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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(RULE 14d-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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STERLING COMMERCE, INC.
(Name of Subject Company)
STERLING COMMERCE, INC.
(Name of Person(s) Filing Statement)
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
859205106
(CUSIP Number of Class of Securities)
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ALBERT K. HOOVER, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
STERLING COMMERCE, INC.
4600 LAKEHURST COURT
DUBLIN, OHIO
(614) 793-7000
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(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of the Person(s) Filing Statement)
WITH A COPY TO:
BLAINE V. FOGG, ESQ.
ERIC J. FRIEDMAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NEW YORK 10036
(212) 735-3000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (this "Schedule 14D-9") relates is Sterling
Commerce, Inc., a Delaware corporation (the "Company"). The address of the
principal executive offices of the Company is 300 Crescent Court, Suite 1200,
Dallas, Texas 75201. The telephone number of the principal executive offices is
(214) 981-1100. The title of the class of equity securities to which this
Schedule 14D-9 relates is the common stock, par value $.01 per share, including
the related preferred stock purchase rights, of the Company (the "Shares"). As
of February 22, 2000, there were 80,062,062 Shares outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The name, business address and telephone number of the Company, which is
the person filing this statement, are set forth in Item 1 above.
This Schedule 14D-9 relates to the tender offer by SBC Silver, Inc., a
Delaware corporation ("Purchaser") and a wholly-owned subsidiary of SBC
Communications Inc., a Delaware corporation ("Parent"), disclosed in a Tender
Offer Statement on Schedule TO, dated February 25, 2000 (the "Schedule TO"), to
purchase all outstanding Shares at a price of $44.25 per Share (the "Offer
Price"), net to the seller in cash, without interest thereon, upon the terms and
subject to the conditions set forth in Purchaser's Offer to Purchase, dated
February 25, 2000 (the "Offer to Purchase"), and the related Letter of
Transmittal (which, as amended or supplemented from time to time, together
constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of February 18, 2000 (the "Merger Agreement" ), by and among Parent,
Purchaser and the Company. The Merger Agreement provides, among other things,
that as promptly as practicable after the consummation of the Offer and
satisfaction or waiver of the conditions to the Merger (a) Purchaser will be
merged with and into the Company (the "Merger") and the separate corporate
existence of Purchaser will thereupon cease, (b) each outstanding Share (other
than Shares held in the treasury of the Company or by any of the Company's
subsidiaries, Parent, any subsidiary of Parent or any stockholders who perfect
appraisal rights under Delaware law) will be converted into the right to receive
the Offer Price in cash, without interest (referred to herein as the "Merger
Consideration"), and (c) the Company will be the successor or surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and will continue to be governed by the laws of the State of
Delaware. A copy of the Merger Agreement is incorporated by reference as Exhibit
(e)(1) to this Schedule 14D-9 and is incorporated herein by reference.
The Schedule TO states that the principal executive offices of Parent and
Purchaser are located at 17 E. Houston Street, San Antonio, Texas 78205.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Each material agreement, arrangement or understanding and any actual or
potential conflict of interest between the Company or its affiliates and (i) its
executive officers, directors or affiliates or (ii) Parent or Purchaser and
their respective executive officers, directors or affiliates is described in the
attached Schedule I or set forth below.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement
which relate to agreements, arrangements and understandings of a type described
above. The summary of the Merger Agreement contained in the Offer to Purchase
attached hereto as Exhibit (a)(1) and incorporated herein by reference is more
complete. In addition, the following summary is qualified in its entirety by
reference to the Merger Agreement, a copy of which is incorporated by reference
as Exhibit (e)(1) hereto and is incorporated herein by reference. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
the Merger Agreement.
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The Company Board. The Merger Agreement provides that promptly upon the
purchase of and payment for any Shares by Parent or Purchaser pursuant to the
Offer, Parent will be entitled to designate such number of directors, rounded up
to the nearest whole number, on the Company's Board of Directors (the "Company
Board") as is equal to the product of the total number of directors on the
Company Board (giving effect to the directors designated by Parent pursuant to
this sentence) multiplied by the percentage that the number of Shares so
accepted for payment bears to the total number of Shares then outstanding. In
furtherance thereof, the Company will, upon request of Purchaser, promptly
either increase the size of the Company Board or secure the resignations of such
number of its incumbent directors, or both, as is necessary to enable Parent's
designees to be so elected to the Company Board, and will cause Parent's
designees to be so elected. At such time, the Company will also cause persons
designated by Parent to have proportionate (but not less than majority)
representation on (i) each committee of the Company Board, (ii) each board of
directors (or similar body) of each subsidiary of the Company and (iii) each
committee (or similar body) of each such board. The Company's obligation to
appoint Parent's designees to the Company Board is subject to compliance with
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Rule 14f-1 promulgated thereunder, which require mailing the
Information Statement, a copy of which is attached as Schedule I hereto, to the
Company's stockholders.
The Merger Agreement further provides that in the event that Parent's
designees are elected to the Company Board, until the effective time of the
Merger (the "Effective Time"), the Company Board will have at least two
directors who were directors on February 18, 2000 (the "Original Directors");
provided that, in such event, if the number of Original Directors is reduced
below two for any reason whatsoever, any remaining Original Directors (or
Original Director, if there be only one remaining) will be entitled to designate
persons to fill such vacancies who will be deemed to be Original Directors for
purposes of the Merger Agreement or, if no Original Director then remains, the
other directors will designate two persons to fill such vacancies who shall not
be stockholders, affiliates or associates of Parent or Purchaser, and such
persons shall be deemed to be Original Directors for purposes of the Merger
Agreement. Notwithstanding anything in the Merger Agreement to the contrary, in
the event that Parent's designees are elected to the Company Board prior to the
Effective Time, the affirmative vote of a majority of the Original Directors
will be required for the Company to (i) amend or terminate the Merger Agreement
or agree or consent to any amendment or termination of the Merger Agreement,
(ii) exercise or waive any of the Company's rights, benefits or remedies under
the Merger Agreement, (iii) extend the time for performance of Parent's and
Purchaser's respective obligations under the Merger Agreement or (iv) take any
other action by the Company Board under or in connection with the Merger
Agreement other than the actions necessary to effect a meeting of the Company's
stockholders if necessary in connection with the Merger.
Indemnification and Insurance. Pursuant to the Merger Agreement, Parent
agreed to indemnify and hold harmless all those persons entitled to
indemnification from the Company and its subsidiaries as provided in their
respective certificates of organization or by-laws (each an "Indemnified Party")
against all liabilities arising out of actions or omissions occurring at or
prior to the Effective Time. Parent also agreed to advance expenses to any
Indemnified Party promptly upon receipt of an undertaking from such party that
such expenses will be repaid should it ultimately be determined that such party
was not entitled to indemnification. In addition, from and after the Effective
Time, directors and officers of the Company who become directors and officers of
Parent or any of its subsidiaries will be entitled to indemnification under
Parent's or any of its subsidiaries' certificate of incorporation and by-laws,
and to all other indemnity rights and protections as are afforded to other
directors and officers of Parent or any of its subsidiaries.
The Merger Agreement also provides that Parent will maintain, for six years
after the Effective Time, the Company's existing directors' and officers'
liability insurance ("D&O Insurance") covering acts or omissions occurring at or
prior to the Effective Time with respect to those persons who are currently
covered by the Company's D&O Insurance on terms with respect to coverage and
amount no less favorable than the current terms; provided, that Parent may
substitute therefor policies of substantially similar coverage and amounts
containing terms no less favorable to such former directors or officers;
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provided, further, that in no event will Parent be required to pay aggregate
premiums for this insurance in excess of 200% of the aggregate premiums paid by
the Company in 1999 for such purpose.
Employee Benefit Matters. Pursuant to the Merger Agreement, Parent agreed
that individuals who are employed by the Company and its subsidiaries as of the
Closing shall remain employees of the Surviving Corporation and its subsidiaries
immediately following the Closing, provided that nothing in the Merger Agreement
shall limit the ability or right of the Company and its subsidiaries to
terminate the employment of any of their respective employees (subject to any
rights of any such employee pursuant to any Company Benefit Plan and Other
Benefit Plan). Parent also agreed to honor, and agreed to cause the Surviving
Corporation to honor, and to make required payments when due under all Company
Benefit Plans and all similar types of contracts, agreements, arrangements,
policies, plans and commitments identified as "Other Benefit Plans" under to the
Merger Agreement provided, that the Company shall have the right at any time to
amend or terminate any such Company Benefit Plan or Other Benefit Plan in
accordance with its terms.
Parent further agreed that for purposes of all the Company Benefit Plans,
the consummation of the transactions contemplated by the Merger Agreement will
constitute a "Change in Control" of the Company (as that term is defined in such
Company Benefit Plans). Parent therefore agreed (i) to cause the Company after
consummation of the transactions contemplated by the Merger Agreement to pay all
amounts provided under such Company Benefit Plans, as a result of a Change in
Control of the Company in accordance with their terms, and (ii) to cause the
Company to honor all rights, privileges and modifications to or with respect to
any such Company Benefit Plans which became effective as a result of such Change
in Control.
Treatment of Options. The Merger Agreement provides that Parent and the
Company will take all actions necessary to provide that each outstanding option
to purchase Shares (each, a "Company Stock Option" and collectively, the
"Company Stock Options") granted under any Company Stock Option Plan which is
outstanding immediately prior to the consummation of the Offer, whether or not
such Company Stock Option is vested and exercisable immediately prior to the
consummation of the Offer, will be canceled, as of the day immediately following
the consummation of the Offer, and the holder thereof will be entitled to
receive an amount in cash payable at the time of cancellation equal to the
excess of (i) the product of (A) the excess, if any, of (x) the Offer Price over
(y) the per share exercise price of such Company Stock Option multiplied by (B)
the number of shares of Company Common Stock subject to such Company Stock
Option over (ii) any income tax or employment tax withholding required under the
Internal Revenue Code of 1986, as amended.
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The following table sets forth, with respect to each of the executive
officers and each of the directors of the Company, (i) the number of Shares
subject to Company Stock Options held by such persons, (ii) the weighted average
exercise price of the options held by such persons and (iii) the aggregate value
of such options based upon the $44.25 Offer Price (i.e., the total cash value
less the exercise price).
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTION EXERCISE PRICE AGGREGATE VALUE
NAME(1)(2) SHARES PER SHARE($) OF OPTIONS($)
- ---------- --------- ---------------- ---------------
<S> <C> <C> <C>
Warner C. Blow...................................... 1,600,000 24.94 30,900,000
J. Brad Sharp....................................... 937,500 29.64 13,696,125
Albert K. Hoover.................................... 135,000 26.58 2,386,050
Paul L.H. Olson..................................... 175,000 27.86 2,868,750
Stephen R. Perkins.................................. 217,500 29.59 3,189,125
Steven P. Shiflet................................... 85,000 25.62 1,583,350
David R. Dodge...................................... 180,000 21.79 4,042,800
Robert E. Cook...................................... 50,000 24.00 1,012,500
Honor R. Hill....................................... 50,000 24.00 1,012,500
Sterling L. Williams................................ 3,750,000 24.40 74,437,500
Charles J. Wyly, Jr. ............................... 250,000(3) 25.50 4,687,500
Evan A. Wyly........................................ -- -- --
Sam Wyly............................................ 537,500 25.50 10,078,125
</TABLE>
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(1) The following individuals are executive officers of the Company: Warner C.
Blow, Steven P. Shiflet, Stephen R. Perkins, Albert K. Hoover, J. Brad
Sharp, David R. Dodge and Paul L.H. Olson. The following individuals are
non-employee directors of the Company: Robert E. Cook, Honor R. Hill,
Sterling L. Williams, Charles J. Wyly, Jr., Evan A. Wyly, and Sam Wyly.
(2) All options set forth in the table above had vested prior to the
consummation of the Merger Agreement, except that the following individuals
held unvested options in the amounts set forth next to their names which
were accelerated and vested pursuant to the existing terms of their option
agreements with the Company as a result of the transactions contemplated by
the Merger Agreement: Warner C. Blow (250,000); J. Brad Sharp (653,750);
Albert K. Hoover (60,000), Paul L.H. Olson (75,000), Stephen R. Perkins
(111,250), Steven P. Shiflet (35,000), Robert E. Cook (25,000), Honor R.
Hill (25,000). David R. Dodge held unvested options (150,000) which will be
accelerated upon consummation of the Offer.
(3) Shares held directly by Stargate Ltd., a limited partnership of which
Charles J. Wyly, Jr. is the general partner.
Change in Control Severance Agreements. Each of the Company's executive
officers (collectively, the "Executives") are parties to change in control
severance agreements. Purchaser has agreed to cause the Company after the
consummation of the transactions contemplated by the Merger Agreement to honor
all rights and privileges with respect to such change in control severance
agreements. Each change in control severance agreement requires the Company to
provide an Executive, upon a qualifying termination of employment, with a lump
sum amount equal to a multiple of the Executive's annual cash compensation. Each
agreement also requires the Company to continue to provide an Executive, for a
certain number of months, with the benefits and perquisites that were provided
to the Executive prior to the qualifying termination of employment. In the event
that an Executive is obligated to pay any amounts in connection with the receipt
of such benefits, the Company will be obligated to promptly reimburse the
Executive for any amounts paid by the Executive to receive such benefits. The
specified multiple and the specified number of months referred to in the
immediately preceding sentences are 500% and 60, respectively, in the case of
Mr. Blow; 400% and 48, respectively, in the case of Mr. Sharp; 300% and 36,
respectively, in the case of Messrs. Hoover, Olson, Perkins and Shiflet; and
200% and 24, respectively, in the case of Mr. Dodge. In addition, the agreements
also provide for an Executive to receive a gross-up payment if the Executive
becomes subject to excise tax as a result of any payments that the Executive
receives under the agreement, or otherwise, which are determined to be "excess
parachute payments." It is anticipated that
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certain of the Executives who are parties to the change in control severance
agreements (described above) will enter into amendments to their agreements with
Parent and the Company prior to the consummation of the Offer pursuant to which
such Executives will waive certain of their rights under their change in control
severance agreement in exchange for a lump sum payment in cash. The Company has
also entered into a severance agreement with each of the Executives, providing
for the continued compensation of such Executive in the event that the Company
terminates his employment, with or without cause. In the event of a termination
of employment following a change in control of the Company, at the Executive's
option, the terms of the change in control severance agreement may govern such
termination in lieu of the terms of the severance agreement. It is not
anticipated that any of the Executives will elect to receive a payment under
their severance agreement.
The lump sum cash payments upon a qualifying termination of employment to
be provided to each of the Executives under the change in control severance
agreements are as follows:
<TABLE>
<S> <C>
Warner C. Blow.......................................... $5,500,000
J. Brad Sharp........................................... $2,592,000
Albert K. Hoover........................................ $ 960,000
Paul L.H. Olson......................................... $1,416,000
Stephen R. Perkins...................................... $1,341,000
Steven P. Shiflet....................................... $ 996,000
David R. Dodge.......................................... $ 790,000
</TABLE>
If the Offer were consummated on March 23, 2000, and each of the Executives
were to incur a qualifying termination of employment immediately following that
date, the approximate gross-up payments that would be payable to Messrs. Sharp
and Dodge (the only Executives expected to be subject to excise tax) is not
expected to exceed $4.1 million and $1.3 million, respectively.
