<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Preliminary Copy Subject to Completion, Dated December 22, 1998
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:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
STERLING COMMERCE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
Preliminary Copy Subject To Completion, Dated December 22, 1998
STERLING COMMERCE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
January 22, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Sterling Commerce, Inc. (the "Company") to be held at the Company's offices at
Sterling One, 4600 Lakehurst Court, Dublin, Ohio, on Thursday, March 4, 1999,
commencing at 10:00 a.m. local time. All stockholders of record as of January
15, 1999 are entitled to vote at the Annual Meeting.
The enclosed Notice of Annual Meeting and Proxy Statement fully describe the
business to be transacted at the Meeting, which includes (i) the election of
two directors of the Company and (ii) the approval of an amendment to the
Company's Certificate of Incorporation to increase the number of shares of the
Company's Common Stock authorized for issuance from 150,000,000 shares to
300,000,000 shares.
The Company's Board of Directors believes that increasing the number of
authorized shares of Common Stock is in the best interests of the Company and
its stockholders because it would permit the Company to issue additional
shares of Common Stock, for example, in connection with potential future stock
splits or acquisitions. Such increase is not being proposed in connection with
any specific transaction, however.
The Company's Board of Directors believes that a favorable vote on each of
the matters to be considered at the Annual Meeting is in the best interests of
the Company and its stockholders and unanimously recommends a vote FOR each
such matter. Accordingly, we urge you to review the accompanying material
carefully and to return the enclosed proxy card promptly.
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>
Preliminary Copy Subject To Completion, Dated December 22, 1998
STERLING COMMERCE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 4, 1999
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 Sterling One, 4600 Lakehurst Court, Dublin, Ohio, on
Thursday, March 4, 1999, commencing at 10:00 a.m. local time, for the
following purposes:
1. The election of two Class C directors for three-year terms expiring at
the Company's Annual Meeting of Stockholders in 2002;
2. To approve an amendment to the Company's Certificate of Incorporation
increasing the number of shares of Common Stock, $.01 par value,
authorized for issuance from 150,000,000 shares to 300,000,000 shares;
and
3. To consider and vote upon such other matters as may properly come before
the Meeting or any adjournment or postponement thereof.
The close of business on January 15, 1999 has been fixed as the record date
for determining stockholders entitled to notice of and to vote at the Meeting
or any adjournment or postponement 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 Sterling One, 4600 Lakehurst
Court, Dublin, Ohio 43016.
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
Albert K. Hoover
Secretary
January 22, 1999
<PAGE>
Preliminary Copy Subject To Completion, Dated December 22, 1998
STERLING COMMERCE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 4, 1999
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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 Sterling One, 4600
Lakehurst Court, Dublin, Ohio, on Thursday, March 4, 1999, commencing at 10:00
a.m. local time, or at such other time and place to which the Meeting may be
adjourned or postponed. 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 22, 1999.
At the Meeting, the stockholders of the Company will be asked to consider
and vote upon (i) the election of two Class C directors of the Company for
three-year terms expiring at the Company's Annual Meeting of Stockholders in
2002; (ii) the approval of an amendment to the Company's Certificate of
Incorporation increasing the number of shares of Common Stock, $.01 par value
("Common Stock"), authorized for issuance from 150,000,000 shares to
300,000,000 shares; and (iii) such other matters as may properly come before
the Meeting or any adjournment or postponement thereof.
Unless the stockholder otherwise specifies, all shares represented by valid
proxies will be voted (i) FOR the election of each of the two persons named
under "Election of Directors" as nominees for election as Class C directors of
the Company for three-year terms expiring at the Company's Annual Meeting of
Stockholders in 2002; (ii) FOR approval of the amendment to the Company's
Certificate of Incorporation increasing the number of shares of Common Stock
authorized for issuance from 150,000,000 shares to 300,000,000 shares; 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 or postponement
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 8040, Boston, Massachusetts 02266-
8040, 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 votes in person.
RECORD DATE AND VOTING SECURITIES
The close of business on January 15, 1999 is the record date (the "Record
Date") for determining the stockholders entitled to vote at the Meeting. As of
the Record Date, the Company had issued and outstanding shares of Common
Stock held by approximately holders of record. The Common Stock constitutes
the only outstanding class of voting securities of the Company entitled to
vote 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 in favor of or
against, or abstain from voting with respect to, the approval of the amendment
to the Company's Certificate of Incorporation. 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.
