set of rules governing the format, timing, sequencing and error
control of exchanged messages on a data network. A protocol can govern data
transfer over an interface, between two logical units directly connected or
between two users connected end-to-end over a large and complex network.
TCP/IP--Transmission Control Protocol/Internet Protocol. A set of network-
and transport-level protocols that allows computers with different
architectures and operating systems to communicate on the Internet.
WORLD WIDE WEB--A network of computer servers that uses a special
communications protocol to link different servers throughout the Internet and
permits communication of graphics, video and sound.
30
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 6
Use of Proceeds............................................................ 10
Capitalization............................................................. 11
Price Range of Common Stock and Dividend Policy............................ 11
Selected Financial Data.................................................... 12
Business................................................................... 14
Description of Capital Stock............................................... 25
Underwriting............................................................... 28
Legal Matters.............................................................. 29
Experts.................................................................... 29
Certain Forward-Looking Statements......................................... 29
Glossary of Selected Electronic Commerce Terms............................. 30
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12,500,000 Shares
Common Stock
-------------
PROSPECTUS
-------------
Alex. Brown & Sons
INCORPORATED
Goldman, Sachs & Co.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be incurred in connection with the issuance and
distribution of the Common Stock covered by this Registration Statement, all
of which have been or will be paid by the Company, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee...................... $154,641
National Association of Securities Dealers, Inc. filing fee........ 30,500
New York Stock Exchange filing fee................................. 50,313
Legal fees and expenses............................................ 100,000
Printing expenses.................................................. 60,000
Accounting fees and expenses....................................... 50,000
Miscellaneous...................................................... 54,546
--------
Total............................................................ $500,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that the personal
liability of directors of the Company to the Company is eliminated to the
maximum extent permitted by Delaware law. The Company's Certificate of
Incorporation and Bylaws provide for the indemnification of the directors,
officers, employees and agents of the Company and its subsidiaries to the
fullest extent that may be permitted by Delaware law from time to time, and
the Bylaws provide for various procedures relating thereto. Certain provisions
of the Company's Certificate of Incorporation protect the Company's directors
against personal liability for monetary damages resulting from breaches of
their fiduciary duty of care, except as set forth below. Under Delaware law,
absent these provisions, directors could be held liable for gross negligence
in the performance of their duty of care, but not for simple negligence. The
Company's Certificate of Incorporation absolves directors of liability for
negligence in the performance of their duties, including gross negligence.
However, the Company's directors remain liable for breaches of their duty of
loyalty to the Company and its stockholders, as well as for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law and transactions from which a director derives improper
personal benefit. The Company's Certificate of Incorporation also does not
absolve directors of liability under Section 174 of the Delaware General
Corporation Law, which makes directors personally liable for unlawful
dividends or unlawful stock repurchases or redemptions in certain
circumstances and expressly sets forth a negligence standard with respect to
such liability.
Under Delaware law, directors, officers, employees, and other individuals
may be indemnified against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement in connection with specified actions,
suits or proceedings, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation--a "derivative
action") if they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. A similar standard of care is applicable in the case of
a derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement
of such an action and Delaware law requires court approval before there can be
any indemnification of expenses where the person seeking indemnification has
been found liable to the Company.
II-1
<PAGE>
As authorized by the Company's Certificate of Incorporation, the Company has
entered into indemnification agreements with each of its directors and
officers. These indemnification agreements provide for, among other things,
(i) the indemnification by the Company of the indemnitees thereunder to the
extent described above, (ii) the advancement of attorneys' fees and other
expenses, and (iii) the establishment, upon approval by the Board, of trusts
or other funding mechanisms to fund the Company's indemnification obligations
thereunder.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement (filed herewith).
4.1 --Certificate of Incorporation of the Company, as amended (filed
herewith).
4.2 --Amended and Restated Bylaws of the Company (previously filed as Exhibit
3.2 to the Company's Registration Statement (Registration No. 33-80595)
and incorporated herein by reference).
4.3 --Specimen Common Stock Certificate (previously filed as Exhibit 4.1 to
the Company's Registration Statement (Registration No. 33-80595) and
incorporated herein by reference).
5.1 --Opinion of Jones, Day, Reavis & Pogue (filed herewith).
23.1 --Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1).
23.2 --Consent of Ernst & Young LLP (filed herewith).
24.1 --Power of Attorney of the Company (filed herewith).
24.2 --Powers of Attorney of certain officers and directors of the Company
(filed herewith).
</TABLE>
ITEM 17. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on January 27, 1997.
Sterling Commerce, Inc.
By: /s/ Warner C. Blow
---------------------------------
WARNER C. BLOW Chief Executive
Officer and President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated on January 27, 1997.
SIGNATURES TITLE
/s/ Warner C. Blow Chief Executive Officer and
- ------------------------------------- President; Director
WARNER C. BLOW (Principal Executive Officer)
Steven P. Shiflet* Senior Vice President and Chief
- ------------------------------------- Financial Officer (Principal
STEVEN P. SHIFLET Financial and Accounting Officer)
Sterling L. Williams* Chairman of the Board; Director
- -------------------------------------
STERLING L. WILLIAMS
Sam Wyly* Director
- -------------------------------------
SAM WYLY
Charles J. Wyly, Jr.* Director
- -------------------------------------
CHARLES J. WYLY, JR.
Evan A. Wyly* Director
- -------------------------------------
EVAN A. WYLY
Robert E. Cook* Director
- -------------------------------------
ROBERT E. COOK
Honor R. Hill* Director
- -------------------------------------
HONOR R. HILL
* The undersigned, by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed on behalf
of the above-named officers and directors and filed herewith.
/s/ Albert K. Hoover
-------------------------------------
ALBERT K. HOOVER
Attorney-in-Fact
II-3
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
1.1 - Form of Underwriting Agreement (Filed herewith)
4.1 - Certificate of Incorporation of the Company, as amended (filed
herewith).
4.2 - Amended and Restated Bylaws of the Company (previously filed as Exhibit
3.2 to Company's Registration Statement (Registration No. 33-80595) and
incorporated herein by reference.
4.3 - Specimen Common Stock certificate (previously filed as Exhibit 4 and 1
to the Company's Registration Statement (Registration No. 33-80595)
incorporated herein by reference).
5.1 - Opinion of Jones, Day, Reavis & Pouge (filed herewith).
23.1 - Consent of Jones , Day, Reavis & Pouge (included in Exhibit 5.1).
23.2 - Consent of Ernst & Young L.L.P. (filed herewith).
24.1 - Power of Attorney of the Company (filed herewith).
24.2 - Powers of Attorney of certain officers and directors of the Company
(filed herewith).
<PAGE>
DRAFT OF JANUARY 28, 1997
EXHIBIT 1.1
12,500,000 Shares
STERLING COMMERCE, INC.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
----------------------
___________ __, 1997
Alex. Brown & Sons Incorporated
Goldman, Sachs & Co.
