<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
--------------
STERLING COMMERCE, INC.
(Name of Registrant as specified in Its Charter)
--------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
STERLING COMMERCE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
January 27, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Sterling Commerce, Inc. to be held at the Company's offices at 4600 Lakehurst
Court, Dublin, Ohio, South Building, on Thursday, March 12, 1998, commencing
at 10:00 a.m. local time. All stockholders of record as of January 22, 1998
are entitled to vote at the Annual Meeting.
At the Annual Meeting, you will be asked to elect three Class B directors
for terms expiring at the Company's Annual Meeting of Stockholders in 2001.
You will also be asked to approve the Sterling Commerce, Inc. Employee Stock
Purchase Plan, which will permit full-time employees to acquire a proprietary
interest in the Company through the purchase of the Company's Common Stock.
The Company's Board of Directors unanimously recommends a vote FOR the
election of each of the three persons nominated to serve as a director.
Additionally, the Executive Committee of the Board unanimously recommends a
vote FOR approval of the Employee Stock Purchase Plan.
We hope that you will be able to attend the Annual Meeting. Whether or not
you plan to attend, you are urged to complete, sign, date and return the
enclosed proxy card without delay.
Sincerely,
Sterling L. Williams
Chairman of the Board
<PAGE>
STERLING COMMERCE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 12, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Sterling Commerce, Inc. (the "Company") will be held at the
Company's offices at 4600 Lakehurst Court, Dublin, Ohio, South Building, on
Thursday, March 12, 1998, commencing at 10:00 a.m. local time, for the
following purposes:
1. The election of three Class B directors for terms expiring at the
Company's Annual Meeting of Stockholders in 2001;
2. To consider and vote upon a proposal to approve the Sterling Commerce,
Inc. Employee Stock Purchase Plan; and
3. To consider and vote upon such other matters as may properly come before
the Meeting or any adjournment thereof.
The close of business on January 22, 1998 has been fixed as the record date
for determining stockholders entitled to notice of and to vote at the Meeting
or any adjournment thereof. For a period of at least 10 days prior to the
Meeting, a complete list of stockholders entitled to vote at the Meeting shall
be open to examination by any stockholder during ordinary business hours at
the offices of the Company at 300 Crescent Court, Suite 1200, Dallas, Texas
75201.
Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Proxy Statement.
YOUR VOTE IS IMPORTANT. STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE
MEETING IN PERSON ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE ACCOMPANYING ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
By Order of the Board of Directors
Jeannette P. Meier
Secretary
Dallas, Texas
January 27, 1998
<PAGE>
STERLING COMMERCE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 12, 1998
------------
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors (the "Board") of Sterling
Commerce, Inc. (the "Company") for use at the Annual Meeting of Stockholders
(the "Meeting") to be held at the Company's offices at 4600 Lakehurst Court,
Dublin, Ohio, South Building, on Thursday, March 12, 1998, commencing at 10:00
a.m. local time, or at such other time and place to which the Meeting may be
adjourned. This Proxy Statement, the Notice of Annual Meeting of Stockholders
and the accompanying proxy card are first being mailed to stockholders on or
about January 27, 1998.
At the Meeting, the stockholders of the Company will be asked to consider
and vote upon (i) the election of three Class B directors of the Company for
terms expiring at the Company's Annual Meeting of Stockholders in 2001, (ii) a
proposal to approve the Sterling Commerce, Inc. Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan" or the "Plan") and (iii) such other
matters as may properly come before the Meeting or any adjournment thereof.
All shares represented by valid proxies, unless the stockholder otherwise
specifies, will be voted (i) FOR the election of each of the three persons
named under "Election of Directors" as nominees for election as Class B
directors of the Company for terms expiring at the Company's Annual Meeting of
Stockholders in 2001, (ii) FOR the proposal to approve the Employee Stock
Purchase Plan and (iii) at the discretion of the proxy holders with regard to
any other matter that may properly come before the Meeting or any adjournment
thereof. Where a stockholder has appropriately specified how a proxy is to be
voted, it will be voted accordingly.
The proxy may be revoked at any time by providing written notice of such
revocation to BankBoston, N.A., P.O. Box 9381, Boston, Massachusetts 02205-
9956, or 150 Royall Street, Canton, Massachusetts 02021, which notice must be
received prior to the Meeting. If notice of revocation is not received prior
to the Meeting, a stockholder may nevertheless revoke a proxy if he or she
attends the Meeting and desires to vote in person.
RECORD DATE AND VOTING SECURITIES
The close of business on January 22, 1998 is the record date (the "Record
Date") for determining the stockholders entitled to vote at the Meeting, at
which time the Company had issued and outstanding 89,926,611 shares of Common
Stock, $.01 par value ("Common Stock"). The Common Stock constitutes the only
outstanding class of voting securities of the Company entitled to be voted at
the Meeting.
<PAGE>
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock is necessary to constitute
a quorum. Each share of Common Stock represented at the Meeting, in person or
by proxy, will be counted toward a quorum. If a quorum should not be present,
the Meeting may be adjourned from time to time until a quorum is obtained.
Each share of Common Stock is entitled to one vote with respect to each
proposal to be voted on at the Meeting. Cumulative voting is not permitted
with respect to the election of directors.
The accompanying proxy card is designed to permit each holder of Common
Stock as of the close of business on the Record Date to vote with respect to
the proposals set forth in this Proxy Statement. The proxy card provides space
for a stockholder to vote in favor of, or to withhold authority to vote for,
any or all nominees for election to the Board and to vote for or against, or
abstain from voting on, the proposal to approve the Employee Stock Purchase
Plan. Brokers will have discretionary voting authority with respect to the
proposals to be acted upon at the Meeting where beneficial owners do not
provide voting instructions.
To be elected, each nominee for Class B director must receive the
affirmative vote of the holders of a majority of the shares of Common Stock
present at the Meeting, in person or by proxy. Instructions to withhold
authority to vote for any nominee will be counted as shares present for
purposes of determining a quorum and will have the effect of a vote against
the nominee for which the vote was withheld. Broker non-votes will have no
effect on the outcome of the election of directors.
The affirmative vote of the holders of a majority of the shares of Common
Stock present at the Meeting, in person or by proxy, and entitled to vote at
the Meeting is required for the approval of the Employee Stock Purchase Plan.
Abstentions with respect to the proposal to adopt the Employee Stock Purchase
Plan will have the same effect as a vote against such proposal. Broker non-
votes will neither count for nor against this proposal and will therefore have
no effect on the vote with respect thereto.
PARTICIPANTS IN THE STERLING COMMERCE, INC.
SAVINGS AND SECURITY PLAN
A participant in the Sterling Commerce, Inc. Savings and Security Plan (the
"Savings Plan") will receive a voting instruction card relating to the shares
of Common Stock allocated to such participant in the Savings Plan. A properly
completed voting instruction card will serve as voting instructions to the
trustee of the Savings Plan. If a participant holds Common Stock outside of
the Savings Plan, such participant will also receive, in a separate mailing, a
proxy card relating to those shares. In order for all shares owned by, or
allocated under the Savings Plan to, a participant to be voted at the Meeting
in accordance with such participant's direction, the proxy card and the voting
instruction card received by the participant will need to be signed and
returned to BankBoston, N.A. Information in the voting instruction card will
not be disclosed to the Company.
2
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
INTRODUCTION
The Company's Certificate of Incorporation provides for a Board of Directors
divided into three classes, as nearly equal in number as possible, with the
term of office of one class expiring each year at the Company's Annual Meeting
of Stockholders. Each class of directors is elected for a term of three years,
except in the case of elections to fill vacancies or newly created
directorships.
NOMINEES FOR DIRECTOR
Warner C. Blow, Robert E. Cook and Charles J. Wyly, Jr. are the directors
whose terms expire at the Meeting, each of whom has been nominated for
reelection to serve for a term expiring at the Company's Annual Meeting of
Stockholders in 2001 or until his successor has been duly elected and
qualified. It is intended that the persons named in the proxy will vote for
the reelection of each of the three nominees. Each of the nominees has
indicated his willingness to continue to serve as a member of the Board if
elected. However, in case any nominee should become unavailable for election
to the Board for any reason not presently known or contemplated, the proxy
holders will have discretionary authority in that instance to vote the proxy
for a substitute nominee.
The Class B directors who are nominees for reelection at the Meeting are as
follows:
Warner C. Blow, age 60. Mr. Blow has served as President of the Company
since December 1995 and as Chief Executive Officer and a director of the
Company since October 1996. From December 1995 until October 1996, he also
served as Chief Operating Officer of the Company. Prior to December 1995, Mr.
Blow served as President of Sterling Software, Inc.'s Electronic Commerce
Group (the predecessor of the Company) from July 1993 and as an Executive Vice
President of Sterling Software, Inc. ("Sterling Software") from October 1989.
Prior to July 1993, Mr. Blow also served as President of Sterling Software's
former EDI Group.
Robert E. Cook, age 56. Mr. Cook has served as a director of the Company
since March 1996. Prior to July 1993, Mr. Cook served as Chairman and a
director of Systems Center, Inc., a computer software company that was
acquired by Sterling Software in July 1993. Mr. Cook currently also serves as
a director of Web Methods, Inc., a privately held provider of Internet-
oriented products based on Sun Microsystem's JavaTM language. Mr. Cook served
as Chairman of the Board of ROADSHOW International, Inc., a privately held
provider of computer-based routing solutions for private fleet operations,
until October 1997, when it was sold. He is also an officer of Pitchfork
Development, Inc., a privately held, Utah-based, real estate development
company. Mr. Cook is the Chairman of the Audit Committee and a member of the
Special Stock Option Committee of the Board.