Directors are elected by a plurality of votes cast. Instructions to withhold
authority to vote for any nominee will be counted as shares present for
purposes of determining a quorum but will not be counted toward a nominee's
total. Broker non-votes, which occur when brokers who are the record holders
of shares do not exercise discretionary voting authority with respect to those
beneficial owners who have not provided voting instructions, also will not be
counted toward a nominee's total.
Approval of the amendment to the Company's Certificate of Incorporation
requires the affirmative vote of a majority of the outstanding shares of
Common Stock. As a result, abstentions on such proposal and broker non-votes
will have the same effect as a vote against such proposal.
PARTICIPANTS IN THE STERLING COMMERCE, INC.
SAVINGS AND SECURITY PLAN
Each 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 as
to how a participant voted will not be disclosed to the Company.
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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
Sterling L. Williams and Sam Wyly are the directors whose terms expire at
the Meeting. Each of Mr. Williams and Mr. Wyly has been nominated for
reelection to serve for a three-year term expiring at the Company's Annual
Meeting of Stockholders in 2002 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 two 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 C directors who are nominees for reelection at the Meeting are as
follows:
Sterling L. Williams, age 55. 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, Inc. ("Sterling Software") in 1981, and since such time has
served as President, Chief Executive Officer and a director of Sterling
Software. Mr. Williams is a member of the Executive Committee and the Stock
Option Committee of the Board.
Sam Wyly, 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 Chairman of the Board of Sterling Software. Companies
founded by Mr. Wyly were among the forerunners of the computer software and
electronic commerce industries. In 1963, he founded University Computing
Company, which became one of the largest computer service and software
companies. His data transmission company, Datran, Inc., was one of the
pioneering telecommunications ventures that broke up the telephone monopoly
and led to the creation of today's electronic commerce industry and the
internet. Mr. Wyly currently serves as Chairman of the Board of Sterling
Software, Chairman of the Board of Michaels Stores, a specialty retailer,
Chairman of the Board of Scottish Annuity and Life Holdings, a variable life
insurance and reinsurance company, and founding partner of the General Partner
of Maverick Capital. He is Chairman of the Executive Committee and a member of
the Stock Option Committee of the Board.
CURRENT DIRECTORS
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 57. 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.
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Evan A. Wyly, age 37. 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. Evan Wyly is Sam Wyly's son.
The current Class B 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 2001, are as follows:
Warner C. Blow, age 61. 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, Mr. Blow
also served as Chief Operating Officer of the Company. Prior to December 1995,
Mr. Blow served as President of Sterling Software's Electronic Commerce Group
(the predecessor of the Company) from July 1993 and as an Executive Vice
President of Sterling Software from October 1989.
Robert E. Cook, age 57. 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 Java 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. Mr. Cook 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 65. 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. Mr. Wyly is a member of the Executive
Committee and the Stock Option Committee of the Board.
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 seven times during the fiscal
year ended September 30, 1998. During fiscal 1998, 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 1998 are set forth below.
Executive Committee. The Executive Committee is empowered to act on any
matter except those matters specifically reserved to the full Board by
applicable law. The Executive Committee was responsible for determining
executive compensation for fiscal 1998, except for decisions relating to
grants of stock options under the Company's 1996 Stock Option Plan (the
"Option Plan"). 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 nine times during fiscal
1998.
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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 that 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 four times during fiscal 1998.
Option Committees. The Stock Option Committee and the Special Stock Option
Committee (collectively, the "Option Committees") administer the 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 seven times during fiscal 1998. The Special Stock Option Committee did
not meet or act by unanimous written consent during fiscal 1998.
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 (other than Mr. Williams) 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.
However, no such grants were made to directors during fiscal 1998.
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<PAGE>
PROPOSAL II
PROPOSED INCREASE IN AUTHORIZED COMMON STOCK
The Company is currently authorized to issue up to 200,000,000 shares of all
classes of stock of the Company, consisting of 150,000,000 shares of Common
Stock and 50,000,000 shares of Preferred Stock, $.01 par value. The Board has
unanimously approved, subject to the consideration and approval of the
stockholders of the Company, an amendment to the Company's Certificate of
Incorporation increasing the number of shares of Common Stock authorized for
issuance from 150,000,000 shares to 300,000,000 shares. The Board believes
that this amendment is in the best interests of the Company and its
stockholders because it would permit the Company to issue additional shares of
Common Stock, for example, in connection with potential future stock splits or
acquisitions. Such amendment is not being proposed in connection with any
specific transaction. However, the Company actively and regularly considers
acquisition transactions that may involve the issuance of additional shares of
Common Stock, any one or more of which may be under consideration or acted
upon at any given time.