As Representatives of the Several Underwriters
c/o Alex. Brown & Sons Incorporated
1 South Street
Baltimore, Maryland 21202
Gentlemen:
Sterling Commerce, Inc., a Delaware corporation (the "Company"), proposes
to sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as representatives (the "Representatives") an
aggregate of 12,500,000 shares (the "Firm Shares") of the Company's Common
Stock, $.01 par value (the "Common Stock"). The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The Company also proposes to sell at the
Underwriters' option an aggregate of up to 1,875,000 additional shares of the
Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
<PAGE>
1. Representations and Warranties of the Company.
----------------------------------------------
(a) A registration statement on Form S-3 (File No. 333-________) with
respect to the Shares has been prepared by the Company in conformity in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission. The Company is permitted to use Form S-3. Copies
of such registration statement, including any amendments thereto, the
preliminary prospectuses (prepared in conformity in all material respects with
the requirements of the Rules and Regulations) contained therein and the
exhibits, financial statements and schedules, as finally amended and revised,
have heretofore been delivered by the Company to you. Such registration
statement, as amended, including a registration statement (if any) filed
pursuant to Rule 462(b) under the Act increasing the size of the offering
registered under the Act (the "Registration Statement"), which shall be deemed
to include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b) or (b) the last
preliminary prospectus included in the Registration Statement filed prior to the
time it becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus shall be
deemed to refer to and include any documents incorporated by reference therein,
and, in the case of any reference herein to any Prospectus, also shall be deemed
to include any supplements or amendments thereto, filed with the Commission
after the date of first filing of the Prospectus under Rules 424(b) or 430A, and
prior to the termination of the offering of the Shares by the Underwriters.
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Each of the subsidiaries of
the Company as listed in Exhibit 1(b) hereto (collectively, the "Subsidiaries")
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement. The Subsidiaries are the only
subsidiaries (as defined in Rule 405 under the Act), direct or indirect, of the
Company. The Company and each of the Subsidiaries are duly qualified to transact
business in all jurisdictions in which the conduct of their business requires
such qualification, except where the failure to be so qualified would not, in
the aggregate, have a material adverse effect on the business, financial
condition, assets or results of operations of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"). The outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable and are owned by the
2
<PAGE>
Company or another Subsidiary free and clear of all liens, mortgages, pledges,
charges, equities, claims or encumbrances of any kind (collectively, "Liens")
other than Liens that are disclosed in the Prospectus or that are not required
to be so disclosed; and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in the
Subsidiaries are outstanding.
(c) The outstanding shares of Common Stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable and no
preemptive rights of stockholders exist with respect to any of the Shares or the
issue and sale thereof. Neither the filing of the Registration Statement nor the
offering or sale of the Shares as contemplated by this Agreement gives rise to
any rights, other than those that have been waived or satisfied, for or relating
to the registration of any shares of Common Stock. Except as disclosed in the
Registration Statement, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(d) The Shares conform to the description thereof contained in the
Registration Statement. The form of certificate for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements that are required to be stated therein by, and will conform in all
material respects to, the requirements of the Act and the Rules and Regulations.
The documents incorporated by reference in the Prospectus, at the time filed
with the Commission, conformed in all respects to the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. None of the documents incorporated
by reference in the Prospectus, at the time filed with the Commission (or, if an
amendment with respect to any such document has been filed, when such amendment
was filed), contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and no further document incorporated by reference in
the Prospectus filed with the Commission will, when filed, contain any untrue
statement of a material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. No contract or document of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement is not so described or filed as
required. The Registration Statement does not contain, and no post-effective
amendment thereto will contain, any untrue statement of a material fact and the
Registration Statement does not omit, and no post-effective amendment thereto
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will omit, to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus does not contain,
and no amendment or supplement thereto effected on or after the date hereof will
contain, any untrue statement of material fact, and the Prospectus does not
omit, and no amendment or supplement thereto effected on or after the date
hereof will omit, to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Notwithstanding the foregoing, the
Company makes no representations or warranties as to any information contained
in or omitted from the Registration Statement or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter through
the Representatives, specifically for use in the preparation thereof.
(f) The consolidated financial statements of the Company and the
Subsidiaries (together with related notes and schedules) included or
incorporated by reference in the Registration Statement, present fairly, in all
material respects, the consolidated financial position, results of operations
and cash flows of the Company and the Subsidiaries at the indicated dates and
for the indicated periods. Such financial statements and related schedules have
been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved. The summary financial and
operating data included or incorporated by reference in the Registration
Statement presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements of the Company
included therein.
(g) Ernst & Young LLP are independent public accountants as required by
the Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise that if
determined adversely to the Company or any of the Subsidiaries would (a) have a
Material Adverse Effect or (b) prevent the consummation of the transactions
contemplated hereby.
(i) The Company and the Subsidiaries have good and marketable title to
all of the properties and assets reflected in the financial statements (or
disclosed in the Registration Statement) hereinabove described, free and clear
of all Liens except Liens reflected in such financial statements (or disclosed
in the Registration Statement) and Liens that are not required to be so
reflected (or disclosed). All material leases to which the Company or any
Subsidiary is a party are valid and binding, and no defaults have occurred or
are continuing under such leases that are having or would have a Material
Adverse Effect. The Company and/or one or more of the Subsidiaries enjoys
peaceful and undisturbed possession under each such lease with such exceptions
as, in the aggregate, do not materially interfere with the use made thereof by
the Company and/or one or more of the Subsidiaries.
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(j) This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except as to rights to indemnity and contribution
hereunder which may be limited by federal and state securities laws and subject
to bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting creditors' rights,
general equitable principles and public policy considerations.
(k) The Company and the Subsidiaries have filed or have had filed on
their behalf all Federal, state, local and foreign income tax returns that have
been required to be filed and have paid or had paid on their behalf all taxes
indicated by such returns and all assessments received by them or any of them to
the extent that such taxes and assessments have become due and are not being
contested in good faith.
(l) Except for changes, developments and transactions contemplated in the
Registration Statement, since the respective dates as of which information is
given in the Registration Statement, (a) there has not occurred any event having
a Material Adverse Effect or any development involving a prospective Material
Adverse Effect, whether or not occurring in the ordinary course of business, and
(b) there has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company or the
Subsidiaries, other than transactions in the ordinary course of business.
(m) Neither the Company nor any of the Subsidiaries is, or with the
giving of notice or lapse of time or both will be, in violation of or in default
under its charter or bylaws or under any agreement, lease, contract, indenture
or other instrument or obligation to which it is a party or by which it, or any
of its properties, is bound, except for any such violations or defaults that, in
the aggregate, would not have a Material Adverse Effect. The execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, any agreement, lease, contract, indenture or other instrument or
obligation to which the Company or any Subsidiary is a party, or of the charter
or bylaws of the Company or any Subsidiary or any order, rule or regulation
applicable to the Company or any Subsidiary of any court, regulatory,
administrative or other governmental body having jurisdiction except in any such
case for conflicts, breaches or defaults that, in the aggregate, would not have
a Material Adverse Effect.
(n) Each approval, consent, order, authorization, designation,
declaration or filing (collectively, "Consents") by or with any regulatory,
administrative or other governmental body required in connection with the
consummation of the execution and delivery by the Company of this Agreement and
the consummation by the Company of the transactions herein contemplated (except
such additional actions as may be required under the Act and the Rules and
Regulations, the Exchange Act and the rules and regulations thereunder or the
bylaws of the National Association of Securities Dealers, Inc. (the "NASD") or
such additional actions as may be necessary to qualify the Shares for public
offering by the Underwriters under state or foreign securities or Blue Sky laws)
has been obtained or made and is in full force and effect except where the
failure to obtain or make any
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such Consent, or the failure of any such Consent to be in full force and effect,
would not have, in the aggregate, a Material Adverse Effect.
