<PAGE>
Filed Pursuant to Rule 424(b)(3)
File No. 333-13303
PROSPECTUS
15,138,450 SHARES
STERLING SOFTWARE, INC.
Common Stock
This Prospectus relates to the offer and sale by Sterling Software, Inc.
("Sterling Software" or the "Company") of certain shares (the "Shares") of the
Company's common stock, par value $0.10 per share (the "Common Stock"), issuable
by the Company upon exercise of options ("Options") granted or to be granted
from time to time to eligible persons pursuant to the provisions of the Sterling
Software, Inc. Amended and Restated 1996 Stock Option Plan (the "Plan") and
which may be offered and sold from time to time by certain of such persons or
permitted transferees (the "Selling Stockholders"). This Prospectus also relates
to such indeterminate number of additional shares of Common Stock as may become
subject to awards under the Plan as a result of the antidilution provisions
contained therein.
Sales by the Selling Stockholders may be made on one or more exchanges,
including the New York Stock Exchange (the "NYSE"), or in the over-the-counter
market, or in negotiated transactions, in each case at prices and at terms then
prevailing or at prices related to the then current market price or at
negotiated prices and terms. Upon any sale of the Shares offered hereby, the
Selling Stockholders and participating agents, brokers or dealers may be deemed
to be underwriters as that term is defined in the Securities Act of 1933, as
amended (the "Securities Act"), and commissions or discounts or any profit
realized on the resale of such securities may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Plan of Distribution."
The Common Stock is listed for trading on the NYSE under the symbol "SSW." On
April 9, 1998, the closing price of the Common Stock on the NYSE was $26 3/8.
The Company will pay all expenses in connection with this offering, which are
estimated to be approximately $111,000.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is April 14, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the public reference facilities
maintained by the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such materials can also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission and that is
located at http://www.sec.gov. Documents filed by the Company can also be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005, on which exchange the Common Stock is listed.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act relating to the securities
issuable pursuant to the Plan and offered hereby. This Prospectus omits certain
of the information contained in the Registration Statement, and reference is
hereby made to the Registration Statement and to the exhibits relating thereto
for further information with respect to the Company and the securities offered
hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and in each instance reference is made to
the copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus (i) the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1997; and (ii) the Company's Quarterly Report on Form 10-Q for the period ended
December 31, 1997.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering
made hereby, shall be deemed incorporated by reference in this Prospectus and to
be a part of this Prospectus from the date of the filing of such reports.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
exhibits expressly incorporated in such documents by reference). Requests
should be directed to: Sterling Software, Inc., 300 Crescent Court, Suite 1200,
Dallas, Texas 75201, Attention: Don J. McDermett, Jr., Senior Vice President and
General Counsel (telephone: (214) 981-1000).
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THE COMPANY
Sterling Software is a recognized worldwide supplier of software products and
services within the enterprise systems management and applications management
software markets and also provides technical professional services to certain
sectors of the federal government. The Company's principal executive offices
are located at 300 Crescent Court, Suite 1200, Dallas, Texas 75201, and the
Company's telephone number at such address is (214) 981-1000.
USE OF PROCEEDS
The proceeds from the issuance of the Shares upon exercise of Options will be
added to the Company's funds and used for general corporate purposes. The
Company will not receive any of the proceeds from the sale of Shares by the
Selling Stockholders.
SELLING STOCKHOLDERS
This Prospectus covers the purchase from the Company of an aggregate of up to
15,138,450 Shares, plus such indeterminate number of additional shares as may
become subject to awards under the Plan as a result of the antidilution
provisions contained therein, by the holders of Options upon the exercise
thereof in accordance with their terms and the subsequent offer and resale of
Shares previously acquired or to be acquired by certain holders of Options upon
the exercise thereof.