Sterling L. Williams Chairman/Consulting/Severance Agreement. Sterling L.
Williams is a party to a Chairman/Consulting/Severance Agreement with the
Company (the "Williams Agreement") which provides that, as a result of the
filing by the Company of a Form 8-K in connection with the Merger Agreement, Mr.
Williams is entitled to terminate the Williams Agreement by giving the Company
an acceleration notice. Upon giving such notice, Mr. Williams will be entitled
to receive a lump sum payment from the Company, within 90 days following the
date of the acceleration notice, in an amount equal to seven times the sum of
the annual fee provided in the Williams Agreement and the amount of the highest
cash incentive bonus to be paid to Mr. Williams with respect to any Company
fiscal year after fiscal year 1996. Effective for fiscal 2000, Mr. Williams'
annual fee and bonus level is $880,000 and $330,000 respectively, resulting in
an anticipated lump sum cash payment under the Williams Agreement equal to
$8,470,000. After receipt of the lump sum payment by Mr. Williams, the Williams
Agreement will immediately terminate. In addition, the Williams Agreement also
provides for Mr. Williams to receive a gross-up payment if Mr. Williams becomes
subject to excise tax as a result of any payments that Mr. Williams receives
under the Williams Agreement, or otherwise, being determined to be "excess
parachute payments." If the Offer were consummated on March 23, 2000, and Mr.
Williams terminates the Williams Agreement by giving the Company an acceleration
notice immediately following that date, no gross-up payment would be payable.
Warner C. Blow SERP Agreement. In connection with its acquisition of
Informatics General Corporation in 1985, Sterling Software, Inc. 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, Inc. under the SERP II
with respect to Warner C. Blow. Mr. Blow is the only employee of the Company who
participates in the SERP. As of September 30, 1999, Mr. Blow had accrued
approximately 25 years of service under the SERP.
As a result of the filing by the Company of the Form 8-K in connection with
the Offer, Mr. Blow's SERP benefit is calculated by giving him credit for
additional service equal to the number of months for which he would be entitled
to severance benefits upon a termination of employment following the filing by
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the Company of such Form 8-K. The amount of such severance benefit will be
determined by calculating Mr. Blow's base pay and bonus during each year of such
service at the rates in effect for 2000. The present value of the SERP benefit
as so calculated is payable to Mr. Blow in a single lump sum on the first day of
the month following the filing by the Company of such Form 8-K. The estimated
value of the increase of Mr. Blow's SERP benefit due to the triggering of the
change in control related provisions is $3,908,000. 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 Mr. Blow's change in control
severance agreement, an additional payment would be made from the SERP to
compensate Mr. Blow for the excise tax imposed on the SERP benefit.
Deferred Compensation Plan. Employees with annual compensation from the
Company which exceeds $140,000, as well as all directors and certain
consultants, are eligible to participate in the Company's Deferred Compensation
Plan. Participants in the plan may elect to have their deferrals deemed invested
in one or more funds available under the plan. All amounts in a participant's
account are 100% vested at all times, provided that certain penalties apply to
certain unscheduled withdrawals. Participants may defer post-employment payments
(including payments pursuant to the change in control severance agreements)
under the plan.
Upon termination of employment, a participant's account balance is paid
either in a lump sum payment or in quarterly installments over a certain period
as a participant may elect under the terms of the plan. Upon a change in control
(including the filing of a Form 8-K in connection with the Merger Agreement),
all participants have the right to a distribution of their account balances in a
lump sum or in periodic distributions as provided in the plan upon six months
notice. If a participant requests payment without six months notice, the
participant will forfeit 10% of the amount to be distributed. It is contemplated
that the Deferred Compensation Plan will be amended to permit the deferral of
option cashout proceeds, up to an aggregate amount not to exceed $100 million,
received in connection with the transactions contemplated by the Merger
Agreement.
THE STOCKHOLDER AGREEMENT
As a condition and inducement to Parent's and Purchaser's entering into the
Merger Agreement, concurrently with the execution and delivery of the Merger
Agreement, on February 18, 2000, Parent, Purchaser and Sterling L. Williams,
Warner C. Blow, Charles J. Wyly, Jr. and Sam Wyly (each a "Stockholder" and
collectively, the "Stockholders") entered into a Stockholder's Agreement (the
"Stockholder Agreement"), pursuant to which the Stockholders agreed to tender to
Purchaser all of the approximately 1.3 million Shares beneficially owned by them
(the "Subject Shares") plus any Shares which are issued after the date of the
Stockholder Agreement upon exercise of Company Stock Options held by them. The
covenants and agreements contained in the Stockholder Agreement, and all rights
and obligations of the parties thereunder, terminate upon the termination of the
Merger Agreement in accordance with its terms. The following summary of the
Stockholder Agreement, a copy of which is incorporated by reference as Exhibit
(e)(2) hereto, is qualified in its entirety by reference to the Stockholder
Agreement. Capitalized terms used but not defined in the summary below have the
meaning set forth in the Stockholder Agreement.
Agreement to Tender. The Stockholder Agreement provides that, if Parent or
Purchaser commences the Offer, each Stockholder will validly tender, or cause to
be validly tendered, all of the Shares then beneficially owned by such
Stockholder to Parent or Purchaser, as applicable, as soon as practicable (and
in any event within five business days) after the commencement of the Offer in
accordance with the terms and conditions of the Offer. Each Stockholder further
agreed not to withdraw such tendered Shares unless the Offer is terminated by
Parent or Purchaser, as applicable. Each Stockholder will be entitled, upon
consummation of the Offer, subject to and in accordance with the Offer's terms
and conditions, to receive an amount equal to the Offer Price with respect to
the tendered Shares.
Voting Agreement. The Stockholder Agreement provides that each Stockholder,
at any meeting of the stockholders of the Company, however called, or in
connection with any written consent of the holders of Shares, will vote his
Shares, (a) in favor of the approval and adoption of the Merger Agreement, the
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Merger and all the transactions contemplated by the Merger Agreement and the
Stockholder Agreement and any other actions required in furtherance of the
Merger Agreement or the Stockholder Agreement; and (b) against any Company
Takeover Proposal and any actions in furtherance thereof (collectively, the
"Voting Agreement Matters"). In connection therewith, each Stockholder agreed to
provide an irrevocable proxy with respect to the Voting Agreement Matters to
Parent for the Shares which such Stockholder is entitled to vote at any meeting
of stockholders of the Company or consent in lieu of such meeting.
Covenants. The Stockholder Agreement provides that each Stockholder will
immediately cease any discussions or negotiations relating to a Company Takeover
Proposal, other than with respect to the Offer and the Merger, with any parties
conducted prior to February 18, 2000. Each Stockholder will not, directly or
indirectly, and will instruct his representatives not to, directly or indirectly
(i) solicit, initiate or encourage (including by way of furnishing information
or assistance), or take any other action to facilitate, any inquiries, any
expression of interest or the making of any proposal which constitutes any
Company Takeover Proposal or (ii) participate in any discussions or negotiations
regarding any Company Takeover Proposal. In addition, until and unless the
Stockholder Agreement has been terminated, each Stockholder may not, except as
expressly provided for in the Stockholder Agreement, (a) sell, exchange, pledge,
encumber or otherwise transfer or dispose of, or agree to sell, exchange,
pledge, encumber or otherwise transfer or dispose of, any of his Shares (which
for the avoidance of doubt will not include any Company Stock Option), or any
interest therein, (b) deposit his Shares into a voting trust or enter into a
voting agreement or arrangement with respect to such Shares or grant any proxy
with respect thereto or (c) enter into any agreement, arrangement,
understanding, or undertaking to do any of the foregoing. In addition, each
Stockholder waived any appraisal or other rights to dissent from the Merger to
which such Stockholder may have been entitled.
Share Ownership. The number of Shares (including shares of Common Stock
underlying Company Stock Options) subject to the terms and conditions of the
Stockholder Agreement owned by each of the Stockholders as of February 22, 2000
is as follows:
<TABLE>
<CAPTION>
NAME SHARES
- ---- ---------
<S> <C>
Sterling L. Williams..................................... 3,755,776
Warner C. Blow........................................... 1,609,031
Charles J. Wyly, Jr. .................................... 988,366
Sam Wyly................................................. 1,046,172
</TABLE>
CONFIDENTIALITY AGREEMENT
Prior to the execution of the Merger Agreement, Parent and the Company
entered into a Confidentiality Agreement, dated as of November 19, 1999 (the
"Confidentiality Agreement"), pursuant to which the parties agreed to provide,
among other things, for the confidential treatment of their discussions
regarding the Offer and the Merger and the exchange of certain confidential
information regarding the Company. The following summary of the Confidentiality
Agreement, a copy of which is incorporated by reference as Exhibit (e)(9)
hereto.
Pursuant to the terms of the Confidentiality Agreement, Parent has agreed
that for a period of one year from the date of the Confidentiality Agreement,
without the prior written consent of the Company, neither Parent nor its
Representatives (as such term is defined in the Confidentiality Agreement) will,
among other things, (i) propose to the Company or its representatives, or
propose to or discuss with any other person, or make any public disclosure
concerning, any transaction between Parent and the Company or its security
holders or involving any of its securities or security holders and (ii) acquire
or seek to acquire, or advise any other person to acquire, directly or
indirectly, control of the Company or the Company Board or any securities,
business or assets of the Company or any of its subsidiaries.
In addition, Parent agreed that for a period of two years from the date of
the Confidentiality Agreement, without the prior written consent of the Company,
(i) neither Parent nor its Representatives who have knowledge of the Merger
Agreement, the Merger, the Offer or the other transactions
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contemplated thereby, will, directly or indirectly, solicit for employment in
any capacity any employee of the Company or any of its subsidiaries and (ii)
Parent or its Representatives will not, directly or indirectly, employ in any
such capacity any employee of the Company or any of its subsidiaries with whom
Parent or its Representatives has had contact or who became known to Parent
during its evaluations of or discussions with the Company.
Parent also agreed that it and its Representatives will not contact any
employee, customer, competitor, supplier or joint venturer of the Company or its
subsidiaries in connection with Parent's evaluation of the Company without the
prior written approval of the Company.
The Company agreed not to, directly or indirectly, employ in any capacity
any employee of Parent or its subsidiaries with whom the Company has had contact
or who became known to the Company during Parent's evaluation of or discussions
with the Company for a period of two years from the date of the Confidentiality
Agreement without the prior written consent of Parent.
ITEM 4. SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Company Board. At a meeting held on February 18,
2000, the Company Board, by unanimous vote of all directors, approved the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, and determined that the terms of the Offer and the Merger are advisable
and are fair to and in the best interests of the Company and its stockholders.
The Company Board recommends that stockholders accept the Offer and tender
their Shares pursuant to the Offer. A letter to the Company's stockholders
communicating the Company Board's recommendation is filed herewith as Exhibit
(a)(3) and is incorporated herein by reference.
(b) Background; Reasons for the Company Board's Recommendation.
Background
Beginning in August, 1999, senior management of the Company, in
consultation with the Executive Committee of the Company Board, began to explore
and analyze the Company's strategic alternatives in order to maximize
stockholder value. Among other things, the Company's senior management explored
and analyzed the following: (i) remaining as a stand-alone company and operating
in accordance with the status quo, (ii) remaining as a stand-alone company, but
varying certain aspects of the Company's basic business model or capital
structure, (iii) a break-up, spin-off or split-up of the Company into multiple
companies, and (iv) a possible sale of all or part of the Company. After
considering each of these alternatives, the Company Board concluded that a
combination of the Company with another large company in the telecommunications,
technology or systems integration business sectors was likely to result in the
greatest stockholder value and involve the least amount of execution risk.
As a result, the Company engaged financial advisors, Goldman, Sachs & Co.
("Goldman"), to perform analyses of various alternatives reviewed by management
and to represent the Company in the event a transaction or series of
transactions were to occur. Goldman completed these analyses, which included
extensive discussions with the Company's management.
The Company's management, with the assistance of its financial advisors,
then identified a number of third parties in the telecommunications, technology
or systems integration business sectors as well as certain financial investors
who might have an interest in engaging in a business combination transaction
with the Company.
Commencing in October, 1999, representatives of Goldman contacted a number
of third parties in an effort to ascertain on a preliminary basis their level of
interest in engaging in a business combination transaction with the Company. The
Company entered into confidentiality agreements with and furnished information
to numerous parties which expressed interest in acquiring the Company throughout
the period from October, 1999 to early February, 2000. During this time, the
Company's management and representatives of Goldman held various meetings and
discussions with interested parties regarding the
10
<PAGE> 10
Company's operations and the terms for a possible transaction. Following a
review of the outcome of this process and after reviewing the status of the
third-party discussions with members of the Company Board, on February 13, 2000,
Goldman notified Parent of the Company's desire to pursue further negotiations
with Parent concerning its offer to acquire the Company for $44.25 per Share.
Beginning on February 14, 2000 representatives of the Company and the
Company's outside counsel, Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden,
Arps"), and Parent and Parent's outside counsel, Weil, Gotshal & Manges LLP, met
together and separately to negotiate the Merger Agreement. As a condition to
entering into the Merger Agreement, Parent requested that certain officers and
directors of the Company enter into a stockholder's agreement, whereby each such
person would agree to tender their Shares in the Offer, and to vote such shares
in favor of the Merger and against any competing transaction. In addition,
during the week of February 14, 2000, Parent discussed the future terms of
employment for certain key employees of the Company with such employees.
The Company Board held a special meeting on February 18, 2000 to discuss
the proposed transaction with Parent and the terms of the Merger Agreement.
Messrs. Williams and Blow, with assistance from representatives of Goldman,
reviewed the proposed transaction and the prospects for the Company on a
stand-alone basis. In addition, Goldman made a detailed financial presentation
and orally delivered its opinion, which it subsequently confirmed in writing, to
the effect that, as of that date and based upon and subject to the matters
described therein, the consideration to be received by the Company's
stockholders pursuant to the Offer and the Merger is fair from a financial point
of view to such stockholders. In addition, representatives of Skadden, Arps
summarized the terms and conditions of the Merger Agreement and the Stockholder
Agreement, and discussed the directors' fiduciary duties under Delaware law.
After discussion and consideration of the factors and reasons described
below under "-- Reasons for the Company Board's Recommendation," the Company
Board unanimously determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are advisable and fair
to and in the best interests of the Company's stockholders, unanimously approved
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, and unanimously recommended that the Company's
stockholders accept the Offer and tender their Shares pursuant to the Offer.
Following the meeting of the Company Board, on February 18, 2000, the
Company and Parent executed the Merger Agreement, and Parent, Purchaser and the
Stockholders executed the Stockholder Agreement.
On February 25, 2000, Parent commenced the Offer.
Reasons for the Company Board's Recommendation.
In approving the Offer, the Merger, the Merger Agreement and the
transactions contemplated thereby and recommending that all holders of Shares
accept the Offer and tender their Shares pursuant to the Offer, the Company
Board considered a number of factors, including:
Financial Condition and Prospects of the Company. The Company Board
considered the financial condition, results of operations, business and
prospects of the Company if it were to remain independent. The Company Board
discussed the Company's current strategic plans, including the risks associated
with achieving and executing upon the Company's business plans, as well as the
competitive environment in which the Company operates. The Company Board also
discussed its belief that the Shares have historically been undervalued, making
it more expensive and difficult to complete acquisitions and to attract and
retain employees key to the long term success of the Company.