Charles J. Wyly, Jr., age 64. Mr. Wyly has served as a director of the
Company since December 1995. Mr. Wyly co-founded Sterling Software in 1981 and
since such time has served as a director, and as Vice Chairman of Sterling
Software since 1984. He served as an officer and director of University
Computing Company, a computer software and services company, from 1964 to
1975, including President from 1969 to 1973. Mr. Wyly and his brother, Sam
Wyly, also a director of the Company, founded Earth Resources Company, an oil
refining and silver mining company, and Charles J. Wyly, Jr. served as its
Chairman of the Board from 1968 to 1980. Mr. Wyly served as Vice Chairman of
the Bonanza Steakhouse chain from 1967 to 1989. Mr. Wyly currently serves as
Vice Chairman of Michaels Stores, Inc., a specialty retail chain ("Michaels
Stores"). Mr. Wyly is a member of the Executive Committee and the Stock Option
Committee of the Board.
3
<PAGE>
CURRENT DIRECTORS
The current Class C directors of the Company, who are not standing for
reelection at the Meeting and whose terms will expire at the Company's Annual
Meeting of Stockholders in 1999, are as follows:
Sterling L. Williams, age 54. Mr. Williams has served as Chairman of the
Board of the Company 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 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.
Sam Wyly, age 63. Mr. Wyly has served as a director of the Company since
December 1995. Mr. Wyly co-founded Sterling Software in 1981, and since such
time has served as Chairman of the Board of Sterling Software. Companies
founded by Mr. Wyly were among the forerunners of the electronic commerce
industry. In 1963, he founded University Computing Company, which became one
of the largest computer services and software companies. His data transmission
company, Datran, Inc., was one of the pioneering telecommunications ventures
which broke up the telephone monopoly and led to the creation of today's
electronic commerce industry. Mr. Wyly currently serves as Chairman of the
Board of both Sterling Software and Michaels Stores and as a Partner of the
General Partner of Maverick Capital, Ltd., an investment fund management
company ("Maverick Capital"). Sam Wyly is the father of Evan A. Wyly. Mr. Wyly
is the Chairman of the Executive Committee and a member of the Stock Option
Committee of the Board.
The current Class A directors of the Company, who are not standing for
reelection at the Meeting and whose terms will expire at the Company's Annual
Meeting of Stockholders in 2000, are as follows:
Honor R. Hill, age 56. Mrs. Hill has served as a director of the Company
since March 1996. She has been a listed Christian Science practitioner since
1986 and a Christian Science lecturer since 1994. Mrs. Hill, who has an honors
degree in English from the University of Calgary in Alberta, served on the
Board of Trustees of the Christian Science Publishing Society, the
publications of which include the Christian Science Monitor, during its 1993-
1994 term. Mrs. Hill is a member of the Audit Committee and the Special Stock
Option Committee of the Board.
Evan A. Wyly, age 36. Mr. Wyly has served as a director of the Company since
December 1995. He has been a Managing Partner of Maverick Capital since 1991.
In 1988, Mr. Wyly founded Premier Partners, Incorporated, a private investment
firm, and served as its President prior to joining Maverick Capital. Mr. Wyly
also serves as a director and officer of both Sterling Software and Michaels
Stores.
BOARD OF DIRECTORS AND COMMITTEES
General. The business of the Company is managed under the direction of the
Board. The Board meets on a regularly scheduled basis during the Company's
fiscal year to review significant developments affecting the Company and to
act on matters requiring Board approval. It also holds special meetings when
an important matter requires Board action between scheduled meetings. The
Board met or acted by unanimous written consent 11 times during the fiscal
year ended September 30, 1997. During fiscal 1997, each member of the Board
participated in at least 75% of all Board and applicable committee meetings
held during the period for which he or she was a director.
The Board has established Executive, Audit and Option Committees to devote
attention to specific subjects and to assist the Board in the discharge of its
responsibilities. The functions of those committees, their current members and
the number of meetings held during fiscal 1997 are set forth below.
4
<PAGE>
Executive Committee. The Executive Committee is empowered to act on any
matter except those matters specifically reserved to the full Board by
applicable law. Sam Wyly (Chairman), Charles J. Wyly, Jr. and Sterling L.
Williams are the current members of the Executive Committee. The Executive
Committee met or acted by unanimous written consent 11 times during fiscal
1997. The Executive Committee was responsible for approving the Employee Stock
Purchase Plan and for determining executive compensation for fiscal 1997,
except for decisions relating to grants of stock options under the Company's
1996 Stock Option Plan (the "Option Plan").
Audit Committee. The Audit Committee recommends to the Board the appointment
of the firm selected to serve as independent auditors of the Company and its
subsidiaries and monitors the performance of such firm; reviews and approves
the scope of the annual audit and evaluates with the independent auditors the
Company's annual audit and annual consolidated financial statements; reviews
with management the status of internal accounting controls; evaluates issues
having a potential financial impact on the Company which may be brought to its
attention by management, the independent auditors or the Board; and evaluates
public financial reporting documents of the Company. Robert E. Cook (Chairman)
and Honor R. Hill are the current members of the Audit Committee. The Audit
Committee met three times during fiscal 1997.
Option Committees. The Stock Option Committee and the Special Stock Option
Committee (collectively, the "Option Committees") administer the Company's
Option Plan. In this capacity, the Option Committees have the authority,
subject to certain restrictions set forth in the Option Plan, to determine
from time to time the individuals to whom options are granted under the Option
Plan, the number of shares covered by each option grant, the time or times at
which options become exercisable and other terms and conditions of such
options. Although each of the Option Committees has the authority under the
Option Plan to make grants of options to any eligible participant, it is
anticipated that the Stock Option Committee will make grants to those
participants who are neither executive officers nor directors of the Company
and the Special Stock Option Committee will make grants to those participants
who are executive officers of the Company or members of the Board. Sam Wyly,
Charles J. Wyly, Jr. and Sterling L. Williams are the current members of the
Stock Option Committee. Honor R. Hill and Robert E. Cook are the current
members of the Special Stock Option Committee. The Stock Option Committee met
or acted by unanimous written consent four times during fiscal 1997. The
Special Stock Option Committee met or acted by unanimous written consent five
times during fiscal 1997.
Other. The Company does not have a nominating or compensation committee. The
functions customarily attributable to a nominating committee are performed by
the Board as a whole, and the functions customarily attributable to a
compensation committee generally are performed by the Executive Committee and
the Option Committees.
DIRECTOR COMPENSATION
Each director of the Company who is not also an employee of the Company or
any of its subsidiaries receives an annual fee of $30,000, plus $3,000 for
each meeting of the Board or a committee thereof that he or she attends during
the fiscal year. All directors are reimbursed for their out-of-pocket expenses
incurred in connection with attendance at meetings of the Board and Board
committees and other activities relating thereto.
Directors are also eligible to receive discretionary grants of options to
purchase shares of Common Stock under the terms of the Option Plan. During
fiscal 1997, Sterling L. Williams and Warner C. Blow, each of whom is both a
director and an executive officer of the Company, each received options to
purchase 1,000,000 shares of Common Stock. See "Management Compensation--
Option Grants During Fiscal 1997." Additionally, in fiscal 1997, Sam Wyly and
Charles J. Wyly, Jr. received options to purchase 1,000,000 and 500,000 shares
of Common Stock, respectively.
5
<PAGE>
PROPOSAL II
APPROVAL OF THE STERLING COMMERCE, INC.
EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
The Employee Stock Purchase Plan provides a systematic method for the
purchase of shares of Common Stock by employees of the Company. Pursuant to
the authority delegated to it by the Board, the Executive Committee
unanimously approved the Plan, subject to approval by the Company's
stockholders at the Meeting. The Executive Committee also reserved 4,000,000
shares of Common Stock for issuance under the Plan. No shares of Common Stock
will be issued pursuant to the Plan, however, unless and until the Plan is
approved by the stockholders at the Meeting. If so approved, the Plan will be
effective as of January 1, 1998.
The purpose of the Plan is to promote the interests of the Company by
aligning the interests of the employees and the Company's stockholders through
the ownership of Common Stock. Management believes that the Plan will be an
important factor in attracting and retaining qualified employees essential to
the continued success of the Company.
SUMMARY OF PROVISIONS OF THE EMPLOYEE STOCK PURCHASE PLAN
The following summary of the Plan is qualified in its entirety by the terms
of the Plan, a copy of which is attached to this Proxy Statement as Annex A.
Stockholders are urged to carefully read the Plan. Capitalized terms used and
not otherwise defined in this portion of the Proxy Statement have the meanings
ascribed to such terms in the Plan.
The Plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
Shares of Common Stock will be offered under the Plan through a series of
successive six-month periods (each a "Purchase Period") until such time as the
maximum number of shares of Common Stock authorized for issuance under the
Plan have been purchased or the Plan has been sooner terminated. Purchase
Periods will run from January 1 to June 30 and from July 1 to December 31. The
last business day of each Purchase Period is the "Purchase Date" on which
shares of Common Stock are actually purchased under the Plan. For each
Purchase Period, a Participant may authorize payroll deductions in any whole
multiple of 1% of the Participant's Compensation (defined generally under the
Plan to mean base salary and other cash compensation), up to a maximum of 25%.
In addition to payroll deductions, a Participant may make one additional lump-
sum contribution to the Plan during each Purchase Period in an amount not to
exceed $2,000.
The purchase price of shares acquired in any Purchase Period will be 85% of
the lesser of (a) the Fair Market Value of the shares on the first day of the
Purchase Period or (b) the Fair Market Value of the shares on the Purchase
Date. The closing price of the Company's Common Stock as reported on the New
York Stock Exchange on December 31, 1997 was $38.4375 per share.
Interest will be credited to the account of each Participant in the Plan on
each regular payroll date at a rate of interest, to be fixed for each Purchase
Period, equal to the six-month U.S. Treasury Bill rate in effect immediately
prior to the first day of each Purchase Period. No interest will be paid on
amounts credited to a Participant's account for less than a full pay period.
Participants may withdraw from the Plan at any time prior to the last 10
business days of each Purchase Period, whereupon their accrued payroll
deductions and any additional lump sum contribution will be refunded to them
with credited interest.