Pursuant to the provisions of the Plan, the Board of Directors of the Company
(the "Board"), the 1996 Stock Option Committee of the Board (the "Stock Option
Committee") or the 1996 Special Stock Option Committee of the Board (the
"Special Stock Option Committee") will, among other things, determine from time
to time (i) the individuals, from among the executive officers, directors,
employees, advisors and consultants of the Company and its subsidiaries, to whom
Options will be granted, (ii) the number of shares of Common Stock to be covered
by each Option (provided the maximum aggregate number of shares of Common Stock
with respect to which Options may be granted to any participant under the Plan
may not exceed 5,425,000 shares), and (iii) the purchase price of Common Stock
subject to each Option, which may not be less than the fair market value of the
Common Stock on the date of grant.
The following table sets forth certain information as of April 3, 1998, with
respect to Selling Stockholders, including any positions, offices or other
material relationships of the Selling Stockholders with the Company. The
Company is unaware of whether the Selling Stockholders listed below presently
intend to sell the Shares they may acquire upon exercise of Options. The
Company in the future may grant additional Options to the persons listed below
and to persons other than those listed below whose subsequent sale of Shares
will be covered by this Prospectus, which, in such case, will be supplemented.
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<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
OWNERSHIP NUMBER OF OWNERSHIP AFTER
PRIOR TO OFFERING (1)(2) SHARES OF OFFERING (2)
----------------------- COMMON STOCK ------------
NAME AND POSITION NUMBER PERCENTAGE OFFERED HEREBY NUMBER PERCENTAGE
- ----------------------------- ------ ---------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Robert J. Donachie (3) 103,200 * 100,000 3,200 *
Director
Werner L. Frank (4) 441,396 * 250,000 191,396 *
Executive Vice President
Michael C. French (5) 151,600 * 150,000 1,600 *
Director
F.L. (Mike) Harvey (6) 350,124 * 350,000 124 *
Senior Vice President
M. Gene Konopik (7) 211,476 * 200,000 11,476 *
Executive Vice President
Don J. McDermett, Jr. (8) 186,282 * 186,000 282 *
Senior Vice President and
General Counsel
Jeannette P. Meier (9) 1,013,252 1.3% 1,000,000 13,252 *
Executive Vice President
and Secretary
Donald R. Miller, Jr. (10) 100,000 * 100,000 0 *
Director
Phillip A. Moore (11) 357,934 * 300,000 57,934 *
Director
B. Carole Morton (12) 318,824 * 250,000 68,824 *
Senior Vice President
Gillian M. Parrillo (13) 300,966 * 300,000 966 *
Senior Vice President
Alan W. Steelman (14) 100,000 * 100,000 0 *
Director
Geno P. Tolari (15) 1,209,530 1.5% 1,200,000 9,530 *
Executive Vice President
and Chief Operating Officer
Sterling L. Williams (16) 3,608,398 4.4% 3,600,000 8,398 *
President, Chief Executive
Officer and Director
</TABLE>
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<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
OWNERSHIP NUMBER OF OWNERSHIP AFTER
PRIOR TO OFFERING (1)(2) SHARES OF OFFERING (2)
----------------------- COMMON STOCK ------------
NAME AND POSITION NUMBER PERCENTAGE OFFERED HEREBY NUMBER PERCENTAGE
- ----------------------------- ------ ---------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C>
R. Logan Wray (17) 250,054 * 250,000 54 *
Senior Vice President and
Chief Financial Officer
Charles J. Wyly, Jr. (18) 3,201,808 4.0% 1,800,000 1,401,808 1.8%
Vice-Chairman of the Board
and Director
Evan A. Wyly (19) 369,134 * 200,000 169,134 *
Director
Sam Wyly (20) 4,598,476 5.7% 3,600,000 998,476 1.3%
Chairman of the Board and
Director
</TABLE>
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* Less than 1% of class.
(1) Based on ownership as of April 3, 1998.
(2) Based on 77,633,100 shares of Common Stock issued and outstanding as of
April 3, 1998.
(3) Includes 100,000 Shares to be acquired upon exercise of Options granted
under the Plan, 25,000 of which are exercisable within 60 days of the date
of this Prospectus.
(4) Includes 250,000 Shares to be acquired upon exercise of Options granted
under the Plan, 25,000 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 8,302 shares of Common
Stock held pursuant to the Sterling Software, Inc. Savings and Security
Plan ("Savings Plan").