(o) The Company and the Subsidiaries are operating in compliance with all
statutes, laws, regulations, ordinances or court decrees applicable to their
respective businesses and operations, except where such non-compliance would
not, in the aggregate, have a Material Adverse Effect. Neither the Company nor
any Subsidiary has violated any foreign, Federal, state or local law or
regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), or relating to discrimination in the
hiring, promotion or pay of, or to the wages and hours of, employees, except for
such violations as in the aggregate would not have a Material Adverse Effect.
(p) The Company and the Subsidiaries possess or have the right to use all
licenses, patents, patent rights, patent applications, inventions, trade
secrets, know-how, proprietary information and techniques, processes,
trademarks, service marks, trade names, computer software and copyrights
described or referred to in the Registration Statement as being owned or used by
them or that are necessary for the conduct of their business as described in the
Registration Statement, except to the extent that the failure to possess or to
have the right to use any such items, in the aggregate, would not have a
Material Adverse Effect. Any registrations covering such patents, trademarks,
service marks, trade names or copyrights owned by the Company or the
Subsidiaries are valid and subsisting, have not been canceled, abandoned or
otherwise terminated and, if applicable, have been duly issued or filed, except
where the failure of such registrations to be valid and subsisting or the
cancellation, abandonment or other termination of such registrations or the
failure to receive such issuances or make such filings, in the aggregate, would
not have a Material Adverse Effect. Neither the Company nor any Subsidiary is
aware of or has received any notice of infringement of, or conflict or claimed
conflict with, asserted rights of others with respect to any licenses, patents,
patent rights, patent applications, inventions, trade secrets, know-how,
proprietary information or techniques, including processes, trademarks, service
marks, trade names, computer software or copyrights, except where such
infringements or conflicts, in the aggregate, would not have a Material Adverse
Effect. The Company knows of no infringement by others of licenses, patents,
patent rights, patent applications, inventions, trade secrets, know-how,
proprietary information or techniques, including processes, trademarks, service
marks, trade names, computer software or copyrights owned by or licensed to the
Company, except where such infringements, in the aggregate, would not have a
Material Adverse Effect.
(q) Neither the Company nor, to the Company's knowledge, any of its
affiliates, has taken, directly or indirectly, any action designed to cause or
result in, or that has constituted or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock to facilitate the sale or resale of the Shares.
(r) Neither the Company nor any Subsidiary is an "investment company" or
a company "controlled" by an "investment company" within the meaning of such
terms under the Investment
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Company Act of 1940, as amended ("Investment Company Act"), and the rules and
regulations of the Commission thereunder.
(s) The Company and each of the Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective businesses and the value of their respective properties and
as is customary for companies engaged in similar businesses.
(t) Except to the extent that any of the following matters, in the
aggregate, would not have a Material Adverse Effect: (i) the Company and the
Subsidiaries are in compliance with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); (ii) no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company or any Subsidiary
would have any liability; (iii) neither the Company nor any Subsidiary has
incurred or expects to incur liability under (1) Title IV of ERISA with respect
to termination of, or withdrawal from, any "pension plan" or (2) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and (iv) each "pension
plan" for which the Company or any Subsidiary would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified and
nothing has occurred, whether by action or by failure to act, that would cause
the loss of such qualification.
(u) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act
------
Relating to Disclosure of Doing Business with Cuba, and the Company further
- --------------------------------------------------
agrees that if it commences engaging in business with the government of Cuba or
with any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.
(v) To the knowledge of the Company, there are no affiliations between or
among the Company's officers, directors or 5% stockholders or any affiliates
thereof and the NASD or any member or affiliate of any member of the NASD,
except as set forth in the Prospectus or as otherwise disclosed to the
Representatives.
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Company agrees to
sell to the Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $____ per share, the number
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<PAGE>
of Firm Shares set forth opposite the name of each Underwriter in Schedule I
hereof, subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
Federal (same-day) funds by wire transfer to an account designated by the
Company for such purpose against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters. Such payment and
delivery are to be made at the offices of Alex. Brown & Sons Incorporated,
1 South Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on
the third business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as you and the Company may
agree unless otherwise permitted by the Commission pursuant to Rule 15c6-1 of
the Exchange Act (such time and date being herein referred to as the "Closing
Date"). (As used herein, "business day" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York are open for
business and are not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations, warranties and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in whole
or in part, but only once, by giving written notice within 30 days after the
date of this Agreement, by you, as Representatives of the several Underwriters,
to the Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which certificates for
Option Shares are to be delivered shall be determined by the Representatives but
shall not be earlier than three nor later than ten full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to the total number of
Firm Shares being purchased, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Company. To the extent, if any, that the
option is exercised, payment for the Option Shares shall be made on the Option
Closing Date in Federal (same-day) funds by wire transfer to an account
designated by the Company for such purpose against delivery of certificates
therefor at the offices of Alex. Brown & Sons Incorporated, 1 South Street,
Baltimore, Maryland. The certificates for the Option Shares will be delivered in
such denominations and in such registrations
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as the Representatives request in writing not later than the second full
business day prior to an Option Closing Date, and will be made available for
inspection by the Representatives at least one business day prior to such Option
Closing Date.
3. Offering by the Underwriters.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public upon the terms
set forth in the Prospectus. The Representatives may from time to time
thereafter change the public offering price and other selling terms. To the
extent, if at all, that any Option Shares are purchased pursuant to Section 2
hereof, the Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Firm Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company.
-------------------------
(a) The Company will (i) use its best efforts to cause the Registration
Statement to become effective at the earliest possible time or, if the procedure
in Rule 430A of the Rules and Regulations is followed, to prepare and timely
file with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing information
previously omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations, (ii) not file any amendment
to the Registration Statement or supplement to the Prospectus or document
incorporated by reference therein of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or that is not in
compliance in all material respects with the Rules and Regulations and (iii)
file on a timely basis all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission subsequent to
the date of the Prospectus and prior to the termination of the offering of the
Shares by the Underwriters.
(b) The Company will advise the Representatives promptly and, if
requested by you, to confirm such advice in writing, (i) when the Registration
Statement or any post-effective amendment to the Registration Statement shall
have become effective, (ii) of receipt of any comments to the Registration
Statement or any post-effective amendment thereto from the Commission, (iii) of
any request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, the use of the Prospectus or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or of the
institution of any proceedings for that purpose and (v) of the happening of any
event during the period referred to in Section 4(d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the statements
therein not misleading.