Any employee (including officers and directors who are employees) of the
Company, its domestic subsidiaries or non-U.S. subsidiaries that are from time
to time designated by the Board is eligible to participate in the Plan if that
employee is regularly expected to work at least 20 hours per week and for more
than five months during a year. However, no person who owns or holds options
to purchase or who, as a result of
6
<PAGE>
participation in the Plan, would own or hold options to purchase 5% or more of
the Common Stock of the Company is entitled to participate in the Plan. As of
November 15, 1997, approximately 1,678 U.S.-based employees, including eight
executive officers, were eligible to participate in the Plan. The Company also
intends to allow employees of the Company's non-U.S. subsidiaries to
participate in the Plan, and the Board or any duly authorized committee may
amend the Plan from time to time in order to accommodate participation by such
employees. Stockholder approval is not required for any such amendment to the
Plan.
Participation in the Plan is limited to Eligible Employees who authorize
payroll deductions prior to the start of a Purchase Period. A participating
employee's payroll deductions may not exceed 25% of that employee's
Compensation during any pay period. In addition, no Participant may purchase
shares with a Fair Market Value (determined on the first day of the Purchase
Period) exceeding $25,000 for each calendar year in which the Participant
participates in the Plan.
The Plan is administered by an administrator (the "Plan Administrator") who
is appointed by and serves at the discretion of the Board. The Plan
Administrator will administer and interpret the Plan. All determinations of
the Plan Administrator will be final and binding on all persons having an
interest in the Plan.
An aggregate of up to 4,000,000 shares of Common Stock may be issued under
the Plan, subject to adjustment in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification or
similar change in the Company's capital structure or in the event of any
merger, sale of assets or other reorganization of the Company. If any
Participant elects not to purchase shares in any Purchase Period, the shares
will remain available for issuance under the Plan.
The Plan authorizes the Board or any duly authorized committee to amend the
Plan from time to time, provided that no such amendment may increase the
number of shares of Common Stock reserved for issuance thereunder without
stockholder approval, except under the circumstances described above
concerning a change in the Company's capital structure. The Board is
authorized to terminate the Plan at any time, provided that no such
termination may suspend or terminate a currently pending Purchase Period, or
the rights of Participants to purchase shares of Common Stock on the related
Purchase Date.
The Plan provides that in the event of a Corporate Transaction (defined
generally as the sale of all or substantially all of the assets of the Company
in a complete liquidation or dissolution of the Company or a merger,
consolidation or other transaction in which the persons who owned the
Company's voting securities prior to the transaction cease to own a majority
of the Company's voting securities of the surviving or successor corporation
or other legal entity in such transaction), each Participant's right to
purchase Common Stock will be automatically exercised to the extent of the
Participant's accumulated payroll deductions, any additional lump-sum
contribution and credited interest as of a date immediately prior to the
Corporate Transaction.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES UNDER THE EMPLOYEE STOCK
PURCHASE PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Plan and does not attempt to describe all possible federal or any foreign,
state, local or other tax consequences of such participation or tax
consequences based on particular circumstances.
Assuming the Plan is qualified under Section 423 of the Code, the grant of
the right to purchase and the purchase of shares of Common Stock under the
Plan are not taxable. All tax consequences are deferred until the Participant
sells or otherwise disposes of shares or dies. The tax consequences of a
disposition of shares vary depending on the time period such shares are held
before their disposition. If a Participant disposes of shares within two years
after the first day of a Purchase Period in which such shares were acquired (a
"disqualifying disposition"), the Participant recognizes ordinary income in
the year of disposition in an amount equal to the difference between the Fair
Market Value of the shares on the Purchase Date and the purchase price paid
for such shares. Any additional resulting gain or loss recognized by the
Participant from the disposition of the shares
7
<PAGE>
is generally treated as a capital gain or loss. If the Participant disposes of
shares more than two years after the first day of a Purchase Period in which
such shares were acquired, the Participant recognizes ordinary income in the
year of disposition in an amount equal to the lesser of (i) the difference
between the Fair Market Value of the shares on the date of disposition and the
purchase price or (ii) 15% of the Fair Market Value of the shares on the first
day of a Purchase Period in which such shares were acquired. Any additional
gain or loss recognized by the Participant on the disposition of the shares
generally is a capital gain.
If the Participant disposes of shares in a disqualifying disposition, the
Company generally is entitled to a federal income tax deduction in an amount
equal to the ordinary income recognized by the Participant as a result of the
disposition, except to the extent such deduction is limited by applicable
provisions of the Code. In all other cases, no federal income tax deduction is
allowed the Company. Under generally accepted accounting principles, the
Company should not be required to recognize any compensation expense in
connection with the purchase or sale of shares by Participants pursuant to the
Plan.
EXECUTIVE COMMITTEE RECOMMENDATION
The Executive Committee believes that a vote for the proposal to approve the
Plan is in the best interests of the Company and its stockholders and
unanimously recommends a vote FOR such proposal.
8
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Stock by each director of the Company (which includes all
nominees), each of the Named Executive Officers (as defined below), the
directors and executive officers of the Company as a group and each person or
entity known by the Company to own 5% or more of the outstanding shares of
Common Stock. Unless otherwise indicated, each person or entity listed below
has sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
OWNED BENEFICIALLY(1)
-------------------------------
NAME NUMBER PERCENT OF CLASS
---- ------------ ----------------
<S> <C> <C>
Sterling L. Williams .......................... 4,006,370 (2) 4.3%
Warner C. Blow ................................ 755,157 (3) 2.2%
Jeannette P. Meier ............................ 276,842 (4) *
Paul L. H. Olson .............................. 100,102 (5) *
Stephen R. Perkins ............................ 45,639 (6) *
Sam Wyly ...................................... 2,089,860 (7) 2.4%
Charles J. Wyly, Jr. .......................... 1,716,146 (8) 1.9%
Evan A. Wyly .................................. 59,000 *
Robert E. Cook ................................ 29,592 (9) *
Honor R. Hill ................................. 25,000 (10) *
All executive officers and directors as a group
(13 persons) ................................. 8,860,105 (11) 9.2%
Alpha Assurances I.A.R.D. and related entities,
AXA and The Equitable Companies
Incorporated ................................. 6,782,429 (12) 7.5%
A I M Management Group Inc. ................... 4,018,325 (13) 4.5%
</TABLE>
- --------
* Less than 1%.
(1) The number of shares shown includes outstanding shares owned by the
person indicated on December 31, 1997 and shares underlying options owned
by such person on December 31, 1997 that were exercisable within 60 days
of such date. Persons holding shares of Common Stock pursuant to the
Savings Plan generally have sole voting power, but not investment power,
with respect to such shares.
(2) Includes 4,000,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan.
(3) Includes 750,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 5,157 shares of
Common Stock held pursuant to the Savings Plan.
(4) Includes 272,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 47 shares of Common
Stock held pursuant to the Savings Plan.
(5) Includes 94,400 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan. Also includes 1,575 shares of
Common Stock held pursuant to the Savings Plan and 159 shares owned by
Mr. Olson's son.
(6) Includes 45,000 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 639 shares of Common Stock
held pursuant to the Savings Plan.
(7) Includes 1,000,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan. Also includes 391,327
shares of Common Stock owned by family trusts of which Sam Wyly is
trustee and 698,533 shares of Common Stock (477,780 of which shares are
also beneficially owned by Charles J. Wyly, Jr.) held of record by two
limited partnerships of which Sam Wyly is a general partner.
(8) Includes 500,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan. Also includes 503,447
shares of Common Stock owned by family trusts of which Charles J. Wyly,
Jr. is trustee and 712,699 shares of Common Stock (477,780 of which
shares are also beneficially owned by Sam Wyly) held of record by two
limited partnerships of which Charles J. Wyly, Jr. is a general partner.
(9) Includes 25,000 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan. Also includes 3,000 shares of
Common Stock held by a trust of which Mr. Cook's wife is trustee and
1,592 shares held by a trust of which Mr. Cook is trustee.
(10) Includes 25,000 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan.
(11) Includes 226,250 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 5,927 shares of
Common Stock held pursuant to the Savings Plan by executive officers of
the Company not named in the table above.
(12) Based on a Schedule 13G filed on February 14, 1997 by (i) Alpha
Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage
Assurance Mutuelle, as a group, (ii) AXA and (iii) The Equitable
Companies Incorporated. It was reported that The Equitable Life Assurance
Society of the United States, Alliance Capital Management L.P.,
Donaldson, Lufkin & Jenrette Securities Corporation and Wood, Struthers
and Winthrop Management Corp., each of which is a subsidiary of The
Equitable Companies Incorporated, are deemed in the aggregate to have
sole voting power
(footnotes continue on following page)
9
<PAGE>
for 6,392,056 shares, shared voting power for 269,627 shares, sole
dispositive power for 6,752,222 shares and shared dispositive power for
26,228 shares. The address of Alpha Assurances I.A.R.D. Mutuelle and Alpha
Assurances Vie Mutuelle is 100-101 Terrasse Boieldieu, 92042 Paris La
Defense, France; the address of AXA Assurances I.A.R.D. Mutuelle and AXA
Assurances Vie Mutuelle is 21, rue de Chateaudun, 75009 Paris, France; the
address of AXA Courtage Assurance Mutuelle is 26, rue Louis le Grand, 75002
Paris, France; the address of AXA is 23, avenue Matignon, 75008 Paris,
France; and the address of The Equitable Companies Incorporated is 787
Seventh Avenue, New York, New York 10019. The information regarding
beneficial ownership of Common Stock by this group is included in reliance
upon a report filed with the Securities and Exchange Commission ("SEC") by
such parties, except that the percentage of Common Stock beneficially owned
is based upon the Company's calculations made in reliance upon the number
of shares of Common Stock reported to be beneficially owned by such parties
in such report and the number of shares of Common Stock outstanding on
December 31, 1997.