(5) Includes 150,000 Shares to be acquired upon exercise of Options granted
under the Plan, 37,500 of which are exercisable within 60 days of the date
of this Prospectus.
(6) Includes 350,000 Shares to be acquired upon exercise of Options granted
under the Plan, 25,000 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 124 shares of Common Stock
held pursuant to the Savings Plan.
(7) Includes 200,000 Shares to be acquired upon exercise of Options granted
under the Plan, 12,500 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 11,476 shares of Common
Stock held pursuant to the Savings Plan.
(8) Includes 186,000 Shares to be acquired upon exercise of Options granted
under the Plan, 36,000 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 282 shares of Common Stock
held pursuant to the Savings Plan.
(9) Includes 1,000,000 Shares to be acquired upon exercise of Options granted
under the Plan, 250,000 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 12,592 shares of Common
Stock held pursuant to the Savings Plan.
(10) Includes 100,000 Shares to be acquired upon exercise of Options granted
under the Plan, 25,000 of which are exercisable within 60 days of the date
of this Prospectus.
(11) Includes 300,000 Shares to be acquired upon exercise of Options granted
under the Plan, 75,000 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 10,136 shares of Common
Stock held pursuant to the Savings Plan.
(12) Includes 250,000 Shares to be acquired upon exercise of Options granted
under the Plan, 62,500 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 11,074 shares of Common
Stock held pursuant to the Savings Plan.
(13) Includes 300,000 Shares to be acquired upon exercise of Options granted
under the Plan, 62,500 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 966 shares of Common Stock
held pursuant to the Savings Plan.
(14) Includes 100,000 Shares to be acquired upon exercise of Options granted
under the Plan, 25,000 of which are exercisable within 60 days of the date
of this Prospectus.
(15) Includes 1,200,000 Shares to be acquired upon exercise of Options granted
under the Plan, 300,000 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 9,530 shares of Common
Stock held pursuant to the Savings Plan.
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(16) Includes 3,600,000 Shares to be acquired upon exercise of Options granted
under the Plan, all of which are presently exercisable. Also includes
approximately 398 shares of Common Stock held pursuant to the Savings Plan.
(17) Includes 250,000 shares to be acquired upon exercise of options granted
under the Plan, none of which are exercisable within 60 days of the date of
this Prospectus. Also includes approximately 54 shares of Common Stock
held pursuant to the Savings Plan.
(18) Includes 1,800,000 Shares to be acquired upon exercise of Options granted
under the Plan, all of which are presently exercisable. Also includes
883,398 shares of Common Stock directly owned by family trusts of which Mr.
Charles J. Wyly, Jr. is trustee and 513,148 shares of Common held of record
by a limited partnership of which Mr. Charles J. Wyly, Jr. is a general
partner. Also includes approximately 5,262 shares of Common Stock held
pursuant to the Savings Plan.
(19) Includes 200,000 Shares to be acquired upon exercise of Options granted
under the Plan, 50,000 of which are exercisable within 60 days of the date
of this Prospectus. Also includes approximately 254 shares of Common Stock
held pursuant to the Savings Plan.
(20) Includes 3,600,000 Shares to be acquired upon exercise of Options granted
under the Plan, all of which are presently exercisable. Also includes
716,706 shares of Common Stock directly owned by family trusts of which Mr.
Sam Wyly is trustee and 277,224 shares of Common Stock held of record by a
limited partnership of which Mr. Sam Wyly is a general partner. Also
includes approximately 4,546 shares of Common Stock held pursuant to the
Savings Plan.
1996 STOCK OPTION PLAN
GENERAL
A copy of the Plan has been filed as an exhibit to the Registration Statement
of which this Prospectus constitutes a part. The summaries of certain
provisions of the Plan do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the Plan,
including the definitions therein of certain terms. Copies of the Plan and
additional information regarding the Plan and the Plan's administrators may be
obtained by contacting the Company. See "Incorporation of Certain Documents by
Reference." Capitalized terms not otherwise defined below or elsewhere in this
Prospectus have the meanings given to such terms in the Plan.