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The Company will use its reasonable best efforts to prevent the issuance of any
such stop order preventing or suspending the use of the Prospectus and to obtain
as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in endeavoring to
qualify the Shares for sale under the securities laws of such jurisdictions as
the Representatives may reasonably have designated in writing and will make such
applications, file such documents and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction or take any action that would subject it to general
taxation in any jurisdiction. The Company will, from time to time, prepare and
file such statements, reports and other documents, as are or may be required to
continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, two copies of the Registration Statement and all amendments
thereto including all exhibits filed therewith, and will deliver to the
Representatives such number of copies of the Registration Statement (including
such number of copies of the exhibits filed therewith that may reasonably be
requested), including documents incorporated by reference therein, and of all
amendments thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act, the Rules and Regulations, the
Exchange Act and the rules and regulations of the Commission thereunder, in
connection with the completion of the distribution of the Shares contemplated by
this Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will either (i) prepare
and file with the Commission an appropriate amendment to the Registration
Statement or supplement to the Prospectus or (ii) prepare and file with the
Commission an appropriate filing under the Exchange Act which shall be
incorporated by reference in the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(f) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earnings statement
(that need not be audited) in reasonable detail,
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covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earning statement shall
comply with the requirements of Section 11(a) of the Act and the Rules and
Regulations (including, at the option of the Company, Rule 158, in which case
this Section 4(f) shall not be construed to require the Company to file any
report referred to in Rule 158 prior to the time at which such report is
otherwise due) and will advise you in writing when such statement has been so
made available.
(g) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and all other documents,
reports and information furnished by the Company to its stockholders generally
or filed with any securities exchange pursuant to the requirements of such
exchange or with the Commission pursuant to the Act or the Exchange Act that
relate to the Common Stock of the Company. The Company, for such period, also
will deliver to the Representatives similar reports with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations, that are not
consolidated in the Company's financial statements.
(h) The Company hereby agrees not to offer, sell, sell short, grant any
option to purchase or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock or
otherwise derivative of Common Stock for a period of 90 days after the date of
this Agreement, directly or indirectly, otherwise than hereunder, under the
Company's 1996 Stock Option Plan or with the prior written consent of Alex.
Brown & Sons Incorporated.
(i) The Company will use its reasonable best efforts to list, subject to
notice of issuance, the Shares on the New York Stock Exchange.
(j) The Company has caused each executive officer and director of the
Company identified in Exhibit 4(i) hereto to furnish to you, on or prior to the
date of this Agreement, a letter or letters, in form and substance satisfactory
to the Underwriters, pursuant to which each such person shall agree not to
offer, sell, sell short, grant any option to purchase or otherwise dispose of
any shares of Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock or otherwise derivative of Common Stock (or
agreement for such) owned by such person (or as to which such person has the
right to direct the disposition of) for a period of 90 days after the date of
this Agreement, directly or indirectly, except for transfers by gift or
otherwise without consideration or with the prior written consent of Alex. Brown
& Sons Incorporated (the "Lockup Agreements") [; provided, further, that upon
any such transfer by gift, the transfer thereof shall be bound by the terms and
provisions of such Lockup Agreement]. The Representatives, on behalf of
themselves and the other Underwriters, acknowledge and agree that the provisions
of Lockup Agreements shall not apply to any transaction involving Common Stock
or any other security to which such director or executive officer disclaims
beneficial ownership (as that term is used in Rule 13d-3 of the Rules and
Regulations).
(k) The Company shall apply the net proceeds of its sale of the Shares as
set forth in the Prospectus.
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(l) The Company shall not invest or otherwise use the proceeds received
by the Company from its sale of the Shares in such a manner as would require the
Company or any of the Subsidiaries to register as an investment company under
the Investment Company Act.
(m) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock.
(n) Until the completion of the offering of the Shares contemplated
hereby, the Company will not take, directly or indirectly, any action designed
to cause or result in, or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock.
5. Costs and Expenses.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of its obligations under this Agreement, including, without limiting
the generality of the foregoing, the following: accounting fees of the Company;
the fees and disbursements of counsel for the Company; the cost of printing or
otherwise reproducing and delivering to the Underwriters copies of the
Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including reasonable legal fees and disbursements) incident to
securing any required review by the NASD of the terms of the sale of the Shares;
the listing fee of the New York Stock Exchange; and the expenses, including the
reasonable fees and disbursements of counsel for the Underwriters (not to exceed
$2,000 in the aggregate), incurred in connection with the qualification of the
Shares under state securities or Blue Sky laws. The Company shall not, however,
be required to pay for any of the Underwriters' expenses (other than those
related to qualification under NASD regulations and state securities or Blue Sky
laws) except that, if this Agreement shall not be consummated because the
conditions in Section 6 hereof are not satisfied, or because this Agreement is
terminated by the Representatives pursuant to Section 11 hereof, or by reason of
any failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on its part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or omission of
any Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including reasonable fees and disbursements
of counsel, reasonably incurred in connection with investigating, marketing and
proposing to market the Shares or in contemplation of performing their
obligations hereunder; but the Company shall not in any event be liable to any
of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. Conditions of the Obligations of the Underwriters.
-------------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on an Option Closing Date are
subject to the accuracy, as of the
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Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Company contained herein, and to the
performance in all material respects by the Company of its covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and any post-effective amendment thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any request of
the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order or order of any nature by a Federal or state court
of competent jurisdiction shall have been issued that would prevent the issuance
of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Jones, Day, Reavis &
Pogue, counsel for the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Prospectus; each of the
Subsidiaries that has been created or organized in or under the laws of the
United States has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus, if so
described.
(ii) The Company has an authorized capitalization as set forth in
the Prospectus. [The issued and outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and non-
assessable. ] The Shares conform to the description thereof contained in
the Prospectus. The certificates evidencing the Common Stock comply in all
material respects with the requirements of the General Corporation Law of
the State of Delaware. The Shares, including the Option Shares, if any, to
be sold by the Company pursuant to this Agreement have been duly authorized
and, when issued and paid for as contemplated by this Agreement, will be
validly issued, fully paid and non-assessable. Except as disclosed in the
Prospectus, there are no preemptive rights of stockholders under the
Company's Third Amended and Restated Certificate of Incorporation or
Amended and Restated Bylaws or any other instrument filed as an exhibit to
(1) the Registration Statement or (2) any report incorporated by reference
in the Prospectus filed prior to the date of such opinion.
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(iii) To the knowledge of such counsel, the Registration Statement
became effective under the Act as of the date specified in the opinion and
no stop order proceedings with respect thereto have been instituted or are
pending or threatened by the Commission.
(iv) The Registration Statement (on the date it was declared
effective) and each report incorporated by reference therein and filed
prior to the date of such opinion (as of the date such report was filed
with the Commission) complied as to form in all material respects with the
requirements of the Act or the Exchange Act, as applicable, and the
applicable rules and regulations (except that such counsel need express no
opinion as to the operating statistics, the financial statements, related
schedules and other statistical and financial data included or incorporated
by reference therein and except for the information referred to under the
caption "Experts" as having been included in the Prospectus on the
authority of Ernst & Young LLP as experts).
(v) The statements under the caption "Description of Capital
Stock" in the Prospectus, insofar as such statements purport to summarize
the provisions of documents referred to therein, present fair summaries of
such provisions and, insofar as they purport to describe matters of law,
are accurate in all material respects.
(vi) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or to any
report incorporated by reference in the Prospectus filed prior to the date
of such opinion or required to be described in the Prospectus that are not
so filed or described as required, and statements contained in the
Prospectus, insofar as they purport to summarize the provisions of such
contracts and documents, present fair summaries of such provisions.
(vii) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, the charter or bylaws of the Company or any
of the Subsidiaries (other than those incorporated in jurisdictions outside
the United States), or any agreement or instrument filed as an exhibit to
(1) the Registration Statement, or (2) any report incorporated by reference
in the Prospectus prior to the date of such opinion.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company.