Historical Stock Price Performance. The Company Board reviewed the
historical stock price performance of the Company and noted that the
consideration to be received by the Company's stockholders pursuant to the Offer
and the Merger would represent a premium of approximately 36% over the closing
price of the Shares on the New York Stock Exchange (the "NYSE") on February 16,
2000,
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<PAGE> 11
40% over the 10-day average closing price, 50% over the one-month average
closing price, and 46% over the six-month average closing price, in each case
prior to February 16, 2000.
Goldman Presentation. The Company Board took into account the presentations
and advice of Goldman with respect to the financial terms of the Offer and the
Merger and the opinion of Goldman to the effect that, as of February 18, 2000,
and subject to the matters set out in such opinion, the consideration to be
received by the holders of Shares pursuant to the Offer and the Merger is fair
from a financial point of view to such holders. A copy of Goldman's opinion is
included as Schedule II to this Schedule 14D-9 and is incorporated herein by
reference. Holders of Shares should read Goldman's opinion in its entirety for a
description of procedures followed, assumptions and qualifications made, matters
considered and limitations on the review undertaken by Goldman.
Terms and Conditions of the Offer and the Merger. The Company Board
considered the terms and conditions of the Merger Agreement as well as the terms
of the Stockholder Agreement. The Company Board noted that the transaction was
being structured as a cash tender offer for all Shares, and it would permit all
holders of Shares to participate on the same basis. The Company Board noted the
limited conditions to Parent's obligations to consummate the Offer, including
the consents and approvals required to consummate the Offer and the Merger, such
as regulatory clearance under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and foreign antitrust laws, and the favorable prospects for
receiving such consents and approvals.
Other Potential Transactions. The Company Board also considered the
information provided by Goldman concerning the auction process that had been
conducted on behalf of the Company by Goldman since September 1999, including
information regarding discussions and meetings held by Goldman and the Company's
management with other potential acquirors of the Company. The Company Board
noted that none of those discussions had resulted in proposals to acquire the
Company that were more favorable to the Company and its stockholders than the
Offer and the Merger. The Company Board also noted that the Merger Agreement
would permit the Company to terminate the Merger to accept an unsolicited
superior proposal from a third party (subject to payment of the $125,000,000
termination fee).
The Company Board did not quantify or otherwise assign relative weights to
the foregoing factors or determine that any factor was of particular importance.
Rather, the Company Board viewed its position and recommendations as being based
on the totality of the information presented to and considered by the Company
Board. In addition, individual members of the Company Board may have given
different weights to different factors.
The foregoing discussion of the information and factors considered and
given weight by the Company Board is not intended to be exhaustive but is
believed to include all material factors considered by the Company Board.
(c) Intent to Tender.
To the Company's knowledge, after reasonable inquiry, the Company believes
that all executive officers and directors of the Company intend to tender all
Shares held of record or beneficially owned by them (other than Company Stock
Options) pursuant to the Offer.
ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
The Company engaged Goldman pursuant to the terms of a letter agreement,
dated as of October 4, 1999 (the "Goldman Engagement Letter"), to assist the
Company as its financial advisor in connection with the possible sale of all or
a portion of the Company (a "Transaction").
Pursuant to the terms of the Goldman Engagement Letter, the Company agreed
to pay Goldman (i) a cash fee of $250,000, payable upon signing of the Goldman
Engagement Letter (such fee to be applied against any transaction fee which may
become payable to Goldman pursuant to the Goldman Engagement Letter), and (ii) a
transaction fee of 0.50% of the aggregate consideration paid in connection with
the Offer and the Merger (including amounts paid to holders of options, warrants
and convertible
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<PAGE> 12
securities), plus the principal amount of all indebtedness for borrowed money of
the Company outstanding, as set forth in the most recent consolidated balance
sheet of the Company prior to consummation of the Offer. The fee payable by the
Company to Goldman in connection with the Offer and the Merger would equal
approximately $19.4 million.
The Company has also agreed to reimburse Goldman for reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of its
attorneys, and to indemnify Goldman and related parties against certain
liabilities arising out of or in connection with or as a result of Goldman's
engagement, including liabilities under the federal securities laws.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
Except as set forth in herein, to the Company's knowledge, no transactions
in the Shares, other than ordinary course purchases under the Company's Savings
and Security Plan, have been effected during the past 60 days by the Company or
any of its executive officers, directors, affiliates or subsidiaries. On
December 15, 1999 Paul L.H. Olson gifted a total of 785 Shares to various family
members.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) Except as set forth in this Schedule 14D-9, no negotiations are being
undertaken or are underway by the Company in response to the Offer which relate
to a tender offer or other acquisition of the Company's securities by the
Company, any subsidiary of the Company or any other person.
(b) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in:
(i) an extraordinary transaction, such as a merger, reorganization or
liquidation, involving the Company or any subsidiary of the Company; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company; or (iii) any material change in the present dividend
rate or policy, or indebtedness or capitalization of the Company.
(c) Except as set forth in this Schedule 14D-9, there are no transactions,
Company Board resolutions, agreements in principle or signed contracts in
response to the Offer that relate to or would result in one or more of the
events referred to in Items 7(a) or 7(b) above.
ITEM 8. ADDITIONAL INFORMATION.
(a) The Information Statement attached as Schedule I hereto is being
furnished in connection with the possible designation by Parent, pursuant to the
Merger Agreement, of certain persons to be appointed to the Company Board other
than at a meeting of the Company's stockholders.
(b) On February 18, 2000, the Rights Agreement, dated as of December 18,
1996 (the "Rights Agreement"), by and between the Company and BankBoston N.A., a
national banking association formerly known as The First National Bank of
Boston, as Rights Agent, was amended (the "Amendment to Rights Agreement") in
order to, among other things, (i) prevent each of Parent and Purchaser from
becoming an Acquiring Person (as defined in the Rights Agreement); (ii) prevent
a Distribution Date, Flip-in Event, Flip-over Event, Share Acquisition date or
Triggering Event (each as defined in the Rights Agreement) from occurring, in
each case as a result of (A) the execution of the Merger Agreement, (B) the
public or other announcement of the Merger, (C) the public or other announcement
of the Offer, (D) the commencement of the Offer, (E) the consummation of the
Offer, (F) the consummation of the Merger, or (G) the consummation of any other
transaction contemplated by the Merger Agreement or the Stockholder Agreement. A
copy of the Amendment to Rights Agreement is attached hereto as Exhibit (e)(3)
and is incorporated herein by reference.
(c) The information contained in all of the Exhibits referred to in Item 9
below is incorporated herein by reference.
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<PAGE> 13
ITEM 9. EXHIBITS.
<TABLE>
<C> <S>
(a)(l) Purchaser's Offer to Purchase, dated February 25, 2000
(incorporated herein by reference to Exhibit (a)(1)(A) to
the Schedule TO filed with the Securities and Exchange
Commission (the "SEC") on February 25, 2000).
(a)(2) Letter of Transmittal (incorporated herein by reference to
Exhibit (a)(1)(B) to the Schedule TO).
*(a)(3) Form of Letter to Stockholders, dated February 25, 2000.
*(a)(4) Opinion of Goldman Sachs & Co., dated February 18, 2000,
included as Schedule II.
(e)(1) Agreement and Plan of Merger, dated as of February 18, 2000,
by and among Parent, Purchaser and the Company (incorporated
by reference to Exhibit (d)(1) to the Schedule TO).
(e)(2) Stockholder's Agreement, dated as of February 18, 2000 among
Parent, Purchaser and the stockholders named in the
signature pages thereto (incorporated by reference to
Exhibit (d)(2) to the Schedule TO).
(e)(3) Amendment, effective as of February 18, 2000, to the Rights
Agreement, dated as of December 18, 1996 by and between the
Company and BankBoston N.A., a national banking association
formerly known as The First National Bank of Boston, as
Rights Agent.
(e)(4) Sterling Commerce, Inc. Supplemental Executive Retirement
Plan (incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K filed with the SEC on
November 19, 1998).
(e)(5) Chairman/Consulting/Severance Agreement, dated May 31, 1998
between the Company and Sterling L. Williams (incorporated
by reference to Exhibit 10.8.1 to the Company's Annual
Report on Form 10-K filed with the SEC on November 18,
1997).
(e)(6) Sterling Commerce, Inc. Amended and Restated Deferred
Compensation Plan.
(e)(7) Form of Change in Control Severance Agreement between the
Company and each of Warner C. Blow, J. Brad Sharp, Paul L.H.
Olson, Stephen R. Perkins, Steven P. Shiflet, Albert K.
Hoover and David R. Dodge (incorporated by reference to
Exhibit 10.9.1 to the Company's Quarterly Report on Form
10-Q filed with the SEC on May 13, 1996).
(e)(8) Form of Amendment to Change in Control Severance Agreement
between the Company and each of Warner C. Blow, J. Brad
Sharp, Paul L.H. Olson, Stephen R. Perkins, Steven P.
Shiflet, Albert K. Hoover and David R. Dodge (incorporated
by reference to Exhibit 10.9.2 to the Company's Annual
Report on Form 10-K filed with the SEC on December 21,
1999).
(e)(9) Confidentiality Agreement, dated November 19, 1999, by and
between Parent and the Company (incorporated by reference to
Exhibit (d)(3) to the Schedule TO).
(g) Not applicable.
</TABLE>
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* Included in copy mailed to stockholders.
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<PAGE> 14
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Schedule 14D-9 is true, complete and
correct.
STERLING COMMERCE, INC.
By: /s/ Albert K. Hoover
----------------------------------
Albert K. Hoover
Executive Vice President,
General Counsel and Secretary
Date: February 25, 2000
<PAGE> 15
SCHEDULE I
STERLING COMMERCE, INC.
300 Crescent Court, Suite 1200
Dallas, Texas 75201
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about February 25, 2000 as
a part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Sterling Commerce, Inc. (the "Company") to the holders of
record of shares of common stock, par value $.01 per share, of the Company (the
"Shares") at the close of business on or about February 18, 2000. It is being
furnished in connection with an Agreement and Plan of Merger dated as of
February 18, 2000, by and among SBC Communications Inc., a Delaware corporation
("Parent"), SBC Silver, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Purchaser"), and the Company (the "Merger Agreement") in
accordance with the terms and subject to the conditions of which (i) Purchaser,
on behalf of Parent, will commence a tender offer (the "Offer") to purchase all
outstanding Shares, including the associated preferred stock purchase rights, at
a price of $44.25 per Share in cash (the "Offer Price") and (ii) following
consummation of the Offer, Purchaser will be merged with and into the Company
(the "Merger"). As a result of the Offer and the Merger, the Company will become
a wholly-owned subsidiary of Parent.
The Merger Agreement provides that, upon the consummation of the Offer, the
Company shall cause Parent's designees to be elected to the Board of Directors
of the Company (the "Company Board") under the circumstances described in the
Merger Agreement. This Information Statement is required by Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. See "Parent Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-9.
Purchaser commenced the Offer on February 25, 2000. The Offer is scheduled
to expire at 12:00 midnight, New York City time, on Thursday, March 23, 2000,
unless the Offer is extended.
The information contained in this Information Statement concerning
Purchaser and Parent has been furnished to the Company by Purchaser and Parent,
and the Company assumes no responsibility for the accuracy or completeness of
such information.
PARENT DESIGNEES
Effective upon the consummation of the Offer by Purchaser, Parent will be
entitled to designate the number of directors, rounded up to the next whole
number, on the Company Board that equals the product of (i) the total number of
directors on the Company Board (giving effect to the election of any additional
directors pursuant to this provision) and (ii) the percentage that the number of
Shares accepted for payment by Parent or Purchaser bears to the total number of
Shares then outstanding, and the Company shall cause Parent's designees to be
elected or appointed to the Company Board, including, without limitation,
increasing the size of the Company Board, or securing resignations of incumbent
directors, or both; provided that, prior to the effective time of the Merger
(the "Effective Time"), two members (each, an "Original Director") who were
directors of the Company on February 18, 2000, shall remain as directors of the
Company until the Effective Time. If the number of Original Directors is reduced
to less than two for any reason prior to the Effective Time, the remaining and
departing Original Directors shall be entitled to designate a person to fill the
vacancy.
<PAGE> 16
Parent has informed the Company that it will choose its designees to the
Company Board from the directors and executive officers of Parent and/or
Purchaser listed in Schedule I to the Offer to Purchase, a copy of which is
being mailed to the Company's stockholders together with the Schedule 14D-9.
Parent has informed the Company that each of the directors and executive
officers listed in Schedule I to the Offer to Purchase has consented to act as a
director of the Company, if so designated. The information in the Offer to
Purchase is incorporated herein by reference. The address of each such person is
set forth in such Offer to Purchase.
It is expected that Parent designees may assume office following
consummation of the Offer, which cannot be earlier than March 23, 2000.
CERTAIN INFORMATION CONCERNING THE COMPANY
As of February 22, 2000, the Company had 80,062,062 shares issued and
outstanding, the Company's only class of voting securities that would be
entitled to vote for directors at a stockholder meeting if one were to be held,
each Share being entitled to one vote.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company's Certificate of Incorporation provides for a board of
directors ("Company Board") 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.
The following list sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments for the
past five years, of each director and executive officer of the Company. Unless
otherwise indicated, each such person is a citizen of the United States and the
business address of such person is c/o the Company, 300 Crescent Court, Suite
1200, Dallas, Texas 75201.
Warner C. Blow, age 62. Mr. Blow has served as Chief Executive Officer and
a director of the Company since October 1996. From December 1995 until October
1999, Mr. Blow also served as President of the Company and, from December 1995
until October 1996, Chief Operating Officer of the Company. Prior to December
1995, Mr. Blow served as President of the Electronic Commerce Group (the
predecessor of the Company) of Sterling Software, Inc. ("Sterling Software")
from July 1993 and as an Executive Vice President of Sterling Software from
October 1989.
Robert E. Cook, age 58. Mr. Cook has served as a director of the Company
since March 1996. Prior to July 1993, Mr. Cook served as a 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 provider of Internet-oriented products. 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 a managing director of Royal Wulff Ventures, LLP, a venture
capital company. Mr. Cook is the Chairman of the Audit Committee and a member of
the Special Stock Option Committee of the Company Board.
Honor R. Hill, age 58. 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 Company Board.
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<PAGE> 17
Sterling L. Williams, age 56. Mr. Williams has served as Chairman of the
Company Board 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 is a member of the
Executive Committee, the 1996 Stock Option Committee and the 1999 Stock Option
Committee of the Company Board.
Charles J. Wyly, Jr., age 66. 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
Company 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 and as a director of Scottish Annuity Life & Holdings, Ltd, a
variable life insurance and reinsurance company. Mr. Wyly is a member of the
Executive Committee, the 1996 Stock Option Committee and the 1999 Stock Option
Committee of the Company Board.