PURPOSE AND ADOPTION
The Plan is intended to provide an equity interest in the Company to certain
of the Company's executive officers, directors, employees, advisors and
consultants and to provide additional incentives for such persons to devote
themselves to the Company's business. The Plan is also intended to aid in
attracting persons of outstanding ability to serve, and remain in the service
of, the Company. The Board adopted the Plan on April 22, 1996. The
stockholders of the Company approved the adoption of the Plan on May 29, 1996.
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SHARES COVERED
As of April 3, 1998, the total number of shares of Common Stock available
for issuance under the Plan was 18,699,424 and Options for 17,782,100 of such
shares had been granted, resulting in Options for 917,324 shares being available
for grant as of such date. As of April 3, 1998, Options to purchase 10,455,950
shares of Common Stock are presently exercisable. Under the terms of the Plan,
if at the close of business on the last day of any fiscal quarter of the
Company, the sum of (i) the total number of shares of Common Stock theretofore
issued upon the exercise of Options, (ii) the total number of shares of Common
Stock then subject to outstanding Options, and (iii) the total number of shares
of Common Stock then remaining available under the Plan to be made subject to
future grants of Options (such sum being the "Actual Number") is less than 20%
of the total number of shares of Common Stock then outstanding, computed on a
fully-diluted basis (the "Target Number"), the number of shares of Common Stock
available for issuance under the Plan will automatically be increased to a
number that will result in the Actual Number being equal to the Target Number.
Shares of Common Stock issued under the Plan may be authorized but unissued
shares, shares held in treasury or a combination thereof.
OPTIONS
The Plan authorizes the grant of Options to purchase shares of Common Stock
that are not intended to qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and which permit a
participant to benefit from increases in the value of shares of Common Stock
above a predetermined purchase price per share. Options are more fully
described under "-- Description of Awards" below.
ADMINISTRATION
The Plan is administered by the Stock Option Committee, the Special Stock
Option Committee and the Board, which have the authority to determine from time
to time the individuals to whom Options will be granted, the number of shares to
be covered by each Option and the time or times at which Options will become
exercisable; provided that the Special Stock Option Committee has exclusive
administrative authority with respect to Options intended to comply with Section
162(m) of the Code. All of the members of the Special Stock Option Committee,
which may not be comprised of less than two members, are intended to qualify as
"outside directors" within the meaning of Section 162(m) of the Code and as
"Non-Employee Directors" within the meaning of Rule 16b-3 under the Exchange
Act. Although each of the Board, the Special Stock Option Committee and the
Stock Option Committee has the authority under the Plan to make grants of
Options to any Plan participant, it is anticipated that the Special Stock Option
Committee will make grants to Plan participants who are executive officers of
the Company and/or members of the Board, and that the Stock Option Committee
will make grants to all other Plan participants.
The Stock Option Committee, the Special Stock Option Committee and the Board
have the full authority and discretion to administer the Plan and to take any
action that is necessary or advisable in connection with the administration of
the Plan, including without limitation the authority and discretion to interpret
and construe any provision of the Plan or of any agreement, notification or
document evidencing the grant of an Option. The interpretation and construction
by the Stock Option Committee, Special Stock Option Committee or the Board, as
applicable, of any such provision and any determination by the Stock Option
Committee, the Special Stock Option Committee or the Board, as applicable,
pursuant to any provision of the Plan or of any such agreement, notification or
document will be final and conclusive; provided that in the event the Stock
Option Committee and the Special Stock Option Committee disagree (or either
disagrees or both disagree with the Board) with respect to such interpretation,
construction or determination, the Board's determination will be final and
conclusive except as described above with respect to Options intended to comply
with Section 162(m) of the Code.
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<PAGE>
ELIGIBILITY
Executive officers, key employees, advisors and consultants of the Company
and its subsidiaries and directors of the Company are eligible to receive grants
of Options.
TRANSFERABILITY
Each Option granted pursuant to the Plan may be subject to such transfer
restrictions, if any, as the Stock Option Committee, the Special Stock Option
Committee or the Board, as applicable, may determine.