(ix) No Consent by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery of this Agreement by the Company and the consummation of the
transactions herein contemplated by the Company (other than as may be
required under the Act and the Rules and Regulations, the Exchange Act and
the rules and regulations thereunder, the bylaws of the NASD, state
securities and
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<PAGE>
Blue Sky laws or foreign laws or under any contract to which any
governmental entity is a party, as to which such counsel need express no
opinion) except such as have been obtained or made.
(x) The Company is not, and will not become, solely as a result of
the consummation of the transactions contemplated by this Agreement and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the Investment Company
Act.
Such counsel shall also have furnished to the Representatives a written
statement, dated the Closing Date or the Option Closing Date, as the case may
be, addressed to the Underwriters, to the effect that (i) such counsel has
participated in the preparation of the Registration Statement and (ii) based
upon such participation, no facts have come to the attention of such counsel
which lead it to believe that the Registration Statement (other than the
operating statistics, financial statements, related schedules and other
statistical and financial data included therein, as to which such counsel need
express no view), as of the time it became effective under the Act, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectus (other than the operating
statistics, financial statements, related schedules and other statistical and
financial data included therein, as to which such counsel need express no view),
as of the date of such written statement, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing opinion
and statement may be qualified by a statement to the effect that such counsel
has not independently verified the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (including
any report or other document incorporated or deemed to be incorporated by
reference therein).
(c) The Representatives shall have received from Vinson & Elkins L.L.P.,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii) and (vii) of Section 6(b). In addition to the matters
set forth above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel that leads them to believe
that (i) the Registration Statement, or any amendment thereto, as of the time it
became effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contains or contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
operating statistics, financial statements, related schedules and other
statistical and
15
<PAGE>
financial information contained therein). The foregoing opinion and statement
may be qualified by a statement to the effect that such counsel has not
independently verified the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus.
(d) The Representatives shall have received at or prior to the Closing
Date from Vinson & Elkins L.L.P. a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the state securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
(e) The Representatives shall have received, on each of the date hereof,
the Closing Date and the Option Closing Date, as the case may be, a letter dated
the date hereof, the Closing Date or the Option Closing Date, as the case may
be, in form and substance reasonably satisfactory to the Representatives, of
Ernst & Young LLP confirming that they are independent public accountants within
the meaning of the Act and the applicable published Rules and Regulations
thereunder and stating that in their opinion the financial statements and
schedules examined by them and included in the Registration Statement comply in
form in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations, and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates signed by
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them represents on behalf of the Company as follows:
(i) The Registration Statement has become effective under the Act,
no stop order suspending the effectiveness of the Registration Statement
has been issued, and, to such officer's knowledge, no proceedings for such
purpose have been taken or are contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1(a) hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424
or 430A under the Act have been made;
(iv) Such officer has examined the Registration Statement and the
Prospectus and, to such officer's knowledge, (1) as of the effective date
of the Registration Statement, the Registration Statement and Prospectus
did not include any untrue statement of a material fact and did not omit to
state a material fact required to be stated therein or necessary in order
to
16
<PAGE>
make the statements therein not misleading, and (2) since the effective
date of the Registration Statement, no event has occurred that should have
been set forth in a supplement to or an amendment of the Prospectus that
has not been so set forth in such a supplement or amendment;
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not occurred any event
having a Material Adverse Effect or any development involving a prospective
Material Adverse Effect, whether or not arising in the ordinary course of
business; and
(vi) The Company has, at or prior to the Closing Date, performed or
complied with all of the agreements herein contained and required to be
performed or complied with by the Company at or prior to the Closing Date.
(g) The Company shall have furnished to the Representatives such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Shares shall have been approved for listing upon official notice
of issuance on the New York Stock Exchange.
(i) The Lockup Agreements described in Section 4(j) shall have been
executed and delivered to the Representatives.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are reasonably
satisfactory to the Representatives and to Vinson & Elkins L.L.P., counsel for
the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement, the obligations
of the Underwriters hereunder may be terminated by the Representatives by
notifying the Company of such termination in writing or by telegram at or prior
to the Closing Date or the Option Closing Date, as the case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. Conditions of the Obligations of the Company.
--------------------------------------------
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
17
<PAGE>
8. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities to which such Underwriter or any such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse each Underwriter and each such controlling person upon demand
for any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding or in responding to a subpoena
or governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or proceeding;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, liability, action or proceeding arises
out of or is based upon (i) an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof or (ii) any
untrue statement or omission or alleged untrue statement or omission in a
Preliminary Prospectus if the Prospectus (or the Prospectus as amended and
supplemented) corrects the untrue statement or omission or the alleged untrue
statement or omission which is the basis of the loss, claim, damage, liability,
action or proceeding for which indemnification is sought and a copy of the
Prospectus (or the Prospectus as amended and supplemented) was not sent or given
to any person who received a Preliminary Prospectus, at or before the
confirmation of the sale to any person, in any case where such delivery is
required by the Act. The Company and the Underwriters acknowledge and agree that
the only information furnished by the Representatives to the Company for
inclusion in the Registration Statement or the Prospectus consists of the
information set forth in the last paragraph on the front cover page of the
Prospectus (insofar as such information relates to the Underwriters), the legend
that appears as the first paragraph on page 2 of the Prospectus and the
information under the caption "Underwriting" in the Prospectus. This indemnity
agreement will be in addition to any liability that the Company may otherwise
have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities to which the Company or any
such director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
18
<PAGE>
amendment or supplement thereto or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made, and will reimburse the Company, each such director,
officer or controlling person upon demand for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not the
Company or such director, officer or controlling person is a party to any action
or proceeding; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability that such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability that it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably acceptable to such indemnified
party and shall pay as incurred the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days of
presentation) the reasonable fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them or (iii) the indemnifying party shall have
failed to assume the defense and employ counsel reasonably acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate law firm for all such indemnified parties. Such firm shall be
designated in writing by the Representatives in the case of
19
<PAGE>
parties indemnified pursuant to Section 8(a) and by the Company in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party will indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under Section 8(a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions
20
<PAGE>
of this Section 8(d), (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discounts and commissions applicable to the
Shares purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter (or any person controlling
any Underwriter) or the Company (or their directors or officers) or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder and (iii) any termination of this Agreement. A successor to any
Underwriter, to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Firm Shares or
Option Shares, as the case may be, that such Underwriter has agreed hereunder to
purchase and pay for on such date (otherwise than by reason of any default on
the part of the Company), you, as Representatives of the Underwriters, shall use
your reasonable best efforts to procure within 24 hours thereafter one or more
of the other Underwriters, or any others, to purchase from the Company such
amounts as may be agreed and upon the terms set forth herein, the Firm Shares or
Option Shares, as the case may be, that the defaulting Underwriter or
Underwriters failed to purchase. If during such 24 hours you, as such
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be, that
they are obligated to purchase hereunder, to
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<PAGE>
purchase the Firm Shares or Option Shares, as the case may be, that such
defaulting Underwriter or Underwriters failed to purchase or (b) if the
aggregate number of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur exceeds 10% of the Firm Shares or
Option Shares, as the case may be, covered hereby, the Company or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 24-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company except to the extent provided in Section 8 hereof. In the
event of a default by any Underwriter or Underwriters, as set forth in this
Section 9, the Closing Date or the Option Closing Date, as the case may be, may
be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. Notices.