Evan A. Wyly, age 38. Mr. Wyly has served as a director of the Company
since December 1995. He has been a Managing Partner of Maverick Capital, Ltd.,
an investment fund management company, since 1991. In 1988 Mr. Wyly founded
Premier Partners Incorporated, a private investment firm, and served as its
President prior to joining Maverick Capital, Ltd. Mr. Wyly also currently serves
as a director of Sterling Software and as a director of Michaels Stores Inc., a
specialty retailer ("Michaels Stores").
Sam Wyly, age 65. Mr. Wyly has served as a director of the Company since
December 1995. He also serves as Chairman of the Executive and 1996 and 1999
Stock Option Committees of the Company Board. 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 and the Internet. 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. Mr. Wyly currently serves as Chairman of the Board of
Sterling Software, Chairman of the Board of Michaels Stores and Chairman of the
Board of Scottish Annuity and Life Holdings, Ltd., and is Founding Partner of
the General Partner of Maverick Capital, Ltd. Mr. Wyly is the father of Evan
Wyly, also a director of the Company.
J. Brad Sharp, age 42. Mr. Sharp has served as President and Chief
Operating Officer of the Company since October 1999. Prior to October 1999, Mr.
Sharp served as Executive Vice President of the Company since November 1997, and
also as Chief Operating Officer since October 1998. From December 1995 until
November 1997, Mr. Sharp served as Senior Vice President of the Company and as
President of the Company's Interchange Software Group. Prior to March 1996, Mr.
Sharp served as President of the Interchange Software Division of Sterling
Software's Electronic Commerce Group (the predecessor of the Company) from
August 1992.
Albert K. Hoover, age 40. Mr. Hoover has served as Executive Vice President
of the Company since October 1999, General Counsel of the Company since June
1997 and as Secretary since June 1998. From June 1997 until October 1999, Mr.
Hoover served as Senior Vice President of the Company. From December 1995 until
June 1997, Mr. Hoover served as Vice President, Legal of the Company. Prior to
March 1996, Mr. Hoover also served as a Vice President of Sterling Software from
May 1994 and as Assistant General Counsel of Sterling Software from June 1990.
Steven P. Shiflet, age 52. Mr. Shiflet has served as Senior Vice President
and Chief Financial Officer of the Company since January 1997. From December
1995 until January 1997, Mr. Shiflet served as Vice President, Finance of the
Company. Prior to March 1996, Mr. Shiflet served as Group Vice President,
3
<PAGE> 18
Finance and Administration of Sterling Software's Electronic Commerce Group (the
predecessor of the Company) from 1986.
Paul L. H. Olson, age 49. Mr. Olson has served as Executive Vice President
of the Company since November 1997 and as President of the Company's Commerce
Group since December 1995. From December 1995 until November 1997, Mr. Olson
served as Senior Vice President of the Company. Prior to March 1996, Mr. Olson
served as President of the Commerce Services Division of Sterling Software's
Electronic Commerce Group (the predecessor of the Company) from August 1992.
Stephen R. Perkins, age 55. Mr. Perkins has served as Executive Vice
President of the Company since November 1997 and as President of the Company's
Communications Software Group since December 1995. From December 1995 until
November 1997, Mr. Perkins served as Senior Vice President of the Company. Prior
to March 1996, Mr. Perkins served as President of the Communications Software
Division of Sterling Software's Electronic Commerce Group (the predecessor of
the Company) from July 1993.
David R. Dodge, age 52. Mr. Dodge has served as Senior Vice President of
the Company and President of the Company's Interchange Software Group since July
1999. From October 1995 until July 1999, Mr. Dodge served as Senior Vice
President of Global Sales for the Commerce Services Group. Prior to October
1995, Mr. Dodge served as Vice President, Sales for the Commerce Services
Division of Sterling Software's Electronic Commerce Group (the predecessor of
the Company) from February 1986.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
General. The business of the Company is managed under the direction of the
Company Board. The Company 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 Company Board approval. It also holds special
meetings when an important matter requires Company Board action between
scheduled meetings. The Company Board met or acted by unanimous written consent
twelve times during the fiscal year ended September 30, 1999 (the "1999 Fiscal
Year"). In accordance with the rules of the New York Stock Exchange, Honor R.
Hill and Robert E. Cook are independent directors. During the 1999 Fiscal Year,
each member of the Company Board participated in at least 75% of all Company
Board and applicable committees meetings held during the period for which he or
she was a director.
The Company Board has established Executive, Audit and Option Committees to
devote attention to specific subjects and to assist the Company Board in the
discharge of its responsibilities. The functions of those committees, their
current members and the number of meetings held during the 1999 Fiscal Year are
set forth below.
Executive Committee. The Executive Committee is empowered to act on any
matter except those matters specifically reserved to the full Company Board by
applicable law. The Executive Committee was responsible for determining
executive compensation for the 1999 Fiscal Year, except for decisions relating
to grants of stock options under the Company's Amended and Restated 1996 Stock
Option Plan (the "1996 Stock Option Plan") and the Company's 1999 Stock Option
Plan (the "1999 Stock Option Plan" and, together with the 1996 Stock Option
Plan, the "Option Plans"). 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 five times during
the 1999 Fiscal Year.
Audit Committee. The Audit Committee recommends to the Company 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 Company
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 the 1999 Fiscal Year.
4
<PAGE> 19
Option Committees. The 1996 Stock Option Committee, the 1999 Stock Option
Committee and the Special Stock Option Committee (collectively, the "Option
Committees") administer the Option Plans. In this capacity, the Option
Committees have the authority, subject to certain restrictions set forth in the
Option Plans, to determine from time to time the individuals to whom options are
granted under the Option Plans, 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 Plans to make grants of options to any eligible
participant, it is anticipated that the 1996 Stock Option Committee and the 1999
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 Company 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 1996 Stock Option Committee met or acted by unanimous
written consent four times during the 1999 Fiscal Year. The 1999 Stock Option
Committee met or acted by unanimous written consent six times during fiscal
1999. The Special Stock Option Committee met or acted by unanimous written
consent two times during fiscal 1999.
Other. The Company does not have a nominating or compensation committee.
The functions customarily attributable to a nominating committee are performed
by the Company 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 Company 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 Company Board and Company 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 1996 Stock Option Plan. However, no such grants were made to
directors during fiscal 1999.
5
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Shares by each director of the Company, 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 Shares. 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........................................ 3,755,776(2) 4.69%
Warner C. Blow.............................................. 1,609,031(3) 2.01%
J. Brad Sharp............................................... 939,666(4) 1.17%
Paul L.H. Olson............................................. 179,572(5) *
Stephen R. Perkins.......................................... 219,294(6) *
Steven P. Shiflet........................................... 88,084(7) *
Sam Wyly.................................................... 1,046,172(8) 1.31%
Charles J. Wyly, Jr. ....................................... 988,366(9) 1.23%
Evan A. Wyly................................................ 60,000(10) *
Robert E. Cook.............................................. 60,000(11) *
Honor R. Hill............................................... 50,000(12) *
All executive officers and directors as a group (13
persons).................................................. 9,182,748(13) 11.47%
AXA Counseil Vie Assurance Mutuelle and related entities,
AXA and The Equitable Companies Incorporated and related
entities.................................................. 9,860,394(14) 12.32%
</TABLE>
- ---------------
* Less than 1%.
(1) The number of Shares shown includes outstanding Shares owned by the person
indicated on February 22, 2000 and shares underlying options owned by such
person on February 22, 2000 that were exercisable within 60 days of such
date. Persons holding shares of Common Stock pursuant to the Company's
Savings and Security Plan (the "Savings Plan") generally have sole voting
power, but not investment power, with respect to such shares.
(2) Includes 3,750,000 shares that may be acquired upon exercise of options
granted under the 1996 Stock Option Plan.
(3) Includes 1,600,000 shares that may be acquired upon exercise of options
granted under the 1996 Stock Option Plan and 4,031 shares held pursuant to
the Savings Plan.
(4) Includes 937,500 shares that may be acquired upon exercise of options
granted under the 1996 Stock Option Plan and 2,166 shares held pursuant to
the Savings Plan.
(5) Includes 175,000 shares that may be acquired upon exercise of options
granted under the 1996 Stock Option Plan. Also includes 2,090 shares held
pursuant to the Savings Plan and 348 shares held by a revocable trust of
which Mr. Olson's spouse is the sole beneficiary and trustee.
(6) Includes 217,500 shares that may be acquired upon exercise of options
granted under the 1996 Stock Option Plan and 794 shares held pursuant to
the Savings Plan.
(7) Includes 85,000 shares that may be acquired upon exercise of options
granted under the 1996 Stock Option Plan and 3,084 shares held pursuant to
the Savings Plan.
(8) Includes 537,500 shares that may be acquired upon exercise of options
granted under the 1996 Stock 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 owned by family trusts of which Sam
Wyly is trustee; 220,753 shares held of record by a limited partnership of
which Sam Wyly is a general partner; and 1,592 shares held of record by Mr.
Wyly's spouse.
6
<PAGE> 21
(9) Includes 250,000 shares that may be acquired by Stargate Ltd., a limited
partnership of which Charles J. Wyly, Jr. is the general partner, upon
exercise of options granted under the 1996 Stock Option Plan. Also includes
503,477 shares owned by family trusts of which Charles J. Wyly, Jr. is
trustee and 234,919 shares held of record by Stargate, Ltd.
(10) Shares held of record by a family limited partnership of which Evan A. Wyly
is general partner.
(11) Includes 50,000 shares that may be acquired upon exercise of options
granted under the 1996 Stock Option Plan.
(12) Shares that may be acquired upon exercise of options granted under the 1996
Stock Option Plan.
(13) Includes 180,000 shares that may be acquired upon exercise of options
granted under the 1996 Stock Option Plan and 5,115 shares held pursuant to
the Savings Plan by executive officers of the Company not named in the
table above.
(14) Based on a Schedule 13G/A filed on February 14, 2000 by (i) AXA Counseil
Vie Assurance Mutuelle (formerly Alpha Assurances Vie Mutuelle), AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and AXA Courtage
Assurance Mutuelle, as a group, (ii) AXA (formerly 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 1,130,941 shares,
shared voting power with respect to 8,587,565 shares, sole dispositive
power with respect to 9,820,086 shares and shared dispositive power with
respect to 10,308 shares. The address of AXA Conseil Vie Assurances
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 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
Shares by this group is included in reliance upon reports filed with the
SEC by such parties, except that the percentage of Shares beneficially
owned is based upon the Company's calculations made in reliance upon the
number of Shares reported to be beneficially owned by such parties in such
report and the number of Shares outstanding on February 18, 2000.
7
<PAGE> 22
EXECUTIVE 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
and (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, 1999 (collectively (i) and (ii), the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
---------------------------------------------- COMPENSATION AWARDS
FISCAL OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS(3) COMPENSATION
- --------------------------- ------ -------- -------- --------------- --------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Warner C. Blow................ 1999 $700,000 $300,000 $265,693(4) 0 $13,838(5)
Chief Executive Officer 1998 662,500 300,000 154,117 0 12,522
1997 550,000 250,000 158,483 1,000,000 14,382
J. Brad Sharp................. 1999 366,000 167,000 17,985(7) 0 6,191(8)
President and Chief 1998 244,000 147,994 4,255 0 6,191
Operating Officer(6) 1997 228,000 112,143 3,598 215,000 5,396
Paul L.H. Olson............... 1999 292,000 149,605 20,615(7) 0 7,300(9)
Executive Vice President and 1998 283,000 88,996 16,541 0 7,876
President, Commerce Services 1997 260,000 141,423 9,312 200,000 6,130
Group
Stephen R. Perkins............ 1999 284,000 104,300 9,926(7) 0 6,258(10)
Executive Vice President and 1998 255,000 71,603 4,909 0 6,939
President, Communications 1997 228,000 131,701 7,904 195,000 6,516
Software Group
Steven P. Shiflet............. 1999 252,600 59,650 14,235(7) 0 7,422(11)
Senior Vice President and 1998 237,000 66,000 0 0 4,800
Chief Financial Officer 1997 214,000 71,560 0 105,000 4,500
</TABLE>
- ---------------
(1) 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.
(2) 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.
(3) The Company has not granted stock appreciation rights.
(4) Includes a $96,213 payment for reimbursement of taxes.
(5) Includes $4,800 in contributions to the Savings Plan and $9,038 in respect
of premiums on a life insurance policy for Mr. Blow's benefit.
(6) Mr. Sharp was elected President of the Company in October 1999.
Additionally, Mr. Sharp has served as Chief Operating Officer of the
Company since October 1998. Prior to October 1998, Mr. Sharp served as
Executive Vice President of the Company and President of the Company's
Interchange Software Group.
(7) Consists of payments for reimbursement of taxes.
(8) 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.
(9) Includes $4,800 in contributions to the Savings Plan and $2,500 in respect
of premiums on a life insurance policy for Mr. Olson's benefit.
(10) Includes $4,800 in contributions to the Savings Plan and $1,458 in respect
of premiums on a life insurance policy for Mr. Perkins' benefit.
(11) Includes $4,800 in contributions to the Savings Plan and $2,622 in respect
of premiums on a life insurance policy for Mr. Shiflet's benefit.
8
<PAGE> 23
OPTION GRANTS IN FISCAL 1999
The following table provides information related to options to purchase
Shares granted by the Company to the Named Executive Officers during fiscal
1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS(1) OPTION TERM(4)
-------------------------------------------------------- -----------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER
NAME GRANTED(2) FISCAL 1999 SHARE(3) EXPIRATION DATE 5% 10%
- ---- ---------- ------------- --------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Brad Sharp....................... 500,000 10.5% $34.88 Oct. 28, 2005 $4,236,877 $9,913,546
J. Brad Sharp....................... 200,000 4.2 18.81 Sept. 29, 2006 1,576,187 3,630,946
Stephen R. Perkins.................. 50,000 1.0 34.88 Oct. 28, 2003 423,688 991,355
</TABLE>
- ---------------
(1) The agreements underlying such options provide that the options vest 25%
each year on the anniversary of the grant date. All such options have a
seven-year term and are transferable by the option holder.
(2) 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 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
Shares 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 Shares 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% values
is established by the SEC and is not intended by the Company to forecast
possible future appreciation of the price of the Shares.
OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options to purchase
Shares issued by the Company and exercised by the Named Executive Officers
during fiscal 1999 and the number and value of options held at fiscal year end.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 1999(1) SEPTEMBER 30, 1999(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Warner C. Blow.................. 0 $ 0 1,050,000 750,000 $0 $0
Paul L.H. Olson................. 115,000 1,829,100 25,000 150,000 0 0
Stephen R. Perkins.............. 93,750 1,145,625 25,000 192,500 0 0
J. Brad Sharp................... 28,750 508,887 90,000 847,500 0 0
Steven P. Shiflet............... 67,500 1,092,663 0 85,000 0 0
</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 New York Stock
Exchange on September 30, 1999 ($18 18/32) multiplied by the number of
shares of Common Stock of the Company underlying such options.
9
<PAGE> 24
SERP
In connection with Sterling Software's 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, 1999, Mr.
Blow had accrued approximately 25 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 a joint and 50% survivor 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 the 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 25 30 35
- ------------ -------- -------- --------
<S> <C> <C> <C>
$ 800,000 $400,000 $400,000 $400,000
900,000 450,000 450,000 450,000
1,000,000 500,000 500,000 500,000
1,100,000 550,000 550,000 550,000
1,200,000 600,000 600,000 600,000
</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. 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
10
<PAGE> 25
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 all 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; and
three, 300% and 36, respectively, in the case of Messrs. Olson, Perkins and
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.