ADJUSTMENTS
The Stock Option Committee, the Special Stock Option Committee or the Board
may make or provide for such adjustments in the maximum number of shares
available under the Plan, in the number of shares of Common Stock covered by
outstanding Options, in the purchase price per share of Common Stock covered by
Options, and/or in the kind of shares covered thereby (including shares of
another issuer), as such committee or the Board, as applicable, in its sole
discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of Plan participants that
otherwise would result from any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, merger, consolidation, spin-off, reorganization, liquidation, issuance
of rights or warrants to purchase securities or any other corporate transaction
or event having an effect similar to any of the foregoing.
VESTING OF CERTAIN OPTIONS UPON A CHANGE IN CONTROL
The stock option agreement evidencing any Option may provide for the earlier
exercise of such Option in the event of a change in control of the Company (as
defined in such stock option agreement or in any agreement referenced in such
stock option agreement) or in the event of any other similar transaction or
event.
NONQUALIFIED AND UNFUNDED
The Plan is unfunded and does not give participants any rights that are
superior to those of the Company's general creditors. The Plan is not subject
to the provisions of ERISA and is not qualified under Section 401(a) of the
Code.
CONTINUATION AND TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP
The Plan does not confer upon any Plan participant any rights with respect to
continuation of employment or other service with the Company or any of its
subsidiaries and does not interfere in any way with any right that the Company
or any of its subsidiaries would otherwise have to terminate a Plan
participant's employment or other service at any time.
TERMINATION AND AMENDMENT
The Plan may be terminated at any time by action of the Board. The
termination of the Plan will not adversely affect the terms of any outstanding
Options. The Plan may be amended from time to time by the Board or any duly
authorized committee thereof. In the event any law, or any rule or regulation
issued or promulgated by the Internal Revenue Service, the Commission, the
National Association of Securities Dealers, Inc., any stock exchange upon which
the Common Stock is listed for trading, or any other governmental or quasi-
governmental agency having jurisdiction over the Company, the Common Stock or
the Plan requires the Plan to be amended, or in the event Rule 16b-3 or any
other rule under Section 16 of the Exchange Act is amended or supplemented, in
either event to permit the Company to remove or lessen any restrictions with
respect to Options, the Stock Option Committee, the Special Stock Option
Committee or the Board may amend the Plan to the extent of any such requirement,
amendment or supplement, and all Options then outstanding will be subject to
such amendment.
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<PAGE>
DESCRIPTION OF AWARDS
The Plan does not specify a maximum term for Options granted thereunder. A
grant of Options may provide for the deferred payment of the exercise price from
the proceeds of sales through a bank or broker on the exercise date of some or
all of the shares of Common Stock to which such exercise relates. The exercise
price of the Options may not be less than the fair market value per share of
Common Stock on the grant date. The Stock Option Committee, the Special Stock
Option Committee or the Board, as applicable, may, without the consent of the
holder of an Option, amend the terms of such Option in various respects,
including acceleration of the time at which the Option may be exercised,
extension of the expiration date, reduction of the exercise price and waiver of
other conditions or restrictions.
Each grant of Options will specify whether the exercise price is payable in
cash, by the actual or constructive transfer to the Company of nonforfeitable,
unrestricted shares of Common Stock already owned by the participant having an
actual or constructive value as of the time of exercise equal to the total
exercise price, by any other legal consideration authorized by the Stock Option
Committee, the Special Stock Option Committee or the Board, as the case may be,
or by a combination of such methods of payment. The Plan does not require that
a participant hold shares received upon the exercise of Options for a specified
period and permits immediate sequential exercises of Options with the exercise
price therefor being paid in shares of Common Stock, including shares acquired
as a result of prior exercises of Options.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. The following summary of certain federal income tax consequences of
the grant, exercise and transfer of Options under the Plan is based on the Code,
as amended to date, applicable proposed and final Treasury Regulations, judicial
authority and current administrative rulings and practice, all of which are
subject to change. This summary does not attempt to describe all of the
possible tax consequences that could result from the acquisition, holding,
exercise, transfer or disposition of an Option or the shares of Common Stock
purchasable thereunder.
Options granted under the Plan are intended to be nonqualified stock options.