-------
All communications hereunder will be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 1 South Street, Baltimore, Maryland 21202, Attention: Alexander T.
Diagnault, with a copy to Alex. Brown & Sons Incorporated, 1 South Street,
Baltimore, Maryland 21202, Attention: General Counsel; if to the Company, to
Sterling Commerce, Inc., 8080 N. Central Expressway, Suite 1100, Dallas, Texas
75206 prior to February 24, 1997 and thereafter at 300 Crescent Court, Suite
1200, Dallas, Texas 75021, Attention: Jeannette P. Meier, Executive Vice
President and General Counsel, with a copy to Jones, Day, Reavis & Pogue, 2300
Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, Attention: Robert
L. Estep.
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any Material Adverse Effect or any
development involving a prospective Material Adverse Effect, whether or not
arising in the ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, escalation, declaration, emergency, calamity,
crisis or change on the financial markets of the United States would, in your
reasonable judgment, make it impracticable to market the Shares or to enforce
contracts for the sale of the Shares, (iii) suspension of trading in securities
generally on the New York Stock Exchange or limitation on prices (other than
limitations on hours or numbers of days of trading) for securities on such
Exchange, (iv) the enactment, publication, decree or other
22
<PAGE>
promulgation of any statute, regulation, rule or order of any court or other
governmental authority that in your reasonable opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) the suspension of trading of the Common Stock by the
Commission on the New York Stock Exchange or (vii) the taking of any action by
any governmental body or agency in respect of its monetary or fiscal affairs
that in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect, regardless of (a) any
investigation made by or on behalf of any Underwriter (or any person controlling
any Underwriter) or the Company (or its directors or officers) or any person
controlling the Company, (b) acceptance of any Shares and payment therefor
hereunder and (c) any termination of this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
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<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
STERLING COMMERCE, INC.
By:
-----------------------------------------
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
GOLDMAN, SACHS & CO.
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By:
----------------------------------
Authorized Officer
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<PAGE>
EXHIBIT 1(b)
Jurisdiction of
Name Incorporation
- ---- -------------
Domestic
- --------
Sterling Commerce, Inc., a Wyoming Corporation Wyoming
Sterling Commerce (America), Inc. Delaware
Sterling Commerce (Mid America), Inc.* Michigan
Sterling Commerce (Northern America), Inc. Delaware
Sterling Commerce (U.S.), Inc. Delaware
Sterling Commerce International, Inc. Delaware
Sterling Commerce Leasing, Inc. Delaware
International
- -------------
Sterling Commerce B.V. Netherlands
Sterling Commerce International SARL France
Sterling Commerce (France), SARL France
Sterling Commerce GmbH Germany
Sterling Commerce (UK), Limited United Kingdom
Sterling Electronic Commerce (Canada), Inc. Canada
Sterling Commerce International Sales Corporation Barbados
- ----------
* Subsidiary of Sterling Commerce (America), Inc.
25
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters to be Purchased
------------ ---------------------
<S> <C>
Alex. Brown & Sons Incorporated
Goldman, Sachs & Co.
-----------
Total
===========
</TABLE>
26
<PAGE>
EXHIBIT 4.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STERLING COMMERCE, INC.
Pursuant to the provisions of Section 245 of the Delaware General
Corporation Law (the "DGCL"), Sterling Commerce, Inc., a Delaware corporation
(the "Company"), does hereby certify as follows:
1. The name of the Company is Sterling Commerce, Inc.
2. The original Certificate of Incorporation of the Company was filed in
the office of the Secretary of State of the State of Delaware on December 1,
1995, under the name of December Corporation.
3. This Third Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 242 and 245 of the
DGCL.
4. The text of the Certificate of Incorporation of the Company is hereby
amended and restated in its entirety to read as follows:
ARTICLE I.
The name of the corporation is Sterling Commerce, Inc.
ARTICLE II.
The address of the corporation's registered office in the State of Delaware
is 1209 Orange 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 purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV.
The total number of shares of stock of all classes which the corporation
shall have authority to issue is 200,000,000, consisting of 150,000,000 shares
of Common Stock having a par value of $.01 per share, and 50,000,000 shares of
Preferred Stock having a par value of $.01 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
<PAGE>
designations, preferences and relative, participating, optional 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 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 shall
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 IV,
shares of any series of Preferred Stock may be issued from time to time as the
Board of Directors 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.
-2-
<PAGE>
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.
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,
amend or repeal the Bylaws of the corporation. Any bylaw made by the Board of
Directors under the powers conferred hereby may be amended or repealed by the
Board of Directors (except as specified in any such bylaw so made or amended) or
by the stockholders in the manner provided in the Bylaws. Notwithstanding the
foregoing and anything contained in this Certificate of Incorporation to the
contrary, Sections 1, 2 and 4 of Article II of the Bylaws, Sections 2, 3 and 4
of Article III of the Bylaws and Article X of the Bylaws may not be amended or
repealed by the stockholders, and no provision inconsistent therewith may be
adopted by the stockholders, without 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.
ARTICLE VI.
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:
A. Election of Directors. Election of directors need not be by
written ballot unless the Bylaws of the corporation shall so provide.
B. 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
-3-
<PAGE>
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 1997, another class to
hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1998, and another class to hold office initially
for a term expiring at the annual meeting of stockholders to be held in
1999, 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.
C. 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.
D. Newly Created Directorships and Vacancies. Subject to the
rights, if any, 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, newly created
directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, by a sole
remaining director, or, if there is no remaining director, by the
stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class
of directors in which the new directorship was created or the vacancy
occurred and until such director's successor has been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors may shorten the term of any incumbent director.
E. Removal. Subject to the rights, if any, of the holders of
any class or series of stock having a preference over the Common Stock as
to dividends or upon liquidation in respect of the election additional
directors under specified circumstances, any director may be removed from
office by the stockholders only for cause and only in the manner provided
in this Section 4. At any annual meeting or special meeting of the
stockholders, the notice of which states that the removal of a director or
directors is among the purposes of the meeting, the affirmative vote of the
-4-
<PAGE>
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, may remove such director or directors for
cause.
F. 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 amend or repeal, or adopt
any provisions inconsistent with, this Article VI or any provision hereof.
ARTICLE VII.
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.
ARTICLE VIII.
To the fullest extent permitted by the General Corporation Law of Delaware
as the same exists or may hereafter be amended, a director of the corporation
shall not be liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. Any amendment or repeal of, or
adoption of any provision inconsistent with, this Article VIII shall not
adversely affect any right or protection of a director of the corporation in
respect of any breach of fiduciary duty occurring in whole or in part prior to
such amendment or repeal.
ARTICLE IX.