As of the Record Date, after giving effect to approximately shares of
Common Stock reserved for issuance under the Company's employee benefit plans,
the Company had approximately shares of Common Stock available for
issuance. The availability of additional authorized but unissued shares of
Common Stock would provide the Company with greater flexibility by allowing
additional shares to be issued without the expense and delay of a stockholders
meeting, unless stockholder approval is otherwise required.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock of the Company currently
authorized. Although the Board will authorize the issuance of additional
shares of Common Stock based on its judgment as to the best interests of the
Company and its stockholders, the issuance of shares of Common Stock could
have a dilutive effect on the earnings per share, book value per share and the
equity and voting power of existing holders of Common Stock. Holders of Common
Stock are not now and will not be entitled to preemptive rights to purchase
shares of any authorized capital stock of the Company. In addition, the
issuance of additional shares of Common Stock could, in certain instances,
render more difficult or discourage a merger, tender offer or proxy contest
and thus potentially have an "anti-takeover" effect, especially if shares of
Common Stock were issued in response to a potential takeover. Such an issuance
could deter the types of transactions that may be proposed, could discourage
or limit the participation of the Company's stockholders in certain types of
transactions that might be proposed (such as a tender offer) regardless of
whether such transactions were favored by the majority of the stockholders and
could enhance the ability of the Company's officers and directors to retain
their positions. For example, without further stockholder approval, the Board
could sell shares of Common Stock in a private transaction to purchasers who
would oppose a takeover or favor the current Board. Although this proposal to
increase the authorized shares of Common Stock has been prompted by business
and financial considerations and not by any known or threatened hostile
takeover attempt, stockholders should be aware that the approval of this
proposal could facilitate future efforts by the Company to deter or prevent
changes in control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices.
If the proposed amendment is approved by the Company's stockholders,
generally no further stockholder approval would be required for the issuance
of such authorized shares of Common Stock, except as required by law or any
rules or regulations to which the Company is subject, including the rules of
the New York Stock Exchange ("NYSE"), the exchange on which the Common Stock
is listed.
The Board believes that a vote to approve the amendment to the Certificate
of Incorporation is in the best interests of the Company and its stockholders
and unanimously recommends a vote FOR such proposal.
In addition to the proposed charter amendment increasing the number of
authorized shares of Common Stock, existing provisions of the Company's
Certificate of Incorporation and By-laws could delay or prevent a merger,
tender offer or proxy contest to take control of the Company. Such provisions
include (i) a provision requiring advance notice for stockholder proposals and
director nominations, (ii) a provision requiring all action
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taken by stockholders to be taken at a meeting, (iii) a provision requiring
the affirmative vote of at least 75% of the voting stock for the amendment of
certain provisions of the Company's Certificate of Incorporation, (iv) a
provision limiting the ability of the stockholders to remove directors to
circumstances in which there is cause and in which the holders of at least 75%
of the voting stock vote for the removal and (v) a provision classifying the
Board. For additional discussion of the classification of the Board, see
"Proposal I--Election of Directors."
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 Named Executive Officer (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.
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<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
OWNED BENEFICIALLY(1)
--------------------------------
NAME NUMBER PERCENT OF CLASS
---- ------------- ----------------
<S> <C> <C>
Sterling L. Williams.......................... 4,006,370 (2) 4.1%
Warner C. Blow................................ 858,906 (3) *
J. Brad Sharp................................. 95,805 (4) *
Paul L. H. Olson.............................. 121,399 (5) *
Stephen R. Perkins............................ 95,445 (6) *
Steven P. Shiflet............................. 61,698 (7) *
Sam Wyly...................................... 1,507,080 (8) 1.6%
Charles J. Wyly, Jr........................... 1,238,366 (9) 1.3%
Evan A. Wyly.................................. 59,000 (10) *
Robert E. Cook................................ 0 *
Honor R. Hill................................. 0 *
All executive officers and directors as a
group (13 persons)........................... 8,109,292 (11) 8.0%
Alpha Assurances Vie mutuelle and related
entities, AXA and The Equitable Companies
Incorporated................................. 9,721,544 (12) 10.3%
Putnam Investments, Inc. and related
entities..................................... 10,030,060 (13) 10.6%
</TABLE>
- --------
*Less than 1%.
(1) The number of shares shown includes outstanding shares owned by the
person indicated on December 15, 1998 and shares underlying options owned
by such person on December 15, 1998 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 850,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 3,906 shares of
Common Stock held pursuant to the Savings Plan.
(4) Includes 93,750 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 2,055 shares of Common Stock
held pursuant to the Savings Plan.