Nonqualified stock options generally will not result in any taxable income to
the participant at the time of the grant, but the participant will recognize
ordinary compensation income at the time of exercise of the Options if the
shares are not subject to any substantial risk of forfeiture (as defined in
Section 83 of the Code). Under such circumstances, the amount of ordinary
income is measured by the excess of the fair market value of the optioned shares
at the time of exercise over the exercise price. Such income is subject to
payment and withholding of income, FICA and medicare taxes. Generally,
participants may satisfy their withholding obligation by writing a check to the
Company or by another method permitted by the Company, including through so-
called "cashless" exercises. A participant's tax basis in shares acquired upon
the exercise of nonqualified stock options is generally equal to the exercise
price plus any amount treated as ordinary income. If shares acquired upon
exercise of an Option are later sold or exchanged, the difference between the
sales price and the participant's tax basis for the shares will generally be
taxable as a capital gain or loss (if the stock is a capital asset of the
participant). For individuals, the rate of taxation of capital gains will
depend on (i) the individual's holding period for the shares at the time of the
sale or other taxable disposition (with the lowest rate available for shares
held more than 18 months) and (ii) the individual's marginal tax rate for
ordinary income. The deductibility of capital losses is subject to certain
limitations which are not addressed herein.
If the exercise price of a nonqualified stock option is paid for, in whole or
in part, by the delivery of shares of Common Stock previously owned by the
participant ("Previously Acquired Shares"), no gain or loss will be recognized
on the exchange of the Previously Acquired Shares for a like number of shares of
Common Stock. The participant's basis in the number of optioned shares received
equal to the number of Previously Acquired Shares surrendered would be the same
as the participant's basis in the Previously Acquired Shares. However, the
participant would be treated as receiving ordinary income equal to the fair
market value (at the time of exercise) of the number of shares of Common Stock
received in excess of the number of Previously Acquired Shares surrendered, and
the participant's basis in such excess shares would be equal to their fair
market value at the time of exercise.
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<PAGE>
Federal Income Tax Consequences for Transferors. A participant who transfers
a transferable Option by way of gift (the "Transferor") will not recognize
income at the time of the transfer. Instead, at the time the transferee of the
transferable Option (the "Transferee)" exercises the transferable Option, the
Transferor will generally recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the Shares purchased by the
Transferee over the exercise price, in the same manner as if the Transferor had
retained and exercised the Option. Prior to making a transfer of a transferable
Option, a participant should consult with his or her personal tax advisor
concerning the possible federal and state gift, estate, inheritance, and
generation skipping tax consequences of such a transfer, as well as state and
local income tax consequences which are not addressed herein.
Federal Income Tax Consequences for Transferees. The Transferee will not
recognize income at the time of the transfer of a transferable Option. As
described in the preceding paragraph, the Transferor and not the Transferee will
generally recognize ordinary compensation income at the time the Transferee
exercises the Option. A Transferee who chooses to exercise a transferable
Option in whole or in part by delivery of other shares of Common Stock already
owned by the Transferee should consult with his or her own tax advisor
concerning the tax consequences of such a transaction. If Shares acquired upon
exercise of a transferable Option are later sold or exchanged, the difference
between the sales price and the Transferee's tax basis for the shares will
generally be taxable as long-term or short-term capital gain or loss (if the
stock is a capital asset of the Transferee). The tax basis for the Shares in
the hands of the Transferee would be the exercise price for the transferable
Option plus the amount of the income recognized by the Transferor at the time of
exercise.
Special Rules Applicable to Insiders. In limited circumstances where the
sale of shares of Common Stock that are received as the result of the exercise
of an Option could subject an officer or director to suit under Section 16(b) of
the Exchange Act, the tax consequences to the officer or director may differ
from the tax consequences described above. In these circumstances, unless a
special election has been made, the principal difference usually will be to
postpone valuation and taxation of the shares of Common Stock received so long
as the sale of the shares received could subject the officer or director to suit
under Section 16(b) of the Exchange Act, but not longer than six months.