(13) Based on a Schedule 13G filed on February 12, 1997 by A I M Management
Group, Inc., on behalf of itself and its wholly owned subsidiaries, A I M
Advisors, Inc. and A I M Capital Management, Inc. (collectively "A I M"),
A I M is deemed to have shared voting and dispositive power with respect
to 4,018,325 shares. The address of A I M is 11 Greenway Plaza, Suite
1919, Houston, Texas 77046. The information regarding beneficial
ownership of Common Stock by A I M is included in reliance upon a report
filed with the SEC by A I M, except that the percentage of Common Stock
beneficially owned is based upon the Company's calculations made in
reliance upon the number of shares of Common Stock reported to be
beneficially owned by such person in such report and the number of shares
of Common Stock outstanding on December 31, 1997.
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid or accrued for services rendered to the Company and its subsidiaries
during each of the Company's last three fiscal years to the Chief Executive
Officer and each of the Company's four other most highly compensated executive
officers (collectively, the "Named Executive Officers"), based on salary and
bonus earned during the Company's fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS(2) COMPENSATION(3) OPTIONS(4) COMPENSATION
- --------------------------- ------- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams ... 1997 $650,000 $250,000 $ 0 1,000,000 $ 0
Chairman of the 1996 250,000 250,000 0 3,000,000 0
Board(5) 1995 750,000 450,000 168,833(6) 650,000 33,900
Warner C. Blow ......... 1997 550,000 250,000 158,483(7) 1,000,000 14,382(8)
President and Chief Ex- 1996 401,550 223,667 157,680(9) 1,000,000 13,950
ecutive Officer(5) 1995 348,000 251,114 93,293(10) 75,000 7,233
Jeannette P. Meier ..... 1997 300,000 150,000 0 250,000 2,375(11)
Executive Vice 1996 125,000 62,500 0 500,000 0
President and Secretary 1995 340,000 140,000 69,598(12) 125,000 7,860
Paul L. H. Olson ....... 1997 260,000 141,423 9,311(13) 200,000 6,295(14)
Executive Vice 1996 231,000 121,409 3,818(13) 200,000 6,130
President and 1995 185,000 126,901 668(13) 0 4,500
President, Commerce
Services Group
Stephen R. Perkins ..... 1997 228,000 131,701 7,904(13) 195,000 6,516(15)
Executive Vice 1996 202,964 102,889 19,243(13) 180,000 6,560
President and 1995 173,000 84,909 668(13) 4,100 4,500
President,
Communications Software
Group
</TABLE>
- --------
(1) Prior to the completion of the Company's initial public offering in March
1996 (the "Offering"), Mr. Williams and Ms. Meier did not receive
compensation or benefits from the Company or any of its subsidiaries.
Rather, each was compensated by the Company's former parent company,
Sterling Software. In accordance with SEC regulations, the information in
the table with respect to Mr. Williams and
(footnotes continue on following page)
10
<PAGE>
Ms. Meier for fiscal 1995 is based on salary and bonus paid or accrued for
services rendered to Sterling Software and its subsidiaries (including the
Company) during Sterling Software's fiscal year ended September 30, 1995,
and for fiscal 1996 is based on salary and bonus paid or accrued for
services rendered to the Company and its subsidiaries from the completion
of the Offering through September 30, 1996.
(2) Reflects bonus earned during the fiscal year. In some instances, the
payment of all or a portion of salary or bonus was deferred by the Named
Executive Officer to a subsequent year.
(3) Excludes perquisites and other personal benefits if the aggregate amount
of such compensation is less than the lesser of $50,000 or 10% of the
total annual salary and bonus reported for such Named Executive Officer.
(4) For fiscal 1995, reflects options issued by Sterling Software to acquire
shares of Sterling Software's common stock. For fiscal 1996 and 1997,
reflects options to acquire shares of Common Stock of the Company. Neither
the Company nor Sterling Software has granted stock appreciation rights.
(5) Sterling L. Williams served as Chief Executive Officer during fiscal 1996.
In October 1996, Mr. Williams resigned from that position and Warner C.
Blow was elected Chief Executive Officer of the Company.
(6) Includes a $47,897 payment for reimbursement of medical expenses, a
$44,222 bonus in the form of a housing allowance and a $55,541 payment for
reimbursement of taxes.
(7) Includes an $87,195 payment for reimbursement of taxes.
(8) Includes $4,500 in contributions to the Savings Plan and $9,450 in respect
of premiums on a life insurance policy for Mr. Blow's benefit.
(9) Includes $43,145 in incentive travel and a $63,673 payment for
reimbursement of taxes.
(10) Includes $46,724 in incentive travel and a $39,969 payment for
reimbursement of taxes.
(11) Includes $2,375 in contributions to the Savings Plan.
(12) Includes $30,012 in incentive travel and a $10,871 payment for
reimbursement of taxes.
(13) Consists of payments for reimbursement of taxes.
(14) Includes $4,500 in contributions to the Savings Plan and $1,795 in respect
of premiums on a life insurance policy for Mr. Olson's benefit.
(15) Includes $4,500 in contributions to the Savings Plan and $2,016 in respect
of premiums on a life insurance policy for Mr. Perkins' benefit.
OPTION GRANTS DURING FISCAL 1997
The following table provides information related to options to purchase
Common Stock granted by the Company to the Named Executive Officers during
fiscal 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE
INDIVIDUAL GRANTS(1) APPRECIATION FOR OPTION TERM (4)
---------------------------------------------------- ---------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES PER
NAME GRANTED(2) IN FISCAL 1997 SHARE(3) EXPIRATION DATE 5% 10%
---- ---------- -------------- -------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams ... 1,000,000 24.2% $25.50 October 22, 2006 $ 17,971,940 $ 43,721,799
Warner C. Blow ......... 1,000,000 24.2 25.50 October 22, 2006 17,971,940 43,721,799
Jeannette P. Meier ..... 250,000 6.1 25.50 October 22, 2006 4,492,985 10,930,450
Paul L.H. Olson ........ 100,000 2.4 25.50 October 22, 2006 1,797,194 4,372,180
100,000 2.4 32.00 September 9, 2007 1,951,379 5,002,711
Stephen R. Perkins ..... 95,000 2.3 25.50 October 22, 2006 1,707,334 4,153,571
100,000 2.4 32.00 September 9, 2007 1,951,379 5,002,711
</TABLE>
- --------
(1) The agreements underlying such options (the "Option Agreements") provide
that the options are immediately exercisable in the case of Mr. Williams,
and vest 25% each year on the anniversary of the grant date in the case of
each of the other Named Executive Officers. All such options have a ten-
year term and are transferable by the option holder.
(2) Reflects options to acquire shares of Common Stock. The Company has not
granted stock appreciation rights.
(3) The Option Agreements provide that the option exercise price may be paid in
cash, in shares of Common Stock owned by the Named Executive Officer or in
a combination of the foregoing. The exercise price was equal to the fair
market value of the Common Stock on the date of grant.
(4) The potential realizable value columns of the table above illustrate the
value that might be realized upon exercise of the options immediately prior
to the expiration of their terms, assuming the specified compounded rates
of appreciation of the price of the Common Stock over the terms of the
options. These amounts do not take into account provisions of certain
options providing for termination of the options following termination of
employment or vesting over periods of up to four years. The use of the
assumed 5% and 10% returns is established by the SEC and is not intended by
the Company to forecast possible future appreciation of the price of the
Common Stock.
11
<PAGE>
OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options to purchase
Common Stock issued by the Company and exercised by the Named Executive
Officers during fiscal 1997 and the number and value of options held at fiscal
year end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SEPTEMBER 30, 1997(1) SEPTEMBER 30, 1997(2)
------------------------- -------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams ... 0 -- 1,000,000 3,000,000 $10,437,500 $35,812,500
Warner C. Blow ......... 0 -- 0 2,000,000 0 22,375,000
Jeannette P. Meier ..... 0 -- 0 750,000 0 7,171,875
Paul L. H. Olson ....... 0 -- 0 400,000 0 3,825,000
Stephen R. Perkins ..... 0 -- 0 375,000 0 3,534,063
</TABLE>
- --------
(1) The Company has not granted stock appreciation rights.
(2) In accordance with SEC regulations, value was determined based upon the
per share closing price for Common Stock as reported by the New York Stock
Exchange on September 30, 1997 ($35 15/16) multiplied by the number of
shares of Common Stock of the Company underlying such options.
SERP
In connection with its acquisition of Informatics General Corporation in
1985, Sterling Software retained the Informatics Supplemental Executive
Retirement Plan II ("SERP II"). The Company has adopted the Sterling Commerce,
Inc. Supplemental Executive Retirement Plan ("SERP") to assume the obligations
of Sterling Software under the SERP II with respect to Warner C. Blow. Mr.
Blow is the only employee of the Company who participates in the SERP. No
other employee, including the Named Executive Officers, participates, or will
be eligible to participate, in the SERP. As of September 30, 1997, Mr. Blow
had accrued approximately 23 years of service under the SERP. The annual
benefit payable upon retirement at age 65 or above under the SERP is equal to
the lesser of (i) 2% of the participant's "final average pay," which is equal
to the highest average of the participant's base salary plus the participant's
bonuses (up to a maximum bonus amount not to exceed 50% of the participant's
base salary) over three consecutive years of service multiplied by the
participant's years of service, and (ii) 50% of the participant's final
average pay less the annuity equivalent of an account balance equal to 3% of
compensation for each year of service beginning with the calendar year of
participation in the SERP II plus interest at an assumed rate (collectively,
the "annuity offset"). For purposes of the annuity offset, the participant's
compensation is equal to the participant's taxable wages up to the limit on
qualified plan compensation for any calendar year under the Code. Benefits
paid under the SERP are adjusted in the event of disability or retirement
prior to age 65. Benefits are also adjusted annually, upward or downward, to
the extent that the increase or decrease, if any, in the Consumer Price Index
for the preceding calendar year over the Consumer Price Index for the next
preceding calendar year exceeds 5%. Benefits under the SERP are paid in the
form of a joint and 50% survivor annuity (unless a change in control of the
Company occurs) and are taxable as ordinary income.