(5) Includes 115,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan. Also includes 1,629
shares of Common Stock held pursuant to the Savings Plan, and 55 shares
held by a family trust of which Mr. Olson's spouse is trustee.
(6) Includes 93,750 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 695 shares of Common Stock
held pursuant to the Savings Plan.
(7) Includes 58,750 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 2,948 shares of Common Stock
held pursuant to the Savings Plan.
(8) Includes 1,000,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan, 75,000 of which are
currently held of record by a marital trust of which Sam Wyly's spouse is
the trustee. Also includes 286,327 shares of Common Stock owned by family
trusts of which Sam Wyly is trustee and 220,753 shares of Common Stock
held of record by a limited partnership of which Sam Wyly is a general
partner.
(9) Includes 500,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan. Also includes 503,477
shares of Common Stock owned by family trusts of which Charles J. Wyly,
Jr. is trustee and 234,919 shares of Common Stock held of record by a
limited partnership of which Charles J. Wyly, Jr. is a general partner.
(10) Includes 59,000 shares of Common Stock held of record by a family limited
partnership of which Evan A. Wyly is general partner.
(11) Includes 58,750 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 1,692 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 November 10, 1998 by (i) Alpha
Assurances Vie Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances
Vie Mutuelle, AXA Courtage Assurance Mutuelle, as a group, (ii) AXA-UAP
and (iii) The Equitable Companies Incorporated. It was reported that The
Equitable Life Assurance Society of the United States, Alliance Capital
Management L.P. and Donaldson, Lufkin & Jenrette Securities Corporation,
each of which is a subsidiary of The Equitable Companies Incorporated,
are deemed in the aggregate to have sole voting power with respect to
1,175,290 shares, shared voting power with respect to 8,411,450 shares,
sole dispositive power with respect to 9,686,285 shares and shared
dispositive power with respect to 35,259 shares. The address of 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-UAP is 9 Place Vendome, 75001
Paris, France; and the address of The Equitable Companies Incorporated is
1290 Avenue of the Americas, New York, New York 10104. 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 (the "SEC") by such parties, except that the percentage of
Common Stock beneficially owned
(footnotes continue on following page)
8
<PAGE>
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 15, 1998.
(13) Based on a Schedule 13G filed on September 18, 1998 by Putnam
Investments, Inc. ("PI"), a wholly owned subsidiary of Marsh & McClennan
Companies, Inc. ("M&MC"), on behalf of itself, M&MC and PI's wholly owned
registered investment advisors, Putnam Management, Inc. and The Putnam
Advisory Company, Inc. (PI and its two investment advisors are
collectively referred to as "Putnam"). Putnam is deemed to have shared
dispositive power with respect to 10,030,603 shares and shared voting
power with respect to 307,638 shares. The address of Putnam is One Post
Office Square, Boston, Massachusetts 02109. The address of M&MC is 1166
Avenue of the Americas, New York, New York 10036. The information
regarding beneficial ownership of Common Stock by Putnam is included in
reliance upon a report filed with the SEC by PI, 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 15, 1998.
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 (i) the Chief
Executive Officer, (ii) each of the Company's four other most highly
compensated executive officers based on salary and bonus earned during the
Company's fiscal year ended September 30, 1998 and (iii) Sterling L. Williams,
who was not serving as an executive officer of the Company at the end of
fiscal 1998 but who would have been one of the Company's four most highly
compensated executive officers had he been serving as an executive officer at
the end of fiscal 1998 (collectively (i), (ii) and (iii), the "Named Executive
Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ------------
SECURITIES
FISCAL OTHERANNUAL 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..... 1998 $533,333 $200,000 $ 0 0 $366,667(5)
Chairman of the Board 1997 650,000 250,000 0 1,000,000 0
1996 250,000 250,000 0 3,000,000 0
Warner C. Blow........... 1998 700,000 300,000 154,117(6) 0 12,522(7)
President and Chief
Executive 1997 550,000 250,000 158,483(8) 1,000,000 14,382
Officer 1996 401,550 223,667 157,680(9) 1,000,000 13,950
J. Brad Sharp............ 1998 244,000 147,994 4,255(11) 0 6,191(12)
Executive Vice President
and 1997 228,000 112,143 3,598(11) 215,000 5,396
Chief Operating
Officer(10) 1996 185,500 137,640 1,286(11) 160,000 5,036
Paul L.H. Olson.......... 1998 283,000 88,996 16,541(11) 0 7,876(13)
Executive Vice President
and 1997 260,000 141,423 9,311(11) 200,000 6,130
President, Commerce
Services 1996 231,000 121,409 3,818(11) 200,000 6,295
Group
Stephen R. Perkins....... 1998 255,000 71,603 4,909(11) 0 6,939(14)
Executive Vice President
and 1997 228,000 131,701 7,904(11) 195,000 6,516
President,
Communications 1996 202,964 102,889 19,243(11) 180,000 6,560
Software Group
Steven P. Shiflet........ 1998 237,000 66,000 0 0 4,800(15)
Senior Vice President
and 1997 214,000 71,560 0 105,000 4,500
Chief Financial Officer 1996 166,000 65,082 0 130,000 4,500
</TABLE>
- --------
(1) Prior to the completion of the Company's initial public offering in March
1996 (the "Offering"), Mr. Williams did not receive compensation or
benefits from the Company or any of its subsidiaries. Rather, he was
compensated by the Company's former parent company, Sterling Software. In
accordance with the regulations of the SEC, the information in the table
with respect to Mr. Williams 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.