Each person who is or was a director or officer of the corporation, and
each such director or officer who is or was serving at the request of the Board
of Directors or an officer of the corporation as an employee or agent of the
corporation or as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, whether for profit or not
for profit (including the heirs, executors, administrators or estate of such
person), shall be indemnified by the corporation to the full extent permitted by
the General Corporation Law of Delaware or any other applicable law as currently
or hereafter in effect. The right of indemnification provided in this Article
IX shall not be exclusive of any other rights to which any person seeking
indemnification may otherwise be entitled, including without limitation pursuant
to any contract approved by the Board of Directors (whether or not the
-5-
<PAGE>
directors approving such contract are or are to be parties to such contract or
similar contracts). Without limiting the generality or the effect of the
foregoing, the corporation may adopt Bylaws, or enter into one or more
agreements with any person, which provide for indemnification greater or
otherwise different than that provided in this Article IX or the General
Corporation Law of Delaware, and any such agreement approved by the Board of
Directors shall be a valid and binding obligation of the corporation regardless
of whether one or more members of the Board of Directors, or all members of the
Board of Directors, are parties thereto or to similar agreements. Any amendment
or repeal of, or adoption of any provision inconsistent with, this Article IX
shall not adversely affect any right or protection existing hereunder, or
arising out of events occurring or circumstances existing, in whole or in part,
prior to such amendment, repeal or adoption and no such amendment, repeal or
adoption, shall affect the legality, validity or enforceability of any contract
entered into or right granted prior to the effective date of such amendment,
repeal or adoption.
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.
Special meetings of stockholders of the corporation may be called only by
(i) the Chairman of the Board of the corporation, (ii) the President of the
corporation, or (iii) the Secretary of the corporation within 10 calendar days
after receipt of the written request of a majority of the total number of
directors then in office.
At any annual meeting or special meeting of stockholders of the Company,
only such business shall be conducted or considered as has been brought before
such meeting in the manner provided in the Bylaws.
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, the affirmative vote 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 amend or
repeal, or adopt any provisions inconsistent with, this Article X or any
provision hereof.
ARTICLE XI.
Upon the filing of this Third Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, each then
outstanding share of Common Stock will automatically and without further action
on the part of any
-6-
<PAGE>
person or entity be changed into 732,000 fully paid and nonassessable shares of
Common Stock.
This Third Amended and Restated Certificate of Incorporation shall be
effective on the date of its filing with the Secretary of State of the State of
Delaware.
EXECUTED effective as of March 4, 1996.
STERLING COMMERCE, INC.
By: /s/ Jeannette P. Meier
------------------------
Jeannette P. Meier,
Executive Vice President
ATTEST:
/s/ Albert K. Hoover
- --------------------
Albert K. Hoover,
Assistant Secretary
-7-
<PAGE>
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK
of
STERLING COMMERCE, INC.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
Sterling Commerce, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Company"), DOES HEREBY CERTIFY:
That, pursuant to authority vested in the Board of Directors of the Company
by its Certificate of Incorporation, and pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, the Board of
Directors of the Company has adopted the following resolution providing for the
issuance of a series of Preferred Stock:
RESOLVED, that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Company (hereinafter called the "Board of
Directors" or the "Board") by the Certificate of Incorporation of the Company, a
series of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of
the Company be, and it hereby is, created, and that the designation and amount
thereof and the powers, designations, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
I. Designation and Amount
----------------------
The shares of such series will be designated as Series A Junior
Participating Preferred Stock (the "Series A Preferred") and the number of
shares constituting the Series A Preferred is 1,500,000. Such number of shares
may be increased or decreased by resolution of the Board; provided, however,
-------- -------
that no decrease will reduce the number of shares of Series A Preferred to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Company convertible into shares of Series A Preferred.
<PAGE>
II. Dividends and Distributions
---------------------------
(a) Subject to the rights of the holders of any shares of any series
of Preferred Stock ranking prior to the shares of Series A Preferred with
respect to dividends, the holders of shares of Series A Preferred, in preference
to the holders of Common Stock, par value $0.01 per share (the "Common Stock"),
of the Company, and of any other junior stock, will be entitled to receive,
when, as and if declared by the Board out of funds legally available for the
purpose, dividends payable in cash on such dates as are from time to time
established for the payment of cash dividends on the Common Stock (each such
date being referred to herein as a "Dividend Payment Date"), commencing on the
first Dividend Payment Date after the first issuance of a share or fraction of a
share of Series A Preferred (the "First Dividend Payment Date"), in an amount
per share (rounded to the nearest cent) equal to the greater of (i) $1.00 or
(ii) subject to the provision for adjustment hereinafter set forth, one hundred
times the aggregate per share amount of all cash dividends, and one hundred
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock since the immediately preceding
Dividend Payment Date or, with respect to the First Dividend Payment Date, since
the first issuance of any share or fraction of a share of Series A Preferred.
In the event that the Company at any time (i) declares a dividend on the
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding shares of Common Stock, (iii) combines the
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of its capital stock in a reclassification of the outstanding
shares of Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), then, in each such case and regardless of whether any shares of
Series A Preferred are then issued or outstanding, the amount to which holders
of shares of Series A Preferred would otherwise be entitled immediately prior to
such event under clause (ii) of the preceding sentence will be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Dividends will accrue on outstanding shares of Series A
Preferred from the Dividend Payment Date next preceding the date of issue of
such shares, unless (i) the date of issue of such shares is prior to the record
date for the First Dividend Payment Date, in which case dividends on such shares
will accrue from the date of the first issuance of a share of Series A Preferred
or (ii) the date of issue is a Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Preferred
entitled to receive a dividend and before such Dividend Payment Date, in either
of which events such dividends will accrue from such Dividend Payment Date.
Accrued but unpaid dividends will cumulate from the applicable Dividend Payment
Date but will not bear interest. Dividends paid on the shares of Series A
Preferred in an amount less than the total amount of such dividends at the time
accrued and payable on such shares will be allocated pro rata on a
-2-
<PAGE>
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 (i) declares a dividend on
the outstanding shares of Common Stock payable in shares of Common Stock,
(ii) subdivides the outstanding shares of Common Stock, (iii) combines the
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of its capital stock in a reclassification of the
outstanding shares of Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), then, in each such case and
regardless of whether any shares of Series A Preferred are then issued or
outstanding, the number of votes per share to which holders of shares of
Series A Preferred would otherwise be entitled immediately prior to such
event will be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(b) Except as otherwise provided herein, in any other Preferred
Stock Designation creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred and the
holders of shares of Common Stock and any other capital stock of the
Company having general voting rights will vote together as one class on all
matters submitted to a vote of stockholders of the Company.
(c) Except as set forth in the Certificate of Incorporation or
herein, or as otherwise provided by law, holders of shares of Series A
Preferred will have no voting rights.
IV. Certain Restrictions
--------------------
(a) Whenever dividends or other distributions payable on the Series A
Preferred are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Preferred
outstanding have been paid in full, the Company will not:
-3-
<PAGE>
(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 in exchange for shares of any stock
of the Company ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the shares of Series A Preferred; or
(iv) Redeem, purchase or otherwise acquire for consideration any
shares of Series A Preferred, or any shares of stock ranking on a parity
with the shares of Series A Preferred, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board) to all
holders of such shares upon such terms as the Board, after consideration of
the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, may determine in good
faith will result in fair and equitable treatment among the respective
series or classes.
(b) The Company will not permit any majority-owned subsidiary of the
Company to purchase or otherwise acquire for consideration any shares of stock
of the Company unless the Company could, under paragraph (a) of this Article IV
purchase or otherwise acquire such shares at such time and in such manner.