The Company has also entered into an agreement (a "Severance Agreement")
with each of the Named Executive Officers, 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, and 36 in the case of Messrs. Olson, Perkins and Shiflet), such officer's
annual salary and bonus 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 Company Board elects Mr. Williams as
Chairman of the Company 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 for his
services thereunder and is entitled to participate in the Company's cash
incentive bonus program. In fiscal 1999, Mr. Williams was paid $800,000 in
annual fees and a $300,000 bonus under this agreement. Effective for fiscal
2000, Mr. Williams and the Company mutually agreed to increase the annual fee to
$880,000 and his bonus level to $330,000. In addition, Mr. Williams is entitled
to participate in 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 continue receiving compensation under the Consulting Agreement
during such 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 equal to all
compensation (annual fee and highest annual cash incentive bonus to be paid) due
throughout the unexpired portion of the seven-year term, 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
11
<PAGE> 26
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 for certain legal, financial and
other professional services.
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 1996 Stock Option Committee, the 1999 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, the 1996 Stock Option
Committee and participated in meetings with respect to compensation matters.
Sam Wyly and Charles J. Wyly, Jr. are executive officers of both the
Company and Michaels Stores, members of the executive committees and the Boards
of directors of the Company, Sterling Software and Michaels Stores, members of
stock option committees of the Company and Sterling Software and members of the
Board of directors of Scottish Annuity & Life Holdings, Ltd. Each is also a
member of the compensation committee of Michaels Stores. In addition, Mr.
Williams is a director of the Company and a director and executive officer of
Sterling Software and a member of the respective 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 a director of Michaels Stores and a
director of Sterling Software.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In anticipation of the Company's public offering in March 1996 (the
"Offering"), the Company and Sterling Software entered into various agreements
under which amounts payable to and receivable from Sterling Software arise from
time to time. During fiscal year 1999, the Company paid Sterling Software
$73,653 under a space sharing agreement and the Company paid a subsidiary of
Sterling Software $142,000 for aircraft services under an aircraft services
agreement.
Effective as of June 30, 1997, the Company and Sterling Software entered
into an agreement (the "Termination Agreement") terminating the 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.
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
1999, Sterling Software paid or agreed to pay the Company approximately $0.5
million with respect to certain post-closing account adjustments under the
Termination Agreement.
Sterling Software remains the guarantor of certain office leases 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 amount due
over the remaining terms of the agreements guaranteed by Sterling Software is
approximately $12.6 million. 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 a
release of Sterling Software's obligations under the related guarantees.
Sterling Software did not make any payments with respect to such guarantees
during fiscal 1999.
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. One of the inter-company agreements entered into in
anticipation of the Offering was a license agreement covering certain software
products then in use, or to be used by, the respective companies. During fiscal
1999, the Company and
12
<PAGE> 27
Sterling Software entered into a license agreement pursuant to which the Company
licensed to Sterling Software certain of the Company's CONNECT: Manage products.
Sterling Software paid total license and maintenance fees of approximately $2.3
million for these products. Also during fiscal 1999, the Company and Sterling
Software entered into a license agreement pursuant to which the Company licensed
certain of Sterling Software's application development products. The Company
paid total license and maintenance fees of approximately $2.3 million for these
products. The terms of each of the foregoing license agreements were the result
of arms-length negotiations between the parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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 and the New York Stock Exchange initial reports of
ownership and reports of changes in ownership of the Shares and all other equity
securities of the Company beneficially owned by them. Such persons are required
by SEC regulations 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, 1999, all Section
16(a) filing requirements applicable to the directors, executive officers and
greater than 10% stockholders were complied with by such persons, except as
noted below. A report on Form 4 was filed on behalf of Sam Wyly on December 10,
1999 disclosing the previously unreported purchase of Common Stock by his
spouse. A report on Form 4 was filed on behalf of Sterling L. Williams on
January 7, 2000 disclosing the previously unreported sale of Common Stock by his
spouse. The subject shares were acquired by his spouse prior to their marriage
and Mr. Williams disclaimed beneficial ownership of such securities held and
sold by his spouse.
13
<PAGE> 1
Exhibit (a)(3)
[STERLING COMMERCE LETTERHEAD] February 25, 2000
To Our Stockholders:
On behalf of the Board of Directors of Sterling Commerce, Inc. (the
"Company"), I am pleased to inform you that the Company has entered into an
Agreement and Plan of Merger dated as of February 18, 2000 (the "Merger
Agreement"), with SBC Communications Inc. and SBC Silver, Inc., its wholly owned
subsidiary ("Purchaser"), pursuant to which Purchaser has today commenced a cash
tender offer (the "Offer") to purchase all of the outstanding shares of common
stock, including the related preferred stock purchase rights, of the Company
(the "Shares") at a price of $44.25 per Share. Under the Merger Agreement, the
Offer will be followed by a merger (the "Merger") in which any remaining Shares
(other than Shares held by Purchaser and by stockholders who perfect appraisal
rights under Delaware law) will be converted into the right to receive $44.25
per Share in cash. Consummation of the Offer is subject to certain conditions,
as more fully described in the enclosed materials, including at least a majority
of the Shares, determined on a fully diluted basis, being validly tendered and
not withdrawn prior to the expiration of the Offer.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND
THE MERGER ARE ADVISABLE AND FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S
STOCKHOLDERS, AND HAS APPROVED THE OFFER AND THE MERGER. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER
THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the enclosed Schedule 14D-9,
including, among other things, the written opinion of Goldman, Sachs & Co., the
Company's financial advisor, that, subject to the assumptions, factors and
limitations set forth therein, the consideration to be received by holders of
Shares in the Offer and the Merger is fair to such holders from a financial
point of view. The opinion of Goldman, Sachs & Co. is attached to the Schedule
14D-9. The Schedule 14D-9 contains other important information relating to the
Offer, and you are encouraged to read the Schedule 14D-9 carefully.
In addition to the enclosed Schedule 14D-9, also enclosed is Purchaser's
Offer to Purchase and related materials, including a Letter of Transmittal, to
be used for tendering your Shares in the Offer. These documents state the terms
and conditions of the Offer and provide instructions as to how to tender your
Shares. WE URGE YOU TO READ THESE DOCUMENTS CAREFULLY IN MAKING YOUR DECISION
WITH RESPECT TO TENDERING YOUR SHARES PURSUANT TO THE OFFER.
If you need assistance with the tendering of your Shares, please contact
the information agent for the Offer, Georgeson Shareholder Communications Inc.,
at its address or telephone number appearing on the back cover of the Offer to
Purchase.
On behalf of the Board of Directors and management of the Company, we
thank you for your support.
Very truly yours,
/s/ Sterling L. Williams
Sterling L. Williams
Chairman of the Board
4600 Lakehurst Court, P.O. Box 8000, Dublin, OH 4306-2000 614-793-7000
Fax 614-793-4040
<PAGE> 1
Exhibit (a)(4)
[GOLDMAN SACHS LETTERHEAD]
SCHEDULE II
PERSONAL AND CONFIDENTIAL
February 18, 2000
Board of Directors
Sterling Commerce, Inc.
300 Crescent Court
Suite 1200
Dallas, TX 75201
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders of the outstanding shares of Common Stock, par value $0.01 per
share (the "Shares"), of Sterling Commerce, Inc. (the "Company") of the $44.25
per Share in cash proposed to be paid by Buyer (as defined below) in the Offer
and the Merger (as defined below) pursuant to the Agreement and Plan of Merger,
dated as of February 18, 2000, among SBC Communications, Inc. ("Buyer"), SBC
Silver, Inc., a wholly-owned subsidiary of Buyer ("Purchaser"), and the Company
(the "Agreement"). The Agreement provides for a tender offer for all of the
Shares (the "Offer") pursuant to which Purchaser will pay $44.25 per Share in
cash for each Share accepted. The Agreement further provides that following
completion of the Offer, Purchaser will be merged into the Company (the
"Merger") and each outstanding Share other than Shares already owned by
Purchaser or Buyer will be converted into the right to receive $44.25 in cash.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having provided certain investment banking services to the Company
from time to time, including having acted as co-manager in the secondary public
offering of 14,375,000 Shares in February 1997, having assisted the Company on
its stock repurchase program in March 1999, and having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. We also have provided certain investment
banking services to Buyer and its predecessor companies from time to time,
including having acted as financial advisor to Ameritech Corporation in
connection with the acquisition of Tele Danmark AS in January 1998, having acted
as financial advisor to Ameritech Corporation in connection with its merger with
Buyer in October 1999, having acted as financial advisor to Buyer in connection
with the pending acquisition of a minority interest in Prodigy Communications
Corporation, and having assisted Buyer with numerous other corporate finance,
merger and acquisition, and currency/foreign exchange related activities.
Goldman, Sachs & Co. provides a full range of financial
<PAGE> 2
Sterling Commerce, Inc.
February 18, 2000
Page Two
advisory and securities services and, in the course of its normal trading
activities, may from time to time effect transactions and hold securities,
including derivative securities, of the Company or Buyer for its own account and
for the accounts of customers. Goldman, Sachs & Co. may provide investment
banking services to Buyer and its subsidiaries in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the four fiscal years ended September 30, 1999; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company;
certain other communications from the Company to its stockholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also have held discussions with members of the senior management
of the Company regarding the past and current business operations, financial
condition and future prospects of the Company. In addition, we have reviewed the
reported price and trading activity for the Shares, compared certain financial
and stock market information for the Company with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the software
industry specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or any of its subsidiaries and we have not been
furnished with any such evaluation or appraisal. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transactions contemplated by the Agreement and such opinion does not constitute
a recommendation as to whether or not any holder of Shares should tender such
Shares in connection with the Offer, or, if applicably, how any holder of Shares
should vote with respect to the Merger.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $44.25 per
Share in cash to be received by the holders of Shares in the Offer and the
Merger pursuant to the Agreement is fair from a financial point of view to such
holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ------------------------------------
(GOLDMAN, SACHS & CO.)
<PAGE> 1
EXHIBIT (e)(3)
AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, effective as of February 18, 2000, to the Rights Agreement,
dated as of December 18, 1996 (the "Rights Agreement"), between Sterling
Commerce, Inc., a Delaware corporation (the "Company"), and BankBoston, N.A.
(f.k.a. The First National Bank of Boston), a national banking association, as
Rights Agent (the "Rights Agent").
WHEREAS, the Company and the Rights Agent entered into the Rights
Agreement specifying the terms of the Rights (as defined therein); and
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement in accordance with Section 27 of the Rights Agreement.
NOW THEREFORE, in consideration of the premises and mutual agreements
set forth in the Rights Agreement and this Amendment, the parties hereby agree
as follows:
1. Section 1(a) is amended by adding the following at the end of the first
sentence of said Section:
; provided further, however, that none of SBC Communications, Inc.,
a Delaware corporation ("Parent"), SBC Silver, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent ("Purchaser") and
their Affiliates shall be deemed to be an Acquiring Person by virtue of
(x) the execution of the Agreement and Plan of Merger, dated as of
February 18, 2000 (the "Merger Agreement," which term shall include any
amendments thereto), by and among the Company, Parent and Purchaser, or
(y) the consummation of any of the transactions contemplated thereby,
including, without limitation, the publication or other announcement of
the Offer (as defined therein), or the consummation of the Offer and
the Merger (as defined therein) or any other transaction contemplated
by the Merger Agreement.
2. Section 1(h) is amended by adding the following at the end of said Section:
"Notwithstanding the foregoing or any provision to the contrary
contained in this Agreement, a Distribution Date shall not occur by
reason of the execution of the Merger Agreement, the public or other
announcement of the Merger, the public or other announcement of the
Offer, the commencement of the
<PAGE> 2
Offer, the consummation of the Offer, the consummation of the Merger or
the consummation of any other transaction contemplated by the Merger
Agreement."
3. Section 1(j) is amended and restated as follows:
"Expiration Date" means the earliest of (i) the Close of Business on
the Final Expiration Date, (ii) the time at which the Rights are
redeemed as provided in Section 23, (iii) the time at which all
exercisable Rights are exchanged as provided in Section 24 and (iv) the
consummation of the Merger.
4. Section 1(l) is amended by adding the following at the end of said Section:
"Notwithstanding any provision to the contrary contained in this
Agreement, a Flip-in Event shall not occur by reason of the execution
of the Merger Agreement, the public or other announcement of the
Merger, the public or other announcement of the Offer, the commencement
of the Offer, the consummation of the Offer, the consummation of the
Merger or the consummation of any other transaction contemplated by the
Merger Agreement."
5. Section 1(m) is amended by adding the following at the end of said Section:
"Notwithstanding any provision to the contrary contained in this
Agreement, a Flip-over Event shall not occur by reason of the execution
of the Merger Agreement, the public or other announcement of the
Merger, the public or other announcement of the Offer, the commencement
of the Offer, the consummation of the Offer, the consummation of the
Merger or the consummation of any other transaction contemplated by the
Merger Agreement."
6. The term "Agreement" as used in the Rights Agreement shall be deemed to refer
to the Rights Agreement as amended hereby.
7. The foregoing amendment shall be effective as of the date first above
written, and, except as set forth herein, the Rights Agreement shall remain in
full force and effect and shall be otherwise unaffected hereby.
8. This Amendment may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
STERLING COMMERCE, INC.
By: /s/ Albert K. Hoover
-----------------------------------------
Name: Albert K. Hoover
Title: Executive Vice President,
General Counsel and Secretary
BANKBOSTON, N.A.
By: /s/ Katherine Anderson
-----------------------------------------
Name: Katherine Anderson
Title: Managing Director
3
<PAGE> 1
EXHIBIT (e)(6)
STERLING COMMERCE, INC.
AMENDED AND RESTATED
DEFERRED COMPENSATION PLAN
(EFFECTIVE FEBRUARY 1, 1997)
(RESTATED DECEMBER 1, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE I.
<S> <C> <C>
TITLE AND DEFINITIONS.............................................................2
1.1 Title....................................................................2
1.2 Definitions..............................................................2
ARTICLE II.
PARTICIPATION.....................................................................7
2.1 Participation............................................................7
ARTICLE III.
DEFERRAL ELECTIONS................................................................8
3.1 Elections to Defer Compensation..........................................8
3.2 Investment Elections.....................................................9
3.3 Match Funding...........................................................10
ARTICLE IV.
ACCOUNTS.........................................................................11
4.1 Participant Accounts....................................................11
4.2 Quarterly Statements....................................................12
ARTICLE V.
VESTING..........................................................................12
5.1 Account.................................................................12
ARTICLE VI.
DISTRIBUTIONS....................................................................12
6.1 Form and Time of Payment................................................12
6.2 Death Benefits..........................................................14
6.3 Unscheduled Early Distributions.........................................14
6.4 Scheduled Early Distributions...........................................15
6.5 Special Withdrawals.....................................................16
6.6 Financial Hardship Withdrawals..........................................16
6.7 Inability To Locate Participant.........................................17
6.8 Directors and Consultants...............................................18
6.9 Claims Procedure........................................................18
ARTICLE VII.