(footnotes continue on following page)
9
<PAGE>
(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) The Company has not granted stock appreciation rights.
(5) Compensation paid pursuant to the Consulting Agreement described below in
the section titled "Consulting Agreement."
(6) Includes an $85,845 payment for reimbursement of taxes.
(7) Includes $4,800 in contributions to the Savings Plan and $7,722 in
respect of premiums on a life insurance policy for Mr. Blow's benefit.
(8) Includes an $87,195 payment for reimbursement of taxes.
(9) Includes $43,145 in incentive travel and a $63,673 payment for
reimbursement of taxes.
(10) Mr. Sharp was elected Chief Operating Officer of the Company in October
1998. Prior to being elected Chief Operating Officer, Mr. Sharp served as
Executive Vice President of the Company and President of the Company's
Interchange Software Group.
(11) Consists of payments for reimbursement of taxes.
(12) Includes $4,800 in contributions to the Savings Plan and $1,391 in
respect of premiums on a life insurance policy for Mr. Sharp's benefit.
(13) Includes $4,800 in contributions to the Savings Plan and $3,076 in
respect of premiums on a life insurance policy for Mr. Olson's benefit.
(14) Includes $4,800 in contributions to the Savings Plan and $2,139 in
respect of premiums on a life insurance policy for Mr. Perkins' benefit.
(15) Contributions to the Savings Plan.
OPTION GRANTS DURING FISCAL 1998
During fiscal 1998, the Company did not grant options to purchase Common
Stock to the Named Executive Officers.
OPTION EXERCISES IN FISCAL 1998 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 1998 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
SHARES SEPTEMBER 30, 1998(1) SEPTEMBER 30, 1998(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams.... 0 $ 0 4,000,000 0 $41,000,000 $ 0
Warner C. Blow.......... 200,000 3,418,840 550,000 1,250,000 5,468,750 12,156,250
Paul L. H. Olson........ 110,000 1,650,627 40,000 250,000 202,500 1,943,750
Stephen R. Perkins...... 113,750 1,558,038 25,000 236,250 65,625 1,803,281
J. Brad Sharp........... 108,750 1,832,961 25,000 241,250 65,625 1,833,906
Steven P. Shiflet....... 82,500 1,288,503 8,750 143,750 50,313 1,320,625
</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 of the Common Stock as reported by the NYSE on
September 30, 1998 ($34 5/8) 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 other Named Executive Officers, participates, or
will be eligible to participate, in the SERP. As of September 30, 1998, Mr.
Blow had accrued approximately
10
<PAGE>
24 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 in the
applicable year) over three consecutive years of service, multiplied by the
participant's years of service or (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 Internal Revenue
Code of 1986, as amended (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 an annuity
(unless a Change in Control of the Company as defined in the SERP occurs) and
are taxable as ordinary income.
In the event of a Change in Control of the Company, 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 would be made from the SERP to compensate the participant
for the excise tax imposed on the SERP benefit.
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
1,000,000......................... 300,000 400,000 500,000 500,000 500,000
</TABLE>
CHANGE-IN-CONTROL AND SEVERANCE AGREEMENTS
The Company has entered into an agreement (as amended, a "Change-in-Control
Agreement") with each of the Named Executive Officers (other than Mr.
Williams). Each Change-in-Control Agreement covers termination within a
specified number of years after the date of a Change in Control (as defined in
such agreements) and requires the Company to pay to such officer if, prior to
expiration of such specified period, his employment is terminated with or
without cause by the Company (other than upon such 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 provide
continuation of 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 five, 500% and 60,
respectively, in the case of Mr. Blow; four, 400% and 48, respectively, in the
case of Mr. Sharp; three, 300% and 36, respectively, in the case of Messrs.