V. Reacquired Shares
-----------------
Any shares of Series A Preferred purchased or otherwise acquired by the
Company in any manner whatsoever will be retired and canceled promptly after the
acquisition thereof. All such shares will upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock subject to the conditions and restrictions on
issuance set forth herein, in the Certificate of Incorporation of the Company,
or in any other Preferred Stock Designation creating a series of Preferred Stock
or any similar stock or as otherwise required by law.
-4-
<PAGE>
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 (i) declares a dividend on
the outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding shares of Common Stock, (iii) combines the
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues any shares of its capital stock in a reclassification of the outstanding
shares of Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), then, in each such case and regardless of whether any shares of
Series A Preferred are then issued or outstanding, the aggregate amount to which
each holder of shares of Series A Preferred would otherwise be entitled
immediately prior to such event under the proviso in clause (a) of the preceding
sentence will be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
VII. Consolidation, Merger, Etc.
---------------------------
In the event that the Company enters into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then, in each such case, each share of Series A Preferred will at the
same time be similarly exchanged for or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to one
hundred times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Company at any
time (a) declares a dividend on the outstanding shares of Common Stock payable
in shares of Common Stock, (b) subdivides the outstanding shares of Common
Stock, (c) combines the outstanding shares of Common Stock in a smaller number
of shares, or (d) issues any shares of its capital stock in a reclassification
of the outstanding shares of Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the
-5-
<PAGE>
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 Certificate of Designation is executed on
behalf of the Company by its Executive Vice President, Chief Financial Officer,
General Counsel and Secretary and attested by its Assistant Secretary this 18th
day of December, 1996.
/s/ Jeannette P. Meier
-----------------------------
Jeannette P. Meier,
Executive Vice President, Chief Financial
Officer, General Counsel and Secretary
Attest:
/s/ Dawn Wheeler
- -----------------------
Dawn Wheeler,
Vice President
-7-
<PAGE>
Exhibit 5.1
-----------
[Letterhead of Jones, Day, Reavis & Pogue]
January 28, 1997
Sterling Commerce, Inc.
8080 North Central Expressway
Suite 1100
Dallas, Texas 75206
Re: Registration of up to 14,375,000 Shares of Common Stock,
par value $.01 per share, of Sterling Commerce, Inc.
--------------------------------------------------------
Ladies and Gentlemen:
We are acting as special counsel to Sterling Commerce, Inc., a
Delaware corporation (the "Company"), in connection with the offering and sale
of up to 14,375,000 shares (the "Shares") of common stock, par value $.01 per
share, of the Company, pursuant to the Underwriting Agreement (the "Underwriting
Agreement") to be entered into among the Company and Alex. Brown & Sons
Incorporated and Goldman, Sachs & Co., as the representatives of the several
underwriters to be named in Schedule I to the Underwriting Agreement (the
"Underwriters").
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion. Based on such examination
and subject to the qualifications and limitations set forth below, we are of the
opinion that the Shares are duly authorized and, when issued and delivered to
the Underwriters pursuant to the Underwriting Agreement against payment of the
consideration therefor as provided therein in an amount in excess of the par
value thereof, will be validly issued, fully paid and nonassessable.
In rendering the foregoing opinion, we have (i) assumed the
authenticity of all documents represented to us to be originals, the conformity
to original documents of all copies of documents submitted to us, the accuracy
and completeness of all corporate records made available to us by the Company
and the genuineness of all signatures that purport to have been made in a
corporate, governmental, fiduciary or other capacity, and that the persons who
affixed such signatures had authority to do so, and (ii) relied as to certain
factual matters upon certificates of officers of the Company and public
officials, and we have not independently checked or verified the accuracy of the
statements contained therein. In addition, our examination of matters of law has
been limited to the General Corporation Law of the State of Delaware and the
federal laws of the United States of America, in each case as in effect on the
date hereof.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement on Form S-3 (the "Registration Statement") filed
by the Company to effect registration of the Shares under the Securities Act of
1933, as amended, and to the reference to us under the caption "Legal Matters"
in the Prospectus constituting a part of the Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
Jones, Day, Reavis & Pogue
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Sterling Commerce,
Inc. (the "Company"), for the registration of 14,375,000 shares of common stock,
par value $.01 per share of the Company, and to the incorporation by reference
therein of our report dated November 20, 1996, with respect to the consolidated
financial statements and schedule of the Company included in its Annual Report
(Form 10-K) for the year ended September 30, 1996, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
Dallas, Texas
January 27, 1997
<PAGE>
Exhibit 24.1
------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, on behalf of
Sterling Commerce, Inc., a Delaware corporation (the "Corporation"), hereby
constitutes and appoints Robert L. Estep, James E. O'Bannon and Sina R. Hekmat
the true and lawful attorney-in-fact, with full power of substitution and
resubstitution, for the Corporation to sign on the Corporation's behalf a
Registration Statement on Form S-3 (and any abbreviated registration statement
relating thereto permitted pursuant to Rule 462 under the Securities Act of
1933, as amended (the "Securities Act")), for the purpose of registering,
pursuant to the Securities Act, shares of common stock, par value $.01 per share
("Common Stock"), of the Corporation, and to sign any or all amendments and any
or all post-effective amendments to the Registration Statement (and any such
abbreviated registration statement), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney or attorneys-in-fact, each of
them with or without the others, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as it might or could do in
person, hereby ratifying and confirming all that said attorney or attorneys-in-
fact or any of them or their substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
STERLING COMMERCE, INC.
By: /s/ Warner C. Blow
-------------------------------------
Warner C. Blow,
President and Chief Executive Officer
Dated: January 27, 1997
<PAGE>
Exhibit 24.2
------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Jeannette P. Meier, Steven P. Shiflet, Albert K. Hoover, Robert L.
Estep, James E. O'Bannon and Sina R. Hekmat the true and lawful attorney-in-
fact, with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, to sign on his or her behalf, as a director or
officer, or both, as the case may be, of Sterling Commerce, Inc., a Delaware
corporation (the "Corporation"), a Registration Statement on Form S-3 (and any
abbreviated registration statement relating thereto permitted pursuant to Rule
462 under the Securities Act of 1933, as amended (the "Securities Act")), for
the purpose of registering, pursuant to the Securities Act, shares of common
stock, par value $.01 per share ("Common Stock"), of the Corporation, and to
sign any or all amendments and any or all post-effective amendments to the
Registration Statement (and any such abbreviated registration statement), and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney or attorneys-in-fact, each of them with or without the others, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney or attorneys-in-fact or any of them or their
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ Warner C. Blow /s/ Charles J. Wyly, Jr.
- -------------------------------- ----------------------------------
Warner C. Blow Charles J. Wyly, Jr.
/s/ Sterling L. Williams /s/ Evan A. Wyly
- -------------------------------- ----------------------------------
Sterling L. Williams Evan A. Wyly
/s/ Steven P. Shiflet /s/ Robert E. Cook
- -------------------------------- ----------------------------------
Steven P. Shiflet Robert E. Cook
/s/ Sam Wyly /s/ Honor R. Hill
- -------------------------------- ----------------------------------
Sam Wyly Honor R. Hill
Dated: January 27, 1997