In the event of a Change in Control of the Company (as defined in the SERP),
the participant's SERP benefit is calculated by giving the participant credit
for additional service equal to the number of months for which the participant
would be entitled to severance benefits upon a termination of employment
following the Change in Control and by calculating his base pay and bonus
during each year of such service at the rates in effect for the year in which
the Change in Control occurs. The present value of the SERP benefit as so
calculated is payable to the participant in a single lump sum on the first day
of the month following the Change in Control. If any portion of the SERP
benefit would result in an excess parachute payment subject to excise tax for
which no tax gross-up payment is provided under the participant's Change-in-
Control Agreement, an additional payment (net of income taxes) would be made
from the SERP to compensate the participant for the excise tax imposed on the
SERP benefit.
12
<PAGE>
The following table shows the estimated annual benefits payable upon
retirement at age 65 to the participant in SERP for the indicated level of
three-year average annual compensation and various periods of service. The
amounts shown in the table may be subject to the annuity offset.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$600,000........................... $180,000 $240,000 $300,000 $300,000 $300,000
700,000........................... 210,000 280,000 350,000 350,000 350,000
800,000........................... 240,000 320,000 400,000 400,000 400,000
900,000........................... 270,000 360,000 450,000 450,000 450,000
</TABLE>
CHANGE-IN-CONTROL AND SEVERANCE AGREEMENTS
The Company has entered into an agreement (a "Change-in-Control Agreement")
with each of the Named Executive Officers. Each Change-in-Control Agreement
provides for certain payments and benefits upon the termination of the
employment of such officer with the Company following a Change in Control (as
defined in such agreement). Each Change-in-Control Agreement covers
termination within a specified number of years after the date of a Change in
Control and requires the Company to pay to such officer, if prior to such
expiration his or her employment is terminated with or without cause by the
Company (other than upon such executive officer's death) or by such officer
upon the occurrence of certain constructive termination events, a lump-sum
amount equal to a multiple of such officer's annual salary, bonus and cash
incentive compensation preceding such termination and to continue certain
benefits for a specified number of months. The specified number of years, the
multiple and the specified number of months referred to in the immediately
preceding sentence are seven, 700% and 84, respectively, in the case of Mr.
Williams; five, 500% and 60, respectively, in the case of Mr. Blow; four, 400%
and 48, respectively, in the case of Ms. Meier; and two, 200% and 24,
respectively, in the case of Messrs. Olson and Perkins. In addition, if any
payments (including payments under the Change-in-Control Agreement, any stock
option agreement or otherwise) to such officer are determined to be "excess
parachute payments" under the Code, such officer would be entitled to receive
an additional payment (net of income taxes) to compensate such officer for the
excise tax imposed by the Code on such payments.
The Company has also entered into an agreement (the "Chairman Agreement")
with Sterling L. Williams, providing for a minimum base salary (subject to
mutually agreeable annual increases) and certain benefits plus such bonuses
and other benefits which the Company and Mr. Williams may agree upon. Mr.
Williams' base salary for fiscal 1998 is $650,000. Under the terms of the
Chairman Agreement, upon termination of Mr. Williams' employment as Chairman
of the Board of the Company by (i) the Company (with or without cause) or (ii)
Mr. Williams as a result of a reduction in his compensation or of the nature
or scope of his authority or duties, the Chairman Agreement will convert into
a seven-year consulting agreement. In such event, Mr. Williams would be
entitled to continue receiving compensation and certain benefits at the levels
specified in the Chairman Agreement. Prior to the expiration of its seven-year
term, the consulting agreement could be terminated by Mr. Williams at any time
and by the Company at Mr. Williams' death. In the event of termination of Mr.
Williams' employment following a Change in Control, at Mr. Williams' option,
the terms of his Change-in-Control Agreement may govern the termination in
lieu of conversion of the Chairman Agreement into a consulting agreement. In
the event of a Change in Control following conversion of the Chairman
Agreement into a consulting agreement, Mr. Williams would have the option of
terminating the consulting agreement and would be entitled to receive a lump-
sum amount equal to all compensation due through the unexpired portion of the
seven-year consulting agreement. In addition, the Chairman Agreement provides
that, in the event that Mr. Williams' employment with Sterling Software is
terminated (with or without cause) and Mr. Williams is willing and able to
devote his full-time efforts to the Company, the Company will offer to
increase his compensation and benefits paid by the Company to a level
reasonably equivalent to the combined compensation and benefits he is entitled
to receive from both the Company and Sterling Software immediately prior to
such termination. Mr. Williams has a similar agreement with Sterling Software.
If Mr. Williams' employment with the Company is terminated and he accepts
full-time employment with Sterling Software, Mr. Williams' rights to
compensation
13
<PAGE>
and benefits from the Company under the Chairman Agreement and his right to
convert the Chairman Agreement into a consulting agreement would terminate.
The Company has entered into an agreement (a "Severance Agreement") with
each of the Named Executive Officers (other than Mr. Williams), providing for
the continued compensation of such officer in the event that the Company
terminates his or her employment, with or without cause. Each of these
agreements will expire a specified number of years (five in the case of Mr.
Blow, four in the case of Ms. Meier and two in the case of Messrs. Olson and
Perkins) after the date on which notice of termination is given to the
executive officer by the Company. Each such agreement requires the Company to
continue to pay the officer, upon his or her termination from employment by
the Company, for a specified number of months (60 in the case of Mr. Blow, 48
in the case of Ms. Meier and 24 in the case of Messrs. Olson and Perkins), the
salary, bonus and certain benefits in effect prior to the termination of his
or her employment. In the event of a termination of employment following a
Change in Control, at the officer's option, the terms of his or her Change-in-
Control Agreement may govern such termination in lieu of the terms of the
Severance Agreement. In addition, Ms. Meier's Severance Agreement provides
that, in the event that her employment with Sterling Software is terminated
(with or without cause) and she is willing and able to devote her full-time
efforts to the Company, the Company will offer to increase her compensation
and benefits paid by the Company to a level reasonably equivalent to the
combined compensation and benefits she is entitled to receive from both the
Company and Sterling Software immediately prior to such termination. Ms. Meier
has a similar agreement with Sterling Software. If her employment with the
Company is terminated and she accepts full-time employment with Sterling
Software, her rights to compensation and benefits from the Company under the
Severance Agreement would terminate.
In addition to the above-described agreements, the Company has agreed to
reimburse each of the Named Executive Officers (other than Mr. Williams and
Ms. Meier) for certain legal, financial and other professional services.
REPORT OF THE EXECUTIVE AND OPTION COMMITTEES ON EXECUTIVE COMPENSATION
Overview and Philosophy. The Company is engaged in an industry in which
executives and key employees are the principal productive assets. The Company
faces an intensely competitive market for such persons. In order to succeed,
the Company believes that it must be able to attract and retain qualified
executives and other key employees. To achieve this objective, the Company
believes that its executive compensation policies must include two essential
components:
. A cash compensation arrangement, comprised principally of annual base
compensation and bonuses based on operating performance; and
. An equity compensation arrangement, comprised principally of stock option
awards that provide rewards for increases in the value of the Common
Stock.
The Board believes that, in the long run, the Company's executive
compensation policies should attempt to ensure that its executives and other
key employees are compensated at levels that, through a combination of
generous cash-and equity-based compensation components, effectively preempt
competitive offers. The Executive Committee and the Option Committees are
charged with the responsibility of carrying out this executive compensation
philosophy with respect to individual compensation decisions.
During fiscal 1997, the members of the Executive Committee had primary
responsibility for determining executive cash compensation levels. The
Executive Committee, as part of its review and consideration of executive cash
compensation, took into account, among other things, the following goals:
. Providing incentives and rewards to attract and maintain highly qualified
and productive people;
. Motivating employees to high levels of performance;
. Differentiating individual executives' pay based on performance;
. Preempting external competitive offers; and
. Ensuring internal equity.
14
<PAGE>
To achieve these goals, the Company's executive compensation policies
integrate annual base compensation with cash bonuses based on operating
performance with a particular emphasis on attainment of planned objectives,
and on individual initiatives and performance.
During fiscal 1997, the members of the Option Committees had primary
responsibility for determining awards of stock options as part of executive
compensation. The Option Committees, as part of their review and consideration
of awards of stock options, took into account, among other things, the same
goals as the Executive Committee in awarding cash compensation and the
additional goal of directly aligning the interests of executives with the
interests of the Company and its stockholders by ensuring that executives have
a direct and continuing stake in the long-term success of the Company. When
granting stock options, the Option Committees evaluate a number of criteria,
including the recipient's level of cash compensation, years of service with
the Company, position with the Company, the number of unexercised options held
by the recipient and other factors. The Option Committees have not established
formulas to assign specific weights to any of these factors when making their
determinations.
The Company maintains the Option Plan for its executive officers, as well as
directors, key employees, advisors and consultants. The Option Committees
believe that the grant of options aligns executive and stockholder long-term
interests by creating a strong and direct link between executive compensation
and stockholder return and enables executives to develop and maintain a
significant interest in the long-term growth and profitability of the Company.
All stock options granted during fiscal 1997 were granted at fair market value
on the date of grant.
Chief Executive Officer's Compensation for Fiscal 1997. In fiscal 1997, the
Company's Chief Executive Officer's compensation consisted of an annual base
salary, a cash incentive bonus, stock options and various benefits. Mr. Blow's
salary in fiscal 1997 was $550,000. Because there was no pre-established
formula for determining Mr. Blow's bonus for fiscal 1997, the Executive
Committee exercised its judgment in awarding Mr. Blow a bonus of $250,000 for
fiscal 1997. The Company's fiscal 1997 year-end results reflected record
revenue and profit performance in each of the Company's major worldwide
markets. Revenue increased 31% in fiscal 1997 over fiscal 1996, and earnings
per share from continuing operations increased 29% in fiscal 1997 over fiscal
1996 (excluding one-time reorganization and acquisition related charges). In
addition, the Executive Committee took into consideration Mr. Blow's key role
in the Company's successful acquisition of Automated Catalogue Services L.P.