Olson and Perkins; and two, 200% and 24, respectively, in the case of Mr.
Shiflet. 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.
11
<PAGE>
The Company has also 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 employment, with or without cause. Each such agreement requires
the Company to pay the officer, upon his termination from employment by the
Company, for a specified number of months (60 in the case of Mr. Blow, 48 in
the case of Mr. Sharp, 36 in the case of Messrs. Olson and Perkins, and 24 in
the case of Mr. Shiflet), the average monthly salary and bonus received over
the preceding year and to provide continuation of certain benefits for the
specified number of months. In the event of a termination of employment
following a Change in Control, at the officer's option, the terms of his
Change-in-Control Agreement may govern such termination in lieu of the terms
of the Severance Agreement.
CONSULTING AGREEMENT
In fiscal 1998, the Company entered into an agreement (the "Consulting
Agreement") with Mr. Williams pursuant to which Mr. Williams provides advisory
services to the Executive Committee of the Board and the Chief Executive
Officer of the Company and, for so long as the Board elects Mr. Williams as
Chairman of the Board, he serves as Chairman. The Consulting Agreement is in
lieu of and replaces the Chairman Agreement and the Change-in-Control
Agreement that were previously in place between the Company and Mr. Williams.
Under the Consulting Agreement, Mr. Williams is paid an annual fee of $800,000
(subject to mutually agreed upon increases) for his services thereunder. In
fiscal 1998, Mr. Williams was paid $366,667 under this agreement. In addition,
Mr. Williams is entitled to participate in the Company's cash incentive bonus
program and certain of the Company's employee benefit plans. Pursuant to the
Consulting Agreement, Mr. Williams waived his right to receive fees and other
compensation as a non-employee director of the Company. Under the terms of the
Consulting Agreement, the Company will provide Mr. Williams with suitable
office facilities, including secretarial support, or reimburse Mr. Williams
for the cost of obtaining comparable facilities from third parties. The
Company will also reimburse Mr. Williams for authorized expenses incurred in
providing services under the Consulting Agreement.
A notice of termination of the Consulting Agreement may be given by Mr.
Williams at any time or by the Company at any time after Mr. Williams ceases
to be Chairman. Upon such notice of termination, the term of the Consulting
Agreement will automatically become a term of seven years and Mr. Williams
would be entitled to receive a lump sum amount equal to all compensation
(annual fee and highest annual cash incentive bonus earned prior to
termination) due throughout the unexpired portion of the seven-year term. At
any time after a Change in Control (as defined in the Consulting Agreement),
Mr. Williams would have the option of terminating the Consulting Agreement,
whereupon the term of the Consulting Agreement, if it has not previously done
so, would automatically become a term of seven years, and Mr. Williams would
be entitled to receive a lump sum amount (as described above) and all unvested
Company stock options held by Mr. Williams would immediately vest and become
exercisable. In addition, if any payments (including payments under any stock
option agreement or otherwise) to Mr. Williams are determined to be "excess
parachute payments" under the Code, Mr. Williams would be entitled to receive
an additional payment (net of income taxes) to compensate him for the excise
tax imposed by the Code on such payments. The Consulting Agreement will also
terminate upon Mr. Williams's death.
In addition to the above-described agreements, the Company has agreed to
reimburse each of the Named Executive Officers (other than Mr. Williams) 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
12
<PAGE>
. 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 1998, 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 achieve high levels of performance;
. Differentiating individual executives' pay based on performance;
. Preempting external competitive offers; and
. Ensuring internal equity.
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.
The Option Committees have primary responsibility for determining awards of
stock options as a part of executive compensation. In considering awards of
stock options, the Option Committees take into account, among other things,
the same goals that the Executive Committee considers in awarding cash
compensation and the additional goal of aligning the interests of the
Company's executives with the those of the Company and its stockholders. The
Option Committees also consider the executive's level of cash compensation,
position and years of service with the Company, the number of unexercised
options held by the executive, and other factors in awarding stock options.
The Option Committees have not established formulas to assign specific weights
to any of the foregoing factors when making their determinations.
In fiscal 1998, the Option Committees awarded stock options to certain key
employees and non-executive officers but did not award stock options to the
Company's executive officers. Considering past option grants and the number of
unexercised options held by the Company's executive officers, the Option
Committees believed that additional stock option grants were unnecessary. The
Option Committees, however, retain authority to grant stock options to the
Company's executive officers in future years.