ADMINISTRATION...................................................................19
7.1 Committee...............................................................19
7.2 Committee Action........................................................20
7.3 Powers and Duties of the Committee......................................20
7.4 Construction and Interpretation.........................................21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
7.5 Information.............................................................22
7.6 Compensation, Expenses and Indemnity....................................22
ARTICLE VIII.
MISCELLANEOUS....................................................................22
8.1 Unsecured General Creditor..............................................22
8.2 Restriction Against Assignment..........................................23
8.3 Withholding.............................................................23
8.4 Amendment, Modification, Suspension or Termination......................23
8.5 Governing Law...........................................................25
8.6 Receipt or Release......................................................25
8.7 Payments on Behalf of Persons Under Incapacity..........................25
8.8 Successors and Assigns..................................................26
8.9 No Employment Rights....................................................26
8.10 Headings, etc. Not Part of Agreement....................................26
</TABLE>
ii
<PAGE> 4
STERLING COMMERCE, INC.
DEFERRED COMPENSATION PLAN
The Sterling Commerce, Inc. Deferred Compensation Plan (the "Plan") is
adopted by Sterling Commerce, Inc. (the "Company"), acting on behalf of itself
and its designated subsidiaries.
RECITALS
1. The Plan is being established as an unfunded supplemental retirement
plan for the benefit of selected highly compensated employees, directors and
consultants and their respective beneficiaries. Benefits under the Plan will be
paid by the Company from its general assets or from the assets of the trust
hereinafter described.
2. Concurrently with the establishment of the Plan, the Company has
entered into a trust agreement with First American Trust Company, as trustee, to
establish a trust (the "Trust") to bold and manage certain assets contributed by
the Company in connection with the Plan. The Trust is intended to qualify as a
"grantor trust" under the Internal Revenue Code of 1986, as amended, with the
principal and income of the Trust to be treated as assets and income of the
Company for federal and state income tax purposes.
3. The assets of the Plan held in the Trust will at all times be
subject to the claims of the general creditors of the Company.
NOW THEREFORE, the Company does hereby establish the Plan as follows:
<PAGE> 5
ARTICLE I.
TITLE AND DEFINITIONS
1.1 Title.
This Plan shall be known as the Sterling Commerce, Inc. Deferred
Compensation Plan.
1.2 Definitions.
Whenever the following words and phrases are used in this Plan, with
the first letter capitalized, they shall have the meanings specified below.
(a) "Account" means for each Participant the
bookkeeping account maintained by the Committee on the books of the Company that
is credited with amounts equal to (i) the portion of the Participant's
Compensation that he or she elects to defer, and (ii) the deemed earnings on
such deferred Compensation that are credited pursuant to Section 4.1(ii).
(b) "Acquired Employee" means, with respect to the
calender year in which the Company acquires a business (whether by purchase of
stock or assets or by merger or by any other means), an individual who becomes a
common law employee of the Company as a result of such acquisition, provided the
individual was employed in such business on the date of such acquisition.
(c) "Beneficiary" or "Beneficiaries" means the
beneficiary or beneficiaries last designated in writing by a Participant, in
accordance with procedures established by the Committee, to receive benefits
under the Plan in the event of the Participant's death. No beneficiary
designation shall become effective unless and until it is filed with the
Committee during the Participant's lifetime.
(d) "Board of Directors" or "Board" means the Board
of Directors of Sterling Commerce, Inc. Any determination or other action
specified in this Plan to be made, taken or effectuated by the Board may be
made, taken or effectuated by the Executive Committee of the Board.
(e) "Change in Control" means the occurrence of any
of the following events:
2
<PAGE> 6
(i) the Company is merged,
consolidated or reorganized into or with another corporation or other
legal person, and as a result of such merger, consolidation or
reorganization less than two-thirds of the combined voting power of the
then-out standing securities entitled to vote generally in the election
of directors ("Voting Stock") of such corporation or person
immediately after such transaction are held in the aggregate by the
holders of Voting Stock of the Company immediately prior to such
transaction;
(ii) the Company sells or otherwise
transfers all or substantially all of its assets to another corporation
or other legal person, and as a result of such sale or transfer less
than two-thirds of the combined voting power of the then-outstanding
Voting Stock of such corporation or person immediately after such sale
or transfer is held in the aggregate by the holders of Voting Stock of
the Company immediately prior to such sale or transfer;
(iii) there is a report filed on
Schedule 13D or Schedule 14D-l (or any successor schedule, form or
report), each as promulgated pursuant to the Securities Exchange Act of
1934 (the "Exchange Act"), disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section 14(d)(2) of the Ex
change Act) has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing 20% or
more of the combined voting power of the then-outstanding Voting Stock
of the Company;
(iv) the Company files a report or
proxy statement with the Securities and Exchange Commission pursuant to
the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or
any successor schedule, form or report or item therein) that a change
in control of the Company has occurred or will occur in the future
pursuant to any then-existing contract or transaction; or
3
<PAGE> 7
(v) if, during any period of two
consecutive years, individuals who at the beginning of any such period
constitute the directors of the Company cease for any reason to
constitute at least a majority thereof; provided, however, that for
purposes of this clause (v) each director who is first elected, or
first nominated for election by the Company's stockholders, by a vote
of at least two-thirds of the directors of the Company (or a committee
thereof) then still in office who were directors of the Company at the
beginning of any such period will be deemed to have been a director of
the Company at the beginning of such period.
Notwithstanding the foregoing provisions of clauses (iii) or (iv) above, unless
otherwise determined in a specific case by majority vote of the Board, a "Change
in Control" will not be deemed to have occurred for purposes of clause (iii) or
clause (iv) above solely because (A) the Company, (B) an entity in which the
Company directly or indirectly beneficially owns 50% or more of the outstanding
Voting Stock (a "Subsidiary"), or (C) any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company or any
Subsidiary either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D, Schedule 14D-l, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Exchange Act disclosing beneficial ownership by it of shares of Voting
Stock of the Company, whether in excess of 20% or otherwise, or because the
Company reports that a change in control of the Company has occurred or will
occur in the future by reason of such beneficial ownership or any increase or
decrease thereof.
(f) "Code" means the Internal Revenue Code of 1986,
as amended.
(g) "Committee" means the Administrative Committee
appointed to administer the Plan in accordance with Article VII.
(h) "Company" means Sterling Commerce, Inc., a
Delaware corporation, any successor corporation to Sterling Commerce, Inc.
satisfying the requirements of Section 8.8 and any entity that is directly or
indirectly controlled by Sterling Commerce, Inc. or in which Sterling Commerce,
Inc. has a significant equity or investment interest, as determined by the
Board.
4
<PAGE> 8
(i) "Compensation" means (a) the following items of
remuneration payable to an Eligible Individual for services rendered to the
Company during a calendar year: Salary, Incentive Bonus, annual retainer and
meeting fees payable to members of the Board and fees payable to consultants and
(b) any Post Employment Payments payable to Eligible Individuals. An Eligible
Individual's Compensation shall be computed before giving effect to the Eligible
Individual's salary reduction elections under Code Sections 125 or 401(k) and
the Eligible Individual's deferral election under Section 3.1 of this Plan.
(j) "Distributable Amount" means the balance of a
Participant's Account at any given time.
(k) "Effective Date" means February 1, 1997.
(l) "Eligible Individual" for a Plan Year means (i)
a common law employee of the Company whose Compensation is paid on a United
States payroll in United States dollars and whose Compensation equaled or
exceeded the Threshold Amount in the immediately preceding calendar year or, in
the case of an employee employed only during a portion of such prior calendar
year, whose annualized Compensation would have equaled or exceeded the Threshold
Amount, (ii) an Acquired Employee whose Compensation is paid on a United States
Payroll in United States dollars and whose salary and incentive bonus from the
acquired business (determined in a manner consistent with Section 1.2(i))
equaled or exceeded the Threshold Amount in the immediately preceding calendar
year or, in the case of an Acquired Employee employed by such business only
during a portion of such prior calendar year, whose annualized salary and
incentive bonus would have equaled or exceeded the Threshold Amount, (iii) a
member of the Board of Directors who is not a common law employee of the
Company, (iv) a consultant who is not a common law employee of the Company who
is designated by the Committee as eligible to participate in the Plan or (v) any
former employee, board member or consultant entitled to any Post Employment
Payments from the Company, who had, immediately prior to termination of
employment, board membership or consultancy, been a Participant. Except for an
Acquired Employee or an individual described in (v) above, an individual's
status as an Eligible Individual for a Plan Year shall be determined prior to
the first day of such Plan Year. Notwithstanding the foregoing, the Committee
may in its discretion determine in writing that an otherwise Eligible Individual
may not participate in this Plan for one or more Plan Years. An individual who
is classified by the Company as an independent contractor whose compensation for
services is reported by the Company on a form other than Form W-2 or any
5
<PAGE> 9
successor form for reporting wages paid to employees will not be an Eligible
Individual, unless the Committee specifically designates such individual by name
as an Eligible Individual pursuant to clause (iv) above.
(m) "Fund" or "Funds" means one or more of the
investment funds or contracts selected by the Committee pursuant to Section
7.3(i).
(n) "Incentive Bonus" means any cash incentive
compensation payable to a Participant in addition to the Participant's Salary.
(o) "Initial Election Period" means (i) for an
Eligible Individual who is a member of the Board of Directors, but who is not a
common law employee of the Company, the 30-day period ending February 27, 1997,
and (ii) for any other Eligible Individual, the 30-day period ending January 27,
1997.
(p) "Interest Rate" means, for any Fund and for any
month, an amount expressed as a percentage equal to the net rate of gain or loss
on the assets of such Fund during such month.
(q) "Participant" means any Eligible Individual who
elects to defer Compensation in accordance with Section 3.1.
(r) "Plan" means the Sterling Commerce, Inc.
Deferred Compensation Plan set forth herein, as amended from time to time in
accordance with Section 8.4.
(s) "Plan Year" means the 12-consecutive month
period beginning January 1 and ending December 31 of each year, provided that
the first Plan Year shall be a short year beginning February 1, 1997 and ending
December 31, 1997.
(t) "Post Employment Payments" means any payments
which are made to an Eligible Individual following termination of employment,
board membership or consultancy in respect of such Eligible Individual's former
employment, consultancy or board membership with the Company, including payment
in lieu of vacation, payment in lieu of notice or any severance payments (which
may be in the form of a lump sum payment or salary or bonus continuation)
payable by the Company pursuant to any Company plan, agreement or policy which
provides for such payments (including, without limitation, any payments pursuant
to severance agreements or change in control agreements).
6
<PAGE> 10
(u) "Salary" means for any calendar year (i) in the
case of an employee of the Company whose compensation from the Company does not
include commission income, the employee's base salary during the calendar year
and (ii) in the case of an employee of the Company whose compensation from the
Company includes commission income, the total of the employee's base salary plus
commissions during the calendar year. Salary excludes any other form of
compensation such as Incentive Bonuses, restricted stock, income from stock
options or stock appreciation rights, severance payments, moving expenses, car
or other special allowances, reimbursements for taxes or any other remuneration
for personal services included in an Eligible Individual's taxable income.
(v) "Threshold Amount" means, for the first Plan
Year, the sum of $140,000 and, for any subsequent Plan Year, such other amount
as may be determined by the Committee pursuant to Section 7.3.
(w) "Trust" means the trust established by the Trust
Agreement.
(x) "Trust Agreement" means the Sterling Commerce,
Inc. Deferred Compensation Plan Trust Agreement dated as of February 1, 1997, by
and between the Company and First American Trust Company, as Trustee.
(y) "Trustee" means First American Trust Company or
any successor trustee appointed pursuant to the Trust Agreement.
ARTICLE II.
PARTICIPATION
2.1 Participation.
An Eligible Individual shall become a Participant in the Plan for a
Plan Year by electing to defer all or a portion of his or her Compensation for
such Plan Year in accordance with Section 3.1, by completing all required
applications for life insurance (as determined by the Committee in its
discretion), and by complying with any applicable medical underwriting
requirements of the issuer of any policy of insurance on the life of the
Eligible Individual.
7
<PAGE> 11
ARTICLE III.
DEFERRAL ELECTIONS
3.1 Elections to Defer Compensation.
(a) Elections. For the first Plan Year, each Eligible
Individual may elect to defer Compensation by filing with the Committee an
election that conforms to the requirements of this Section 3.1, on a form
provided by the Committee (an "Election Form"), no later than the last day of
the Initial Election Period. For each subsequent Plan Year, (i) an Eligible
Individual other than an Acquired Employee may make an election to defer
Compensation by filing an Election Form with the Committee on or before the
December 31 preceding the Plan Year for which the election is to be effective
and (ii) an Eligible Individual who is an Acquired Employee may, with the
consent of the Committee, make an election to defer Compensation for the Plan
Year in which the Eligible Individual becomes an Acquired Employee by filing an
Election Form with the Committee on or before the first day of the second full
payroll period beginning after the date on which such Eligible Individual
becomes an Acquired Employee, such election to be effective as of such second
full pay period. An Eligible Individual who does not elect to defer Compensation
for a Plan Year may become a Participant with respect to a subsequent Plan Year
by filing an Election Form with the Committee on or before the December 31
preceding the Plan Year for which the election is to be effective.
(b) General Rule. Subject to the limitations set
forth in subsection (c) below, an Eligible Individual may elect to defer any
whole percentage of his or her Compensation up to 100%; provided, however, that
if an Eligible Individual's deferral election would reduce the Compensation paid
to the Eligible Individual to an amount that is less than (i) the amount
necessary to satisfy the Eligible Individual's portion of applicable employment
taxes for the Plan Year, (ii) amounts necessary to satisfy any other benefit
plan elections or loan repayments for the Plan Year under any other plan
sponsored by the Company and (iii) any income taxes payable with respect to
taxable compensation that is not eligible for deferral, then the Participant
must remit to the Company, at the time or times requested by the Company, any
amounts necessary to permit the Company to satisfy its obligation to
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withhold such taxes, implement such benefit plan elections or deduct such loan
repayments. In addition, a deferral election made by an Eligible Individual will
not be effective unless and until the Eligible Individual completes all required
applications for life insurance (as determined by the Committee in its
discretion).
(c) Minimum Deferrals. For each Plan Year during
which an Eligible Individual is a Participant, the minimum dollar amount of
Compensation that may be deferred by the Eligible Individual under the Plan is
$5,000. To the extent that a Participant's actual deferrals in a Plan Year are
less than $5,000, such deferrals, together with earnings or loss thereon through
the last day of such Plan Year, will be refunded as promptly as practicable
after the end of such Plan Year.
(d) Duration of Compensation Deferral Election. Any
deferral election made under this Section 3.1 shall be irrevocable and shall
apply only to the Compensation payable with respect to services performed during
the Plan Year for which the election is made. Such election shall be effective
(i) with respect to Salary or consultant fees earned during each pay period
beginning during the Plan Year for which the election is made, (ii) with respect
to director fees earned during each pay period beginning during the Plan Year
for which the election is made, (iii) with respect to Incentive Bonuses paid
within the Plan Year for which the election is made; and (iv) with respect to
any Post Employment Payments paid after a termination that occurs during the
Plan Year for which the election is made.