("ACS"), the Company's largest acquisition since the Offering, as well as the
acquisition of Comfirst S.A. ("Comfirst") in February 1997 and the early
termination of the Company's International Marketing Agreement with Sterling
Software in June 1997. Based on these factors, the Executive Committee
concluded that Mr. Blow's outstanding performance for the Company merited his
bonus award. Mr. Blow was also granted options in fiscal 1997 to purchase
1,000,000 shares of Common Stock. See "--Option Grants During Fiscal 1997."
Compensation of Other Executive Officers. Compensation of the Company's
other executive officers is comprised of base salary, annual cash incentive
compensation, long-term incentive compensation in the form of stock options
and various benefits. Each element has a somewhat different purpose and all of
the determinations of the Executive Committee and Option Committees regarding
the appropriate form and level of executive compensation were ultimately
judgments based on such Committees' ongoing assessment and understanding of
the electronic commerce industry, the Company and the Company's executive
officers. In determining salaries for executive officers, the Executive
Committee considers the individual responsibility, experience and performance
of the Company's executive officers, as well as the Company's operating
performance and the attainment of financial and strategic objectives. In
establishing bonuses and other incentive compensation awards for fiscal 1997,
the Executive Committee and the Option Committees took into consideration the
same types of factors as were considered with respect to the Chief Executive
Officer.
The Company establishes for each fiscal year an incentive plan for certain
executives, including group presidents (the "Management Incentive Plan"), that
is based on operating profits. Pursuant to such plan, participants are
eligible to receive a bonus that is calculated as a percentage of the
operating profits for their
15
<PAGE>
respective operating unit or the Company. Under the Management Incentive Plan,
no participant will be entitled to a bonus if certain minimum performance
criteria are not met, provided the Chief Executive Officer may make
discretionary adjustments. Because the Management Incentive Plan does not
constitute an employment agreement, a participant's employment and
participation in such plan may be terminated at any time.
In August 1993, as part of the Omnibus Budget Reconciliation Act of 1993,
Section 162(m) of the Code was enacted, which section provides for an annual
$1,000,000 limitation on the deduction that an employer may claim for
compensation of certain executives. Section 162(m) of the Code provides
exceptions to the deduction limitation, and it is the intent of the Executive
Committee and the Option Committees to qualify for such exceptions to the
extent feasible and in the best interests of the Company. Option grants
pursuant to the Option Plan are intended to meet the performance-based
compensation exception to the deduction limitation.
This report is submitted by the members of the Executive, Stock Option and
Special Stock Option Committees:
<TABLE>
<CAPTION>
EXECUTIVE STOCK OPTION SPECIAL STOCK OPTION
COMMITTEE COMMITTEE COMMITTEE
--------- -------------------- --------------------
<S> <C> <C>
Sam Wyly Sterling L. Williams Robert E. Cook
Sterling L. Williams Charles J. Wyly, Jr. Honor R. Hill
Charles J. Wyly, Jr. Sam Wyly
</TABLE>
EXECUTIVE AND OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Executive Committee have been and will be primarily
responsible for determining executive compensation other than with respect to
grants of stock options. The Stock Option Committee and the Special Stock
Option Committee are responsible for determining grants of stock options. Each
of Sam Wyly, Sterling L. Williams and Charles J. Wyly, Jr. is a member of the
Executive Committee and the Stock Option Committee, and participated in
meetings with respect to executive officer compensation matters. Mr. Williams
is an executive officer of the Company.
Each of Sam Wyly and Charles J. Wyly, Jr. is an executive officer of both
Sterling Software and Michaels Stores and a member of the executive
committees, stock option committees and boards of directors of the Company,
Sterling Software and Michaels Stores. Each is also a member of the
compensation committee of Michaels Stores' Board of Directors. In addition,
Sterling L. Williams is a director and executive officer of both the Company
and Sterling Software and a member of the executive committees, stock option
committees and boards of directors of the Company and Sterling Software.
Accordingly, Sterling L. Williams has participated in decisions related to
compensation of executive officers of each of the Company and Sterling
Software, and Sam Wyly and Charles J. Wyly, Jr. have participated in decisions
related to compensation of executive officers of each of the Company, Sterling
Software and Michaels Stores. Evan A. Wyly, a director of the Company, is also
an executive officer and a director of Sterling Software and an executive
officer and a director of Michaels Stores. See "Certain Transactions."
16
<PAGE>
STOCK PERFORMANCE CHART
The following chart compares the percentage change in the cumulative total
stockholder return on the Company's Common Stock for the period commencing
March 8, 1996, the date the Common Stock first began trading on the New York
Stock Exchange on a when issued basis, and ending September 30, 1997 with the
cumulative total returns on the S&P 500 Index and the NASDAQ Computer & Data
Processing Index. The comparison assumes that $100 was invested on March 8,
1996 in the Company's Common Stock and that $100 was invested in each of the
foregoing indices on February 29, 1996, the last trading day of the month
preceding the month the Common Stock first began trading, and assumes
reinvestment of dividends.
[PERFORMANCE CHART APPEARS HERE]
<TABLE>
<CAPTION>
3/8/96 9/30/96 9/30/97
------ ------- -------
<S> <C> <C> <C>
Sterling Commerce, Inc................................... 100 123 150
S&P 500 Index............................................ 100 109 153
NASDAQ Computer & Data Processing Index.................. 100 113 153
</TABLE>
CERTAIN TRANSACTIONS
In anticipation of the Offering, the Company and Sterling Software entered
into various agreements (the "Intercompany Agreements"), including an
International Marketing Agreement pursuant to which Sterling Software acted as
the exclusive distributor of certain of the Company's products in markets
outside the United States and Canada. The Intercompany Agreements are further
described in the Company's Annual Report on Form 10-K which accompanies this
Proxy Statement. The International Marketing Agreement provided for the payment
of royalties to the Company equal to 50% of the revenue that Sterling Software
derived from licenses of the Company's interchange and communications software
products and related product support services. In fiscal 1997, the Company
received royalties of approximately $21,500,000 from Sterling Software under
the International Marketing Agreement, approximately $16,700,000 of which
related to royalties earned in fiscal 1997 and approximately $4,800,000 of
which related to royalties earned in fiscal 1996. Effective as of June 30,
1997, the Company and Sterling Software entered into an agreement terminating
the International Marketing Agreement. Contemporaneously with such termination,
the Company purchased certain assets formerly used by Sterling Software in
connection with the distribution of Sterling Commerce's products outside the
United States and Canada. In addition, the Company and Sterling Software
entered into certain short-term transitional
17
<PAGE>
arrangements relating to facilities sharing and administrative and other
services. In consideration of the termination of the International Marketing
Agreement and the purchase of assets described above, the Company (i) paid
Sterling Software $5,226,000 on June 30, 1997, (ii) subsequently paid Sterling
Software $10,076,000, which was equal to the net book value of the acquired
assets, and (iii) assumed certain liabilities of Sterling Software.
As a result of various transactions between the Company and Sterling
Software, including royalties due from Sterling Software under the
International Marketing Agreement as well as tax and other expenses charged to
the Company under the Intercompany Agreements, amounts payable to and
receivable from Sterling Software arise from time to time. At September 30,
1996, amounts due from Sterling Software totaled $35,134,000, which were
remitted to the Company by Sterling Software during fiscal 1997.
Sterling Software remains the guarantor of certain office lease and other
obligations of the Company incurred pursuant to agreements entered into prior
to the spin-off of the Company from Sterling Software. The aggregate amounts
due over the remaining terms of the agreements guaranteed by Sterling Software
is approximately $33,000,000. The Company is obligated to indemnify Sterling
Software for any liabilities incurred by Sterling Software as guarantor of
such obligations, and the Company has agreed to use reasonable efforts to
promptly obtain Sterling Software's release from its obligations under the
related guarantees. Sterling Software did not make any payments with respect
to such guarantees during fiscal 1997.
On February 20, 1997, David B. Shaev, who alleges he is a stockholder of the
Company, filed a derivative action in the Chancery Court in the State of
Delaware against the Company and each of the Company's directors, Sam Wyly,
Charles J. Wyly, Jr., Evan A. Wyly, Sterling L. Williams, Warner C. Blow,
Honor R. Hill and Robert E. Cook, alleging that such directors breached their
fiduciary duties by approving grants of excessive stock options to the
individual defendants. The plaintiff seeks rescission of such grants of stock
options, injunctive relief prohibiting the exercise of the options, the award
of damages to the Company and attorneys' fees and costs. The defendants have
denied the allegations in the complaint and intend to vigorously defend this
action.
INDEPENDENT AUDITORS
The Board has selected Ernst & Young LLP as independent auditors to examine
the Company's accounts for fiscal 1998. Representatives of Ernst & Young LLP
are expected to be present at the Meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of the Company's Common Stock, to file with the
SEC initial reports of ownership and reports of changes in ownership of the
Common Stock and all other equity securities of the Company beneficially owned
by them. Directors, executive officers and greater than 10% stockholders are
required to furnish the Company with copies of all Section 16(a) reports that
they file.
To the Company's knowledge, based solely on review of copies of such reports
furnished to the Company or written representations from certain reporting
persons, during the fiscal year ended September 30, 1997, all Section 16(a)
filing requirements applicable to the directors, executive officers and
greater than 10% stockholders were complied with by such persons, except one
report filed by Robert E. Cook with respect to the acquisition of 3,000 shares
of Common Stock by a trust of which Mr. Cook's wife is trustee was filed with
the SEC 14 days late.
18
<PAGE>
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for stockholder
action at subsequent annual meetings of the Company consistent with Rule 14a-8
promulgated under the Exchange Act. For such proposals to be considered for
inclusion in the Proxy Statement relating to the 1999 Annual Meeting of
Stockholders, such proposals must be received by the Company not later than
September 29, 1998. Such proposals should be directed to Sterling Commerce,
Inc., Attention: Secretary, at 300 Crescent Court, Suite 1200, Dallas, Texas
75201.