Chief Executive Officer's Compensation for Fiscal 1998. In fiscal 1998, the
compensation of the Company's Chief Executive Officer consisted of an annual
base salary, a cash incentive bonus and various benefits. Mr. Blow's salary in
fiscal 1998 was $700,000. Because there was no pre-established formula for
determining Mr. Blow's bonus for fiscal 1998, the Executive Committee
exercised its judgment in awarding Mr. Blow a bonus of $300,000 for fiscal
1998. The Company's fiscal 1998 year-end results reflected record revenue and
profit performance in each of the Company's major worldwide markets. Revenue
increased 40% in fiscal 1998 over fiscal 1997 and earnings per share from
continuing operations increased 27% in fiscal 1998 over fiscal 1997 (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 XcelleNet, Inc. ("XcelleNet") and the
other fiscal 1998 acquisitions. Based on these factors, the Executive
Committee concluded that Mr. Blow's outstanding performance for the Company
merited his bonus award.
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
13
<PAGE>
stock options and various benefits. Each element has a somewhat different
purpose and all 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 1998, 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 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 compensation matters.
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,
Mr. Williams is a director of the Company and a director and executive officer
of Sterling Software and a member of the executive committees, stock option
committees and boards of directors of the Company and Sterling Software.
Accordingly, Mr. 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 matters for 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 Michaels Stores and a director of Sterling Software
and served as an officer of Sterling Software until November 1998. See
"Certain Transactions."
14
<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 NYSE on a
when-issued basis, and ending September 30, 1998 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 9/30/98
------ ------- ------- -------
<S> <C> <C> <C> <C>
Sterling Commerce, Inc.......................... 100 123 150 144
S&P 500 Index................................... 100 109 153 167
NASDAQ Computer & Data Processing Index......... 100 113 153 199
</TABLE>
CERTAIN TRANSACTIONS
In anticipation of the Offering, the Company and Sterling Software entered
into various agreements (the "Intercompany Agreements"), including an
International Distributor Agreement pursuant to which Sterling Software acted
as the exclusive distributor of certain of the Company's products outside the
United States and Canada. Amounts payable to and receivable from Sterling
Software arise from time to time under the Intercompany Agreements. The
Intercompany Agreements are further described in the Company's Annual Report on
Form 10-K, which accompanies this Proxy Statement.
Effective as of June 30, 1997, the Company and Sterling Software entered into
an agreement (the "Termination Agreement") terminating the International
Distributor Agreement. Contemporaneously with such termination, the Company
purchased certain assets formerly used by Sterling Software in connection with
the distribution of the Company's products under the International Distributor
Agreement. In fiscal 1998, Sterling Software paid the Company approximately
$1,385,000 with respect to certain post-closing account adjustments under the
Termination Agreement.
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
15
<PAGE>
"Spin-off"). The aggregate amount due over the remaining terms of the
agreements guaranteed by Sterling Software is approximately $28,300,000. 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 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 1998.
From time to time in the ordinary course of business, the Company and
Sterling Software have used (internally or as part of product offerings) each
other's software products. In connection with the Spin-off, the Company and
Sterling Software entered into a license agreement covering certain software
products then in use, or to be used by, the respective companies. During the
third quarter of fiscal 1998, the Company and Sterling Software entered into a
license agreement pursuant to which the Company licensed to Sterling Software
certain RemoteWare products that the Company was authorized to license under a
reseller agreement then in place with Xcellenet. The license agreement
provides for total fees payable to the Company thereunder of $2,300,000. Also
during the third quarter, the Company and Sterling Software entered into a
license agreement pursuant to which the Company licensed certain of Sterling
Software's Flashpoint products and which provides for total fees payable to
Sterling Software thereunder of $2,200,000. The terms of these license
agreements were the result of arms-length negotiations between the parties.
The Company is a party to an aircraft sharing agreement with a subsidiary of
Sterling Software. In fiscal 1998, the Company paid $233,000 for aircraft
services under that agreement.
On February 20, 1997, David B. Shaev (the "Plaintiff") filed a derivative
complaint in the Court of Chancery in the State of Delaware (the "Delaware
Chancery Court") against the Company and its directors challenging the
Company's initial grant of stock options to the Company's directors. On April
6, 1998, the Plaintiff filed a motion to amend the complaint to challenge the
Company's grants of additional stock options to certain of the Company's
directors. In his complaint, the Plaintiff alleges that the individual
defendants breached their fiduciary duties and wasted corporate assets by
granting themselves an excessive number of options pursuant to the Option
Plan. The complaint seeks recission and injunctive relief with respect to the
stock options, as well as compensatory damages in an unspecified amount.