3.2 Investment Elections.
(e) The Committee shall provide each Participant with
a list of multiple Funds available for hypothetical investment. Each Participant
may designate, on a form provided by the Committee, one or more Funds in which
his or her Account will be deemed to be invested for purposes of determining the
amount of earnings to be credited to the Account. The list shall consist of at
least five Funds, collectively offering a wide range of investment options
(domestic and international) with a spectrum of risk and return potential (from
conservative, low risk/low return potential to aggressive, high risk/high return
potential), comparable as a whole to the initial list of Funds attached hereto
as Exhibit A. The Committee may in its discretion change from time to time the
Funds available for hypothetical investment, provided Participants are given at
least 90 days' prior written notice of the effective date of the deletion of any
Fund (including without limitation, the deletion of a Fund in connection with
the substitution of a new Fund in its place); it being understood however, that
where the deletion of a Fund is beyond the control of the Committee
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(e.g., where the provider of a Matching Investment unilaterally effects such a
deletion), the Committee's obligation shall be to give Participants written
notice of the effective date of such deletion as promptly as practicable after
the Committee obtains knowledge thereof. The Committee may in its discretion add
new Funds at any time and Participants shall be given written notice of such
additions as promptly as practicable after the Committee decides to add a new
Fund. The Interest Rate of each Fund shall be used to determine the amount of
earnings to be credited to Participant's Accounts under Section 4.1(ii).
(b) In making the investment designation pursuant to
this Section 3.2, the Participant may specify that all, or any whole percentage,
of his or her Account will be deemed to be invested in one or more of the Funds
designated by the Committee (with a minimum of 5% of the Account balance deemed
to be invested in any one Fund and all such designations in the aggregate not to
exceed 100% of the Participant's Account balance). Effective as of the beginning
of any calendar month, a Participant may change the Fund designations made under
this Section 3.2 by filing a new designation, on a form provided by the
Committee, at least 5 days prior to the end of the immediately preceding
calendar month.
(c) If a Participant fails to elect a Fund under this
Section 3.2, or if the Participant's investment designation is less than 100% of
his or her Account balance, for any portion of the Account for which no
investment designation has been made he or she shall be deemed to have
designated the Fund that the Committee determines in its sole judgment to have
the least risk of loss of principal.
3.3 Match Funding.
To the extent authorized by the Committee in its discretion, and in
such case to the fullest extent practicable, the Company shall match fund (in
terms of both timing and amount) all of its obligations to Participants under
the Plan by acquiring and contributing to the Trust, or by causing the Trustee
to acquire or maintain on behalf of the Trust, life insurance investments
("Matching Investments") corresponding as closely as possible to amounts from
time to time allocated to the Investment Fund Subaccounts (as hereinafter
defined) of all Participants. To the extent that the Company wishes to refund
Matching Investments for a given Plan Year, such Matching Investments shall be
maintained in the Fund offering the least risk of loss of principal, or a
conservative money market fund, until such Matching Investments are periodically
allocated to investment options corresponding to the periodic deferral amounts
of the Participants. Notwithstanding the foregoing, the Company
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and the Trustee may maintain cash reserves in an amount reasonably necessary to
pay benefits under and administer this Plan.
While the Plan is in existence the Company shall at all times comply
with its duties and obligations under the Trust Agreement, and all Participants
and their beneficiaries are expressly acknowledged by the Company to be bona
fide third party beneficiaries under the Trust Agreement.
ARTICLE IV.
ACCOUNTS
4.1 Participant Accounts.
The Committee shall establish and maintain an Account for each
Participant under the Plan. Each Participant's Account shall be further divided
into separate subaccounts ("Investment Fund Subaccounts"), each of which
corresponds to a Fund elected by the Participant pursuant to Section 3.2. A
Participants Account shall be debited and credited as follows:
(i) As of the last day of each
month, the Committee shall credit the Investment Fund Subaccounts of
the Participant's Account with an amount equal to any Compensation
deferred by the Participant during all pay periods ending in that month
in accordance with the Participant's election; that is, the portion of
the Participant's deferred Compensation that the Participant has
elected to be deferred and deemed to be invested in a certain Fund
shall be credited to the Investment Fund Subaccount corresponding to
that Fund.
(ii) As of the last day of each
month, each Investment Fund Subaccount of a Participant's Account shall
be credited with earnings in an amount determined by multiplying the
balance credited to such Investment Fund Subaccount as of the last day
of the preceding month by the Interest Rate for the corresponding Fund
for the then current month. To the extent any such Interest Rate is
negative in any month (due to a net loss in the applicable Fund), the
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applicable Investment Fund Subaccount will be debited in the same
manner.
(iii) As of the first day of each
calendar quarter, each Investment Fund Subaccount will be debited or
credited to appropriately reflect any change in Fund designations made
by Participants pursuant to Section 3.2.
4.2 Quarterly Statements.
Under procedures established by the Committee, a Participant shall
receive a statement with respect to such Participant's Account on a quarterly
basis.
ARTICLE V.
VESTING
5.1 Account. A Participant's interest in his or her Account
shall be 100% vested at all times.
ARTICLE VI.
DISTRIBUTIONS
6.1 Form and Time of Payment.
(a) Forms of Payment. A Participant's Distributable
Amount will be paid, in accordance with the Participant's election, either in
quarterly installments over a period of 5, 10, 15, or 20 years or in a lump sum
payment, which installments shall commence, or lump sum payment shall be made,
as applicable, either upon termination of the Participant's employment or at a
later date elected by the Participant in accordance with Section 6.1(b). If the
Participant fails to make an election, he will be deemed to have elected to
receive the Distributable Amount in a single lump sum payment upon termination
of employment.
(b) Payment Election. Each Participant shall elect,
at the time of his or her election to defer Compensation under the Plan for a
Plan Year, to
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have that portion of his or her Distributable Amount attributable to such Plan
Year paid in installments as described in subsection (a) above or in a lump sum
payment, and shall elect the payment date (which may be the termination of the
Participant's employment or a later date).
(c) Payment Commencement Date. Unless a Participant
receives an early distribution with respect to the Distributable Amount for a
Plan Year pursuant to Section 6.3, Section 6.4, Section 6.5 or Section 6.6, such
Distributable Amount (or remaining portion thereof) will be paid after the
Participant terminates employment with the Company. Payments will be made in
accordance with the Participant's election. If a Participant elected to receive
a lump sum payment as soon as practicable following the Participant's
termination of employment, payment shall not be later than 90 days after the
date of such termination. Installment payments will begin as soon as
administratively practicable following the payment commencement date elected by
the Participant. Each installment payment will be made pro rata from the
Participant's Investment Fund Subaccounts according to the balances in such
subaccounts. During the period in which quarterly installment payments are being
made, the Participant's Account will continue to be credited monthly with
earnings pursuant to Section 4.1(ii) of the Plan, the Participant (or his or her
Beneficiary) may continue to change Fund designations pursuant to Section 3.2
of the Plan, and subsequent installment payments will be adjusted annually to
reflect earnings, gains and losses until all amounts credited to his or her
Account under the Plan have been distributed. To the fullest extent practicable,
but subject to such annual adjustments, quarterly installment payments shall be
comparable in amount over the entire distribution period.
(d) Change in Payment Election. A Participant
(whether or not such Participant has terminated employment with the Company) may
change his or her form of payment with respect to the portion of the
Distributable Amount attributable to one or more Plan Years to one of the other
payment forms permitted by the Plan; provided the Participant files a written
election with the Committee to change such payment form at least six months
prior to the date that payment of his or her Distributable Amount would
otherwise be made (otherwise, except as provided in Sections 6.3 or 6.5(b)
hereof, the Participant's prior election shall govern). In addition, a
Participant who has elected scheduled early distributions pursuant to Section
6.4 may defer the scheduled distribution dates in accordance with Section 6.4. A
Participant's payment election with respect to a given Plan Year may not be
changed after payment of that portion of the Distributable Amount attributable
to such Plan Year has been made or has begun.
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(e) Exception for Small Benefits. Notwithstanding the
foregoing provisions of this Section 6.1 or of Section 6.2, if, at the time that
the Participant becomes entitled to the payment of the Distributable Amount,
such Participant's Distributable Amount does not exceed $25,000, then the
Distributable Amount shall automatically be distributed in the form of a lump
sum payment.
6.2 Death Benefits. If a Participant dies while employed by
the Company, or after termination of employment, the Participant's Distributable
Amount shall be paid to the Participant's Beneficiary in the same form and in
accordance with the same payment schedule under which the Distributable Amount
was being or would have been paid to the Participant.
6.3 Unscheduled Early Distributions. Subject to paragraph (vi)
below, Participants shall be permitted to request to withdraw amounts from their
Accounts at any time ("Early Distributions"). Upon receiving a withdrawal
request, the Committee shall determine, in its sole discretion, whether to
permit any such withdrawal and the amount, if any, to be withdrawn, subject to
the following restrictions:
(i) The election to take an Early
Distribution shall be made by filing a form provided by and filed with
the Committee.
(ii) The maximum amount payable to a
Participant in connection with an Early Distribution shall in all cases
equal 90% of the amount requested by the Participant (which requested
amount must be not less than $10,000 or the entire Distributable
Amount if less than $10,000); provided, however, that the maximum
amount payable to a Participant in connection with an Early
Distribution shall be 90% of the Distributable Amount as of the end of
the calendar month in which the Early Distribution request is received
by the Committee.
(iii) The amount described in
paragraph (ii) above shall be paid in a single lump sum by the end of
the calendar month next following the calendar month in which the Early
Distribution request is received by the Committee. A distribution
pursuant to this Section 6.3 of less than the Participant's entire
interest
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in the Plan will be made pro rata from his or her Investment Fund
Subaccounts according to the balances in such subaccounts.
(iv) If a Participant receives an
Early Distribution, the remaining portion of the requested or approved
amount, as applicable, in excess of the amount payable under paragraph
(ii) above (i.e., 10% of such amount), shall be permanently forfeited
and the Company shall have no obligation to the Participant or his or
her Beneficiary with respect to such forfeited amount.
(v) If a Participant receives an
Early Distribution, the Participant shall be ineligible to participate
in the Plan for the balance of the Plan Year in which the Early
Distribution occurs and for the immediately following Plan Year.
(vi) A Participant shall be limited
to a maximum of two Early Distributions during all of his or her
periods of Plan participation.
6.4 Scheduled Early Distributions. With respect to
Compensation deferred during a given Plan Year, Participants may elect on an
Election Form to be paid a lump sum amount during a given Plan Year on a future
date while still employed, provided the payment date is at least two years after
the date such Plan Year commences. This election shall apply to the Compensation
deferred for the Plan Year specified by the Participant on his or her Election
Form and the earnings credited thereto until the payment date. A Participant may
elect a different payment date for the Compensation deferred for each Plan Year.
In addition, payment dates elected pursuant to this Section 6.4 may be deferred
by at least one year, by filing with the Committee written notice at least six
months prior to the payment date to be deferred. A distribution pursuant to this
Section 6.4 of less than the Participant's entire interest in the Plan shall be
made pro rata from his or her Investment Fund subaccounts according to the
balances in such Subaccounts. Notwithstanding the foregoing, if a Participant
terminates employment with the Company for any reason prior to the date on which
a payment is scheduled to be made pursuant to this Section 6.4, the
Participant's entire Distributable Amount will be paid pursuant to the
provisions of Section 6.1.
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6.5 Special Withdrawals.
(a) Change in Control. Following a Change in Control,
a Participant (or, following the Participant's death, his or her Beneficiary)
may elect in writing at any time to receive a payment of the Participant's
entire Account balance following a Change in Control without penalty and without
regard to whether the Participant has terminated employment with the Company or
whether installment payments have commenced provided that such election shall be
effective on a date six months immediately following the date such election is
made. The requested payment will be made in a lump sum payment or in quarterly
installments over 5, 10, 15 or 20 years, as elected by the Participant or
Beneficiary. A Participant's (or Beneficiary's) election pursuant to this
Section 6.5(a) will supersede any prior payment election. A Participant who
elects to receive payment under this Section 6.5 (a) will, upon receipt of the
Participant's election by the Committee, cease to participate in the Plan for
the balance of the Plan Year in which such receipt occurs.
(b) Early Post-Termination Distributions. Following
termination of a Participant's employment, a Participant (or, following the
Participant's death, his or her Beneficiary) may elect in writing at any time
to receive a payment of the Participant's entire Account balance, without regard
to whether installment payments have commenced. Notwithstanding the above, if
the requested payment date of any such election is less than six months
following the date of such election, then the maximum amount payable to a
Participant (or Beneficiary) in connection with such election shall in all cases
equal 90% of the Participant's Account balance. The remaining 10% of such
Participant's Account balance shall be permanently forfeited and the Company
shall have no obligation to the Participant or his or her Beneficiary with
respect to such forfeited amount. All payments made pursuant to this Section
6.5(b) shall be in a single lump sum.
6.6 Financial Hardship Withdrawals. The Committee may,
pursuant to rules or policies from time to time adopted by it and applied in a
consistent manner, accelerate the date of distribution of all or any portion of
a Participant's Account balance because of a financial hardship. A financial
hardship means an unforeseeable, severe financial emergency resulting from (a) a
sudden and unexpected illness or accident of the Participant or his or her
dependents (as defined in Section 152(a) of the Code); (b) loss of the
Participant's property due to casualty; or (c) other similar extraordinary and
unforeseeable circumstances arising out of events beyond the control of the
Participant, which may not be relieved through other available resources of the
Participant, as determined by the Committee in accordance
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with such rules and policies. A distribution pursuant to this Section 6.6 of
less than the Participant's entire interest in the Plan shall be made pro rata
from his or her Investment Fund Subaccounts according to the balances in such
subaccounts. Subject to the foregoing, payment of any amount with respect to
which a Participant has filed a request under this Section 6.6 shall be made as
soon as practicable after approval of such request by the Committee.
Distributions made pursuant to this Section 6.6 shall be without penalty.
6.7 Inability To Locate Participant.
(a) Forfeiture of Account. In the event that the
Committee is unable to locate a Participant or, with respect to a Participant
who has died, any Beneficiary within two years following the date on which any
payment of the Participant's Distributable Amount is scheduled to be made or
begin, the amount allocated to the Participant's Account shall be forfeited.
Following the date of forfeiture, the Participant's Account which is forfeited
shall be invested in the Fund offering the least risk of loss of principal or
conservative money market funds. If, after such forfeiture and prior to the
escheat of the Participant's Account as provided in Section 6.7(b), the
Participant or Beneficiary later claims such benefit and establishes to the
reasonable satisfaction of the Committee such Participant's or Beneficiary's
right to receive same, such Account shall be reinstated at its balance at the
date of forfeiture without additional interest, earnings, gains or losses from
the date of forfeiture through the date of reinstatement. The Participant's
restored Account balance will be invested in the manner that the Participant or
Beneficiary elects pursuant to Section 3.2 and will be distributed to the
Participant or Beneficiary in accordance with the Participant's payment
elections made pursuant to this Article VI. In addition, any installment
payments that were scheduled to have been made during the period in which the
Participant or Beneficiary could not be located will be made to the Participant
or Beneficiary in a lump sum catch-up payment as soon as administratively
practicable.