OTHER MATTERS
The Board of Directors knows of no other matters other than those described
herein that will be presented for consideration at the Meeting. However,
should any other matters properly come before the Meeting or any adjournment
thereof, it is the intention of the persons named in the accompanying proxy
card to vote in accordance with their best judgment in the interest of the
Company.
MISCELLANEOUS
All costs incurred in the solicitation of proxies will be borne by the
Company. In addition to the solicitation by mail, officers and employees of
the Company may solicit proxies by mail, telephone or in person, without
additional compensation. In accordance with SEC regulations, the Company will
also make arrangements with brokerage houses and other custodians, nominees
and fiduciaries to forward proxy solicitation materials to the beneficial
owners of Common Stock held of record by such persons, and the Company will
reimburse such brokerage houses and other custodians, nominees and fiduciaries
for their out-of-pocket expenses incurred in connection therewith. In
addition, Georgeson & Company has been retained by the Company to assist in
the solicitation of proxies and will solicit proxies by mail, telephone or in
person and may request brokerage houses and nominees to forward soliciting
material to beneficial owners of Common Stock. For these services, Georgeson &
Company will be paid a fee of $9,000, plus expenses.
The Company's Annual Report on Form 10-K, which includes the Company's
audited financial statements, accompanies this Proxy Statement.
ADDITIONAL COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K WILL BE
FURNISHED AT NO CHARGE TO EACH PERSON TO WHOM A PROXY STATEMENT IS DELIVERED
UPON RECEIPT OF A WRITTEN OR ORAL REQUEST OF SUCH PERSON ADDRESSED TO STERLING
COMMERCE, INC. ATTN: INVESTOR RELATIONS AT 4600 LAKEHURST COURT, DUBLIN, OHIO
43016 (TELEPHONE: (614) 793-7000).
By Order of the Board of Directors
Jeannette P. Meier
Secretary
Dallas, Texas
January 27, 1998
19
<PAGE>
ANNEX A
STERLING COMMERCE, INC.
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests of
Sterling Commerce, Inc. by providing eligible employees with the opportunity
to acquire a proprietary interest in the Corporation through participation in
an employee stock purchase plan designed to qualify under Section 423 of the
Code.
Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority and discretion to interpret
and construe any provision of the Plan, to adopt such rules and regulations
for administering the Plan as it may deem necessary, and to take any such
actions as may be necessary in order to comply with the requirements of
Section 423 of the Code. Decisions of the Plan Administrator shall be final
and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized but
unissued Common Stock, or shares of Common Stock held in the Corporation's
treasury. The maximum number of shares of Common Stock which may be issued
over the term of the Plan shall not exceed 4,000,000 shares.
B. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive purchase periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each purchase period shall have a duration of six (6) months. Purchase
periods shall run from January 1 to June 30 and from July 1 to December 31 of
each year.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the Effective Date shall
be eligible to participate in the Plan on the start date of any purchase
period under the Plan, provided such individual remains an Eligible Employee
on such start date.
B. Each individual who becomes an Eligible Employee after the Effective Date
shall be eligible to participate in the Plan on the start date of any purchase
period commencing thereafter, provided such individual remains an Eligible
Employee on such start date.
C. To participate in the Plan for a particular purchase period, the Eligible
Employee must complete the enrollment forms prescribed by the Plan
Administrator and file such forms with the Plan Administrator (or its
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designee) before the start date of the purchase period. An Eligible Employee's
enrollment in the Plan for a purchase period will remain in effect for all
subsequent purchase periods until modified or terminated by the Eligible
Employee or until he or she no longer qualifies as an Eligible Employee.
VI. PAYROLL DEDUCTIONS; CONTRIBUTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Compensation paid to the Participant during each purchase
period, up to a maximum of twenty-five percent (25%). The deduction rate so
authorized shall continue in effect for the entire purchase period. The
Participant may not increase his or her rate of payroll deduction during a
purchase period. However, the Participant may, at any time prior to the last
ten (10) Business Days of the purchase period, reduce his or her rate of
payroll deduction to any even percentage rate other than zero to become
effective prospectively as soon as administratively feasible after filing the
appropriate form with the Plan Administrator. The Participant may not,
however, effect more than one (1) such reduction per purchase period. In
addition, a Participant may prior to the last ten (10) Business Days of the
purchase period reduce his or her rate of payroll deductions to zero,
notwithstanding a prior reduction. If a Participant reduces his or her payroll
deductions to zero, the Participant's previous payroll deductions for the
purchase period will be applied to the purchase of shares of Common Stock on
the next Purchase Date, unless the Participant elects to terminate his or her
purchase rights for the purchase period in accordance with Section VII.E.
B. Payroll deductions shall begin on the first pay day of each purchase
period and shall (unless sooner terminated) continue through the pay day
ending with or immediately prior to the last day of the purchase period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, and Interest shall accrue and be credited on each pay day in the
purchase period on the balance credited to the Participant's account existing
throughout the pay period ending on such pay day. No interest will accrue or
be credited on any amounts that are credited to the Participant's account for
any period that is less than a full pay period. The amounts collected from the
Participant shall not be held in any segregated account or trust fund and may
be commingled with the general assets of the Corporation and used for general
corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of the
Participant's purchase right in accordance with the provisions of the Plan.
D. In addition to payroll deductions, a Participant may make one
Contribution to the Plan during each purchase period. A Contribution may be
made in cash, by personal check or in any other form permitted from time to
time by the Plan Administrator. All Contributions will be credited to the
Participant's book account and will be credited with Interest for the purchase
period in which the Contribution is made. Such Interest will accrue and be
credited to the Participant's account in the same manner as Interest is
accrued and credited to the Participant's account under paragraph B of this
Section. An Eligible Employee who has not authorized payroll deductions, or
who has terminated payroll deductions, for a purchase period may not
thereafter make a Contribution to the Plan for such purchase period.
E. Subject to Section VIII, the Participant's acquisition of Common Stock
under the Plan on any Purchase Date shall neither limit nor require the
Participant's acquisition of Common Stock on any subsequent Purchase Date.
VII. PURCHASE RIGHTS
A. A Participant shall be granted a separate purchase right on the start
date of each purchase period in which he or she participates. The purchase
right shall provide the Participant with the right to purchase shares of
Common Stock on the Purchase Date upon the terms set forth below. Under no
circumstances shall purchase rights be granted under the Plan to any Eligible
Employee if such individual would, immediately after the grant, own (within
the meaning of Section 424(d) of the Code) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
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<PAGE>
B. Each purchase right shall be automatically exercised on the Purchase
Date, and shares of Common Stock shall accordingly be purchased on behalf of
each Participant (other than any Participant whose payroll deductions have
previously been refunded in accordance with paragraph E below) on such date.
The purchase shall be effected by applying the Participant's Account Balance
as of the close of the purchase period for such Purchase Date to the purchase
of shares of Common Stock (subject to the limitations on the maximum number of
shares purchasable per Participant under this Section VII or Section VIII) at
the Purchase Price in effect for that purchase period.
C. The number of shares of Common Stock purchasable by a Participant on each
Purchase Date shall be the number of whole shares obtained by dividing the
Participant's Account Balance as of the close of the purchase period by the
Purchase Price in effect for that Purchase Date. However, the maximum number
of shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed 3,000 shares.
D. Any portion of the Participant's Account Balance that is not applied to
the purchase of shares of Common Stock on any Purchase Date because such
portion is not sufficient to purchase a whole share of Common Stock shall be
held for the purchase of Common Stock on the next Purchase Date, unless the
Participant has elected not to participate during the next purchase period, in
which case the Participant's entire remaining Account Balance shall be
refunded to the Participant as soon as administratively feasible. In addition,
any portion of the Participant's Account Balance not applied to the purchase
of Common Stock by reason of the limitation on the maximum number of shares
purchasable by the Participant on the Purchase Date shall be refunded as soon
as administratively feasible.
E. The following provisions shall govern the termination of outstanding
purchase rights:
(i) A Participant may, at any time prior to the tenth Business Day
immediately preceding the Purchase Date for the purchase period, terminate
his or her outstanding purchase right by filing the appropriate form with
the Plan Administrator (or its designee), and no further payroll deductions
shall be collected from the Participant and no subsequent Contribution may
be made by the Participant for the purchase period in which such
termination occurs. The Participant's entire Account Balance as of the date
of such termination shall be refunded as soon as administratively feasible.
(ii) The termination of such purchase right shall be irrevocable, and the
Participant may not subsequently rejoin the purchase period for which the
terminated purchase right was granted. In order to resume participation in
any subsequent purchase period, such individual must re-enroll in the Plan
(by making a timely filing of the prescribed enrollment forms) on or before
the start date of the new purchase period.
(iii) Should the Participant cease to remain an Eligible Employee for any
reason (including death, disability or change in status) while his or her
purchase right remains outstanding, then that purchase right shall
immediately terminate, and the Participant's entire Account Balance as of
the date such person is no longer an Eligible Employee shall be refunded as
soon as administratively feasible. However, should the Participant cease to
remain in active service by reason of an approved unpaid leave of absence,
then the Participant shall have the right, exercisable up until the tenth
Business Day immediately preceding the Purchase Date for the purchase
period in which such leave commences, to (a) withdraw his or her entire
Account Balance, or (b) have such Account Balance held for the purchase of
shares at the next scheduled Purchase Date. Upon the Participant's return
to active service, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave began,
unless the Participant elected to withdraw his or her Account Balance for
the purchase period in which the leave commenced.
(iv) Notwithstanding any other provision of the Plan to the contrary, a
Participant's purchase rights with respect to a purchase period shall
terminate, and his or her Account Balance shall be refunded as soon as
administratively feasible, if the Participant's employment with the
Participating Corporations terminates for any reason on or before the
Purchase Date for such purchase period.