On June 3, 1997, the individual defendants in the action filed a motion for
summary judgment. The Delaware Chancery Court denied the motion, which
decision was upheld on appeal. The parties subsequently held settlement
discussions and recently signed a memorandum of understanding for settlement
of the lawsuit. The memorandum of understanding provides for, among other
things, the term of certain options granted pursuant to the Option Plan to be
reduced from ten to seven years and the Company to follow certain procedural
requirements in connection with any future stock option grants to executive
officers and directors of the Company. The settlement provided for in the
memorandum of understanding is subject to, among other things, the execution
of a formal stipulation and the approval of the Delaware Chancery Court, after
notice to the Company's stockholders and a hearing.
INDEPENDENT AUDITORS
The Board has selected Ernst & Young LLP as independent auditors to examine
the Company's accounts for fiscal 1999. 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.
16
<PAGE>
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, 1998, all Section 16(a)
filing requirements applicable to the directors, executive officers and
greater than 10% stockholders were complied with by such persons, except that
a report filed by Robert E. Cook with respect to the sale of 1,592 shares of
Common Stock by a trust of which Mr. Cook and his wife are co-trustees was
filed with the SEC seven days late and a report filed by Robert E. Cook with
respect to the sale of 1,000 shares of Common Stock by a trust of which Mr.
Cook's wife is trustee was filed 12 days late.
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, which in certain circumstances may require
the inclusion of qualifying proposals in the Company's Proxy Statement. For
such proposals to be considered for inclusion in the Proxy Statement relating
to the Company's 2000 Annual Meeting of Stockholders, all applicable
requirements of Rule 14a-8 must be satisfied and such proposals must be
received by the Company no later than September 24, 1999. In order for a
stockholder proposal submitted outside of Rule 14a-8 (and thus not subject to
inclusion in the Company's Proxy Statement) to be considered "timely" within
the meaning of Rule 14a-4(c), such proposal must be received by the Company on
or prior to January 4, 2000, assuming that the Company's 2000 Annual Meeting
will be held on the anniversary date of the Meeting. Stockholder proposals
should be directed to Sterling Commerce, Inc., Attention: Secretary, at 300
Crescent Court, Suite 1200, Dallas, Texas 75201.
OTHER MATTERS
The Board 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 or postponement
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, the Company
will pay Georgeson & Company 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
Albert K. Hoover
Secretary
January 22, 1999
17
<PAGE>
Preliminary Copy Subject to Completion, Dated December 22, 1998
DETACH HERE
STERLING COMMERCE, INC.
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting of Stockholders to be held on March 4, 1999
The undersigned hereby appoints Warner C. Blow and Albert K. Hoover, 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 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 Sterling
One, 4600 Lakehurst Court, Dublin, Ohio, on Thursday, March 4, 1999, commencing
at 10:00 a.m. local time, with all the powers the undersigned would possess if
personally present upon such business as may properly come before the Meeting or
any adjournment or postponement thereof, including the matters set forth on the
reverse side hereof.
You are encouraged to specify your choice by marking the appropriate box
(SEE REVERSE SIDE) but you need not mark any box if you wish to vote in
accordance with the recommendation of the Board of Directors. The proxies cannot
vote your shares unless you sign and return this card.
CONTINUED AND TO BE SIGNED ON 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 4, 1999
I. The election as Class C directors of the two nominees listed below (except
as indicated to the contrary below); and
II. The approval of the amendment to the Company's Certificate of Incorporation
to increase the number of shares of Common Stock authorized for issuance
from 150,000,000 shares to 300,000,000 shares.
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 the approval of the amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock authorized for
issuance from 150,000,000 shares to 300,000,000 shares; 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 or postponement thereof.
The Board of Directors of Sterling Commerce, Inc. (the "Company") unanimously
recommends that stockholders vote FOR each of the persons listed below as a
nominee to serve as a Class C director of the Company and FOR the approval of
the amendment to the Company's Certificate of Incorporation.
I. Election of Class C Directors II. Approval of the amendment to the
Nominees: Sterling L. Williams Company's Certificate of Incorporation
and Sam Wyly. to increase the number of shares of
Common Stock authorized for issuance
from 150,000,000 shares to 300,000,000
shares.
FOR AGAINST ABSTAIN
[_] FOR [_] WITHHELD [_] [_] [_]
ALL FROM ALL
NOMINEES NOMINEES
[_]
--------------------------------------
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: 1999 Signature: Date: 1999
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