(b) Escheat of Account. The Committee, in its
discretion, may escheat, or may cause the Trustee to escheat, to the state of
Texas (or such other state as the Committee, in its discretion, determines is
appropriate) any Participant's Account which was forfeited if either (i) the
Committee has been unable to locate the Participant or Beneficiary for a period
of five years following the date on which any payment of the Participant's
Distributable Amount is scheduled to be made or begin or (ii) the Plan is
terminated and the Committee has been unable to locate the Participant or
Beneficiary for a period of two years following the date on which any
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payment of the Participant's Distributable Amount is scheduled to be made or
begin. Upon the escheat of the Participant's Account, the Participant or
Beneficiary shall have no further right to any benefits or payments under the
Plan, and neither the Company, the Committee nor the Trustee shall have any
liability to such Participant or Beneficiary for the amount of the Participant's
Account.
6.8 Directors and Consultants. For purposes of the preceding
sections of this Article VI, a Participant who is a member of the Board or a
consultant, but who is not an employee of the Company, will be deemed to be
employed by the Company as long as he or she is a director or is engaged as a
consultant and will be deemed to have terminated employment when he or she is no
longer a director or is no longer engaged as a consultant and is not then an
employee of the Company.
6.9 Claims Procedure.
(a) Claim for Benefits. If a Participant or
Beneficiary does not receive the benefits which the Participant or Beneficiary
believes he or she is entitled to receive under the Plan, the Participant or
Beneficiary may file a claim for benefits with the Committee. All claims shall
be made in writing and shall be signed by the claimant. If the claimant does not
furnish sufficient information to enable the Committee to process the claim, the
Committee will indicate to the claimant any additional information which is
required.
(b) Notification by the Committee. Each claim will be
approved or disapproved by the Committee within 90 days following the receipt of
the information necessary to process the claim. In the event the Committee
denies a claim for benefits in whole or in part, the Committee will notify the
claimant in writing of the denial of the claim. Such notice by the Committee
will also set forth, in a manner calculated to be understood by the claimant,
the specific reason for such denial, the specific Plan provisions on which the
denial is based, a description of any additional material or information
necessary for the claim to be approved, if possible, with an explanation of why
such material or information is necessary, and an explanation of the Plan's
claim review procedure as set forth in subsection (c). If no action is taken by
the Committee on a claim within such 90 day period, the claim will be deemed to
be denied for purposes of the review procedure.
(c) Review Procedure. A claimant may appeal a denial
of his or her claim by requesting a review of the decision by the Committee or a
person designated by the Committee. An appeal must be submitted in writing
within 60
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days after receipt by the claimant of written notification of the denial and
must (i) request a review of the claim for benefits under the Plan, (ii) set
forth all of the grounds upon which the claimant's request for review is based
and any facts in support thereof, and (iii) set forth any issues or comments
which the claimant deems pertinent to the appeal. The Committee or the person
designated by the Committee will make a full and fair review of each appeal and
any written materials submitted in connection with the appeal. The Committee or
the person designated by the Committee will act upon each appeal within 60 days
after receipt thereof unless special circumstances require an extension of the
time for processing, in which case a decision will be rendered as soon as
possible but not later than 120 days after the appeal is received. The claimant
will be given the opportunity to review documents or materials directly
pertinent to the appeal upon submission of a reasonable written request to the
Committee or person designated by the Committee, provided the Committee or
person designated by the Committee in its reasonable judgment finds the
requested documents or materials are directly pertinent to the appeal. On the
basis of its review, the Committee or person designated by the Committee will
make an independent determination of the claimant's eligibility for benefits
under the Plan. The decision of the Committee or person designated by the
Committee on any claim for benefits will be final and conclusive upon all
parties thereto. In the event the Committee or person designated by the
Committee denies an appeal in whole or in part, it will give written notice of
the decision to the claimant, which notice will set forth in a manner calculated
to be understood by the claimant the specific reasons for such denial and which
will make specific reference to the pertinent Plan provisions on which the
decision was based.
ARTICLE VII.
ADMINISTRATION
7.1 Committee.
The Committee for the Plan shall be appointed by, and serve at the
pleasure of, the Board. The number of members comprising the Committee shall be
deter mined by the Board which may from time to time vary the number of members.
A member of the Committee may resign by delivering a written notice of
resignation to the Board. The Board may remove any member with or without cause
by delivering a certified copy of its resolution of removal to such member.
Vacancies in the membership of the Committee shall be filled as soon as
practicable by the Board.
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7.2 Committee Action.
The Committee shall act at meetings by affirmative vote of a majority
of the members of the Committee. Any action permitted to be taken at a meeting
may be taken without a meeting if, prior to such action, a written consent to
the action is signed by all members of the Committee and such written consent is
filed with the minutes of the proceedings of the Committee. A member of the
Committee shall not vote or act upon any matter which relates solely to himself
or herself as a Participant. Any two members of the Committee may execute any
certificate or other written direction on behalf of the Committee.
7.3 Powers and Duties of the Committee. The Committee shall
administer the Plan in accordance with its terms and shall have all powers,
authority and discretion necessary to accomplish its purposes, including, but
not by way of limitation, the authority and discretion to:
(i) select the Funds and change the
Funds from time to time pursuant to Section 3.2;
(ii) appoint a plan administrator
or any other agent, and delegate to them such powers and duties in
connection with the administration of the Plan as the Committee may
from time to time prescribe;
(iii) resolve all questions
relating to the eligibility of employees, directors and consultants to
be or become Eligible Individuals or Participants;
(iv) determine the Threshold Amount
applicable to any Plan Year after the first Plan Year;
(v) determine the amount of
benefits payable to Participants or their Beneficiaries under this
Plan, and determine the time and manner in which such benefits are to
be paid;
(vi) authorize and direct all
disbursements by the Trustee from the Trust;
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(vii) engage any administrative,
legal, accounting, clerical, or other services it deems appropriate in
administering the Plan or the Trust Agreement;
(viii) construe and interpret this
Plan and the Trust Agreement, supply omissions from, correct
deficiencies in, and resolve ambiguities in the language of this Plan
and the Trust Agreement, and adopt rules for the administration of
this Plan and the Trust Agreement that are not inconsistent with the
terms of such documents;
(ix) compile and maintain all
records it determines to be necessary, appropriate or convenient in
connection with the administration of this Plan and of benefit
payments hereunder;
(x) determine the disposition of
assets in the Trust in the event this Plan is terminated;
(xi) review the performance of the
Trustee with respect to the Trustee's administrative duties,
responsibilities and obligations under this Plan and the Trust
Agreement, report to the Board regarding such administrative
performance of the Trustee, and recommend to the Board, if necessary,
the removal of the Trustee and the appointment of a successor Trustee;
and
(xii) resolve all questions
relating to any matter for which it has administrative responsibility.
7.4 Construction and Interpretation.
The Committee shall have full authority and discretion to construe and
interpret the terms and provisions of this Plan, which interpretation or
construction shall be final and binding on all parties, including but not
limited to the Company and any Eligible Individual, Participant or Beneficiary.
The Committee shall administer the Plan in a consistent and nondiscriminatory
manner and in full accordance with any and all laws applicable to the Plan.
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7.5 Information.
To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating to
the Compensation of all Participants, their death or other cause of
termination, and such other pertinent facts as the Committee may reasonably
require.
7.6 Compensation, Expenses and Indemnity.
(a) Expenses. The members of the Committee shall
serve without compensation for their services hereunder. All expenses and fees
incurred in connection with the administration of the Plan and the Trust shall
be paid by the Company.
(b) Indemnification. To the fullest extent permitted
by applicable law, the Company shall indemnify and save harmless the Committee
and each member thereof, the Board and any delegate of the Committee who is an
employee of the Company against any and all expenses, liabilities and claims,
including legal fees to defend against such liabilities and claims, arising out
of their discharge in good faith of responsibilities under or incident to the
Plan, other than expenses and liabilities arising out of willful misconduct.
Without limiting the generality of the foregoing, the Company shall, promptly
upon request, advance funds to persons entitled to indemnification hereunder to
the extent necessary to defray legal and other expenses incurred in the defense
of such liabilities and claims, as and when incurred. This indemnity shall not
preclude such further indemnities as may be available under insurance purchased
by the Company or provided by the Company under any bylaw, agreement or
otherwise.
ARTICLE VIII.
MISCELLANEOUS
8.1 Unsecured General Creditor.
Participants and their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interests in any Matching
Investments or in any other property or assets of the Company or the Trust. No
assets of the Company shall be held as collateral security for the obligations
of the Company under this
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Plan. Any and all assets of the Trust shall be and shall remain unpledged and
unencumbered. The Company's obligation under the Plan shall be merely that of
an unfunded and unsecured promise of the Company to pay money in the future, and
the rights of the Participants and Beneficiaries shall be no greater than those
of unsecured general creditors. The Company shall maintain the Trust at all
times during the term of the Plan. All assets of the Company and the Trust shall
be subject to the claims of the Company's creditors.
8.2 Restriction Against Assignment.
The Company or the Trustee shall pay all amounts payable hereunder only
to the person or persons designated pursuant to the Plan and not to any other
person or entity. No part of a Participant's Account shall be liable for the
debts, contracts, or engagements of any Participant, his or her Beneficiary, or
successors in interest, nor shall a Participant's Account be subject to
execution by levy, attachment, or garnishment or by any other legal or
equitable proceeding, nor shall any such person have any right to alienate,
anticipate, commute, pledge, encumber, or assign any benefits or payments
hereunder in any manner whatsoever, without the prior written consent of the
Committee, which may be withheld in its sole discretion. If any Participant,
Beneficiary or successor in interest is adjudicated bankrupt or purports to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any
distribution or payment from the Plan, voluntarily or involuntarily, the
Committee, in its discretion, may cancel such distribution or payment (or any
part thereof) to or for the benefit of such Participant, Beneficiary or
successor in interest in such manner as the Commit tee shall direct.
8.3 Withholding.
There shall be deducted from each payment made under the Plan all taxes
which are required to be withheld by the Company in respect to such payment.
8.4 Amendment, Modification, Suspension or Termination.
(a) The Committee may amend, modify, suspend or
terminate the Plan in whole or in part, provided that (i) no amendment,
modification, suspension or termination shall have any retroactive effect that
would directly or indirectly reduce any amounts allocated to a Participant's
Account or otherwise deprive any Participant of any benefits already vested
under the Plan; (ii) any amendment, modification, suspension or termination of
the Plan that will significantly
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increase costs to the Company shall be approved by the Board; (iii) no
amendment, modification, suspension or termination of the Plan shall have the
effect of causing any Participant's Account to be distributed earlier than the
time contemplated by the Plan and the Participant's elections without the prior
written consent of the Participant; (iv) no amendment or modification shall
materially and adversely affect the interests of Participants without the prior
written consent of at least 75% of the Participants (such percentage to be
determined by the number of Participants and not by their percentage interest in
all Account balances); and (v) for a period of two years following a Change in
Control, the Plan may not be amended, modified, suspended or terminated without
the prior written consent of at least 75% of the Participants (such percentage
to be determined by the number of Participants and not by their percentage
interest in all Account balances).
(b) Without limiting the generality of Section
8.4(a)(iv) above, any amendment or modification which directly or indirectly has
any of the following effects shall be deemed to materially and adversely affect
the interests of Participants: (i) any amendment or modification to the defined
term "Change in Control" or any amendment or modification of the consequences
under the Plan resulting from a Change in Control; (ii) any amendment or
modification that would eliminate or reduce the Company's obligations under
Sections 3.2 or 3.3; (iii) any amendment or modification that would adversely
affect the timing or circumstances under which Participants may receive vested
benefits under the Plan; or (iv) any amendment or modification of this Section
8.4.
(c) Notwithstanding clauses (iii) and (iv) of Section
8.4(a) above, the Company shall have the right (i) to unilaterally amend, modify
or suspend the Plan in the event that the Company determines in good faith that
such action is required in order to maintain or qualify the Trust as a grantor
trust under Section 671 of the Code or to maintain or qualify the Plan as an
unfunded plan maintained primarily to provide deferred compensation for a select
group of management or highly compensated employees as described in Section
201(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), provided, how ever, that the Company shall amend, modify or suspend
the Plan in such manner as will have the least onerous overall effect on the
vested interests of the Participants; and (ii) to unilaterally terminate the
Plan in the event that the Company determines in good faith that continued
compliance with the Code and ERISA, as generally contemplated in clause (i)
above, is not practicable or, if practicable, would have a material adverse
effect on the Participants.
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(d) Notwithstanding anything to the contrary in this
Section 8.4, the Company may unilaterally amend the Plan at any time to cause
the cessation of deferrals of Compensation by the Participants in any future
Plan Year or to change the manner or terms of future deferrals in any such
future Plan Year; provided, however, that no such amendment under this Section
8.4(d) may be effected for a period of two years following any Change in
Control.
(e) As a condition precedent to the effectiveness of
any amendment, modification, suspension or termination of this Plan, the Trustee
and the Committee shall have received a written opinion of counsel (which
counsel and which opinion shall be satisfactory to each) to the effect that such
action is being validly and properly effected in accordance with the
requirements of this Section 8.4.
(f) In the event that this Plan is terminated in
accordance with this Section 8.4, the balance of each Participant's Account
shall be distributed to the Participant (or, in the event of the death of the
Participant, to the Participant's Beneficiary) in a lump sum payment as soon as
administratively feasible and in any event within 90 days of such termination.
8.5 Governing Law.
The Plan will be construed and governed in all respects in accordance
with applicable federal law and, to the extent not preempted by such federal
law, in accordance with the laws of the State of Ohio, including without
limitation, the Ohio statute of limitations, but without giving effect to the
principles of conflicts of laws of such State.
8.6 Receipt or Release.
Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Committee and the Company with
respect to the amount paid. The Committee may require such Participant or
Beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect.
8.7 Payments on Behalf of Persons Under Incapacity.
In the event that any amount becomes payable under the Plan to a person
who, in the sole judgment of the Committee, is considered by reason of physical
or
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mental condition to be unable to give a valid receipt therefor, the Committee
may direct that such payment be made to any person found by the Committee, in
its sole judgment, to have assumed the care of such person. Any payment made
pursuant to such determination shall, to the extent thereof, constitute a full
release and discharge of the Committee and the Company with respect to the
amount paid.
8.8 Successors and Assigns.
The Company may not assign its obligations under this Plan, whether by
contract, merger, operation of law or otherwise, unless the assignment is to an
assignee or successor entity (in either case, hereafter called a "Successor")
that has stockholders' equity or the closest equivalent thereto (as measured by
the most recent audited financial statements of such Successor) equal to or
greater than the stockholders' equity of the Company (as measured immediately
prior to the event that causes such entity to become a Successor to the
Company). The provisions of this Section 8.8 shall be binding upon each and
every Successor to the Company.
8.9 No Employment Rights.
Participation in this Plan shall not confer upon any person any right
to be employed by the Company nor any other right not expressly provided
hereunder.
8.10 Headings, etc. Not Part of Agreement.
Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the
provisions hereof.
IN WITNESS WHEREOF, the Company has caused this restated document to be
executed by its duly authorized officer as of the 1st day of December, 1999.
STERLING COMMERCE, INC.
By: /s/ Albert K. Hoover
------------------------------------
Title: Executive Vice President, General
Counsel and Secretary
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