F. Each outstanding purchase right shall automatically be exercised,
immediately prior to the effective date of any Corporate Transaction, by
applying the Participant's Account Balance for such purchase period to the
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<PAGE>
purchase of shares of Common Stock at a Purchase Price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share
of Common Stock on the start date of the purchase period in which such
Corporate Transaction occurs or (ii) the Fair Market Value per share of Common
Stock immediately prior to the effective date of such Corporate Transaction.
However, the applicable limitation on the number of shares of Common Stock
purchasable per Participant shall continue to apply to any such purchase. The
Corporation shall use reasonable efforts to provide prior written notice of
the occurrence of any Corporate Transaction, and Participants shall, following
the receipt of such notice, have the right to terminate their outstanding
purchase rights prior to the effective date of the Corporate Transaction.
G. Should the total number of shares of Common Stock which are to be
purchased pursuant to outstanding purchase rights on any particular date
exceed the number of shares then available for issuance under the Plan, the
Plan Administrator shall make a pro-rata allocation of the available shares on
a uniform and nondiscriminatory basis, and the Account Balance of each
Participant, to the extent in excess of the aggregate Purchase Price payable
for the Common Stock pro-rated to such individual, shall be refunded.
H. The purchase right shall be exercisable only by the Participant and shall
not be assignable or transferable by the Participant.
I. A Participant shall have no stockholder rights with respect to the shares
subject to his or her outstanding purchase right until the shares are
purchased on the Participant's behalf in accordance with the provisions of the
Plan and the Participant has become a holder of record of the purchased
shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common Stock
pursuant to any purchase right outstanding under this Plan if and to the
extent such rights, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on
the date or dates such rights are granted) for each calendar year such rights
are at any time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding purchase
right shall accrue on the Purchase Date in effect for the purchase period
for which such right is granted.
(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock under one (1) or more
other purchase rights in an amount equal to Twenty-Five Thousand Dollars
($25,000) worth of Common Stock (determined on the basis of the Fair Market
Value per share on the date or dates of grant) for each calendar year such
rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular purchase period, then the
Participant's Account Balance with respect to such purchase right shall be
refunded as soon as administratively feasible.
D. In the event there is any conflict between the provisions of this Article
and one or more provisions of the Plan or any instrument issued thereunder,
the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on November 7, 1997, and shall become
effective on the Effective Date, provided no purchase rights granted under the
Plan shall be exercised, and no shares of Common Stock
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<PAGE>
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration
of the shares of Common Stock issuable under the Plan on a Form S-8
registration statement filed with the Securities and Exchange Commission), all
applicable listing requirements of any stock exchange on which the Common
Stock is listed for trading and all other applicable requirements established
by law or regulation. In the event such stockholder approval is not obtained,
or such compliance is not effected, within six (6) months after the date on
which the Plan is adopted by the Board, the Plan shall terminate and have no
further force or effect and the Participants' Account Balances for the initial
purchase period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate upon the
earliest to occur of (i) the last Business Day in December 2007, (ii) the date
on which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT OF THE PLAN
A. The Plan may be amended from time to time by the Board or any duly
authorized committee thereof. In the event any law, or any rule or regulation
issued or promulgated by the Internal Revenue Service, the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., any
stock exchange upon which the Common Stock is listed for trading, or any other
governmental or quasi-governmental agency having jurisdiction over the
Corporation, the Common Stock or the Plan, requires the Plan to be amended, or
in the event Rule 16b-3 under Section 16 of the 1934 Act is amended or
supplemented (e.g., by addition of alternative rules) or any of the rules
under Section 16 of the 1934 Act are amended or supplemented, in either event
to require or permit the Corporation to add, remove or lessen any restrictions
on or with respect to purchase rights under the Plan, the Plan Administrator
and the Board each reserves the right to amend the Plan to the extent of any
such requirement, amendment or supplement, and all purchase rights then
outstanding will be subject to such amendment.
B. The Plan may be terminated at any time by action of the Board. The
termination of the Plan will not adversely affect the terms of any outstanding
purchase rights.
C. Notwithstanding the foregoing, the Board may not, without the approval of
the Corporation's stockholders, increase the number of shares of Common Stock
issuable under the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such
person), which rights are hereby expressly reserved by each, to terminate such
person's employment at any time for any reason, with or without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Account Balance shall mean the sum of a Participant's payroll deductions,
credited Interest, and Contribution (if any) as of any given date.
B. Board shall mean the Corporation's Board of Directors or any authorized
committee thereof.
C. Business Day shall mean each day on which the New York Stock Exchange is
open for business.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock, par value $0.01
per share.
F. Compensation means the following items of remuneration paid to a
Participant by one or more Participating Corporations during each purchase
period: base salary, commissions and cash incentive compensation, computed
before giving effect to the Participant's election to defer compensation under
the Sterling Commerce, Inc. Deferred Compensation Plan or salary reduction
elections under Section 125 or Section 401(k) of the Code.
G. Contribution shall mean a Participant's contribution for a purchase
period in an amount that does not exceed $2,000 and which is made before the
tenth Business Day immediately preceding the Purchase Date for the purchase
period.
H. Corporate Affiliate shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424, whether
now existing or subsequently established).
I. Corporate Transaction shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
(i) a merger, consolidation or other transaction in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially all
of the assets of the Corporation in complete liquidation or dissolution of
the Corporation.
J. Corporation shall mean Sterling Commerce, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or
voting stock of Sterling Commerce, Inc. which shall by appropriate action
adopt the Plan.
K. Effective Date shall mean January 1, 1998.
L. Eligible Employee shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly
expected to render at least twenty (20) hours of service per week for more
than five (5) months per calendar year for earnings considered wages under
Code Section 3401(a).
M. Employee shall mean an individual who is in the employ of the Corporation
or any Corporate Affiliate.
N. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is
A-6
<PAGE>
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any stock exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the stock exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
O. Interest shall mean an additional amount of compensation calculated at
the annual rate of interest of six month Treasury bills as in effect on the
last day of the month immediately preceding the applicable purchase period
during which such compensation is credited, prorated for periods of less than
365 days.
P. 1933 Act shall mean the Securities Act of 1933, as amended.
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
R. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
S. Participating Corporation shall mean the Corporation, each Corporate
Affiliate that is a direct or indirect domestic subsidiary of the Corporation
and each other Corporate Affiliate that is authorized from time to time by the
Board to extend the benefits of the Plan to its Eligible Employees. For
purposes of the foregoing, the term "subsidiary" has the meaning set forth in
Section 424(f) of the Code.
T. Plan shall mean the Corporation's Employee Stock Purchase Plan, as set
forth in this document.
U. Plan Administrator shall mean the person or persons appointed by the
Corporation from time to time as the plan administrator of the Corporation's
Savings and Security Plan.
V. Purchase Date shall mean the last Business Day of each purchase period
or, with respect to a Corporate Transaction, the date specified for purchase
in Section VII.F.
W. Purchase Price shall mean the purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date and
shall be equal to eighty-five percent (85%) of the lower of (i) the Fair
Market Value per share of Common Stock on the start date of the purchase
period in which the Purchase Date occurs or (ii) the Fair Market Value per
share of Common Stock on that Purchase Date.
X. Service shall mean the performance of services to the Corporation or any
Corporate Affiliate by a person in the capacity of an Employee.
A-7
<PAGE>
DETACH HERE
STERLING COMMERCE, INC.
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting of Stockholders to be held on March 12, 1998
The undersigned hereby appoints Warner C. Blow and Jeannette P. Meier,
each with power to act without the other and with full power of substitution and
resubstitution, as Proxies to represent and to vote, as designated on the
reverse side, all of the shares of Common Stock, $.01 par value, of Sterling
Commerce, Inc. (the "Company") owned by the undersigned, at the Annual Meeting
of Stockholders (the "Meeting") to be held at the Company's offices at 4600
Lakehurst Court, Dublin, Ohio, South Building, on Thursday, March 12, 1998,
commencing at 10:00 a.m. local time, upon such business as may properly come
before the Meeting or any adjournments thereof, including the following as set
forth on the reverse side hereof.
You are encouraged to specify your vote by marking the appropriate
box, SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' and the Executive Committee's
recommendations. The Proxies cannot vote your shares unless you sign and return
this card.
-------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-------------
<PAGE>
SEE REVERSE SIDE
STERLING COMMERCE, INC.
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting of Stockholders to be held on March 12, 1998
I. The election as Class B directors of the three nominees listed below
(except as indicated to the contrary below); and
II. Approval of the Sterling Commerce, Inc. Employee Stock Purchase Plan.
DETACH HERE
[X] Please mark votes
as in this example.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no specific direction is given, this Proxy
will be voted (i) FOR the election of each of the nominees for director; (ii)
FOR approval of the Sterling Commerce, Inc. Employee Stock Purchase Plan; and
(iii) at the discretion of the proxy holders with regard to any other matter
that may properly come before the Meeting or any adjournments thereof.
The Board of Directors unanimously recommends that stockholders vote FOR each of
the persons listed below as a nominee to serve as a Class B director of the
Company and the Executive Committee of the Board of Directors unanimously
recommends that stockholders vote FOR approval of the Sterling Commerce, Inc.
Employee Stock Purchase Plan.
<TABLE>
<S> <C>
I. Election of Class B Directors II. Approval of the Sterling Commerce,
Nominees: Warner C. Blow, Robert E.Cook Inc. Employee Stock Purchase Plan.
and Charles J. Wyly, Jr.
</TABLE>
FOR AGAINST ABSTAIN
[_] FOR [_] WITHHELD [_] [_] [_]
ALL FROM ALL
NOMINEES NOMINESS
[_] ______________________________________
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
Please sign name(s) exactly as appearing hereon. When signing as attorney,
executor, administrator or other fiduciary, please give your full title as such.
Joint owners should each sign personally. If a corporation, sign in full
corporate name, by authorized officer. If a partnership, please sign in
partnership name, by authorized person.
Signature: Date: Signature: Date:
--------------- ----- --------------- -----