General Matters Applicable to the Company. To the extent that a participant
(including a Transferor) recognizes ordinary income in the circumstances
described above, the Company or a subsidiary, as the case may be, would be
entitled to a corresponding federal income tax deduction, provided in general
that (i) the amount is an ordinary and necessary business expense and such
income meets the test of reasonableness; (ii) the deduction is not disallowed
pursuant to the annual compensation limit set forth in Section 162(m) of the
Code and (iii) certain statutory provisions relating to so-called "excess
parachute payments" do not apply. Awards granted under the Plan may be subject
to acceleration in the event of a change in control of the Company. In the
event of a change in control of the Company, it is possible that this feature
may affect whether amounts realized upon the receipt or exercise of the Options
will be deductible by the Company under the "excess parachute payments"
provisions of the Code.
BECAUSE THE TAX CONSEQUENCES TO A PLAN PARTICIPANT MAY VARY DEPENDING ON HIS
OR HER INDIVIDUAL CIRCUMSTANCES, EACH PLAN PARTICIPANT SHOULD CONSULT HIS OR HER
PERSONAL TAX ADVISOR REGARDING THE FEDERAL AND ANY STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES TO HIM OR HER.
-10-
<PAGE>
PLAN OF DISTRIBUTION
The Shares may be issued to the Selling Stockholders from time to time by the
Company upon exercise of Options. The Shares may be sold or otherwise disposed
of from time to time by any of the Selling Stockholders in one or more
transactions through any one or more of the following: (i) to purchasers
directly, (ii) in ordinary brokerage transactions and transactions in which the
broker solicits purchasers, (iii) through underwriters or dealers who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Stockholders or from the purchasers of the Shares
for whom they may act as agent, (iv) the writing of Options on the Shares, (v)
the pledge of the Shares as security for any loan or obligation, including
pledges to brokers or dealers who may, from time to time, themselves effect
distributions of the Shares or interests therein, (vi) purchases by a broker or
dealer as principal and resale by such broker or dealer for its own account
pursuant to this Prospectus, (vii) a block trade in which the broker or dealer
so engaged will attempt to sell the Shares as agent but may position and resell
a portion of the block as principal to facilitate the transaction and (viii) an
exchange distribution in accordance with the rules of such exchange, including
the NYSE, or in transactions in the over-the-counter market. Such sales may be
made at prices and at terms then prevailing or at prices related to the then
current market price or at negotiated prices and terms. In effecting sales,
brokers or dealers may arrange for other brokers or dealers to participate. The
Selling Stockholders or such successors in interest, and any underwriters,
brokers, dealers or agents that participate in the distribution of the Shares,
may be deemed to be "underwriters" within the meaning of the Securities Act, and
any profit on the sale of the Shares by them and any discounts, commissions or
concessions received by any such underwriters, brokers, dealers or agents may be
deemed to be underwriting commissions or discounts under the Securities Act.
The Company will pay all of the expenses incident to the offering hereby and
sale of the Shares to the public other than underwriting discounts or
commissions, brokers' fees and the fees and expenses of any counsel to the
Selling Stockholders related thereto.
LEGAL MATTERS
Certain legal matters in connection with the validity of the Common Stock
offered hereby have been passed upon for the Company by Jones, Day, Reavis &
Pogue, Dallas, Texas. Michael C. French, a consultant to Jones, Day, Reavis &
Pogue, is a director and an employee of the Company.
EXPERTS
The consolidated financial statements and financial statement schedule
appearing in the Company's Annual Report on Form 10-K for the year ended
September 30, 1997 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and financial statement
schedule are incorporated herein by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-11-
<PAGE>
FORWARD-LOOKING INFORMATION
This Prospectus (including the documents incorporated herein by reference)
contains or may contain certain forward-looking statements and information that
are based on beliefs of, and information currently available to, the Company's
management as well as estimates and assumptions made by the Company's
management. When used in this Prospectus, words such as "anticipate, "believe,"
"estimate," "expect," "future," "intend," "plan" and similar expressions, as
they relate to the Company or the Company's management, identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions, relating to the Company's operations and results of operations,
competitive factors and pricing pressures, shifts in market demand, the
performance and needs of the industries served by the Company, the costs of
product development and other risks and uncertainties including, in addition to
any uncertainties specifically identified in the text surrounding such
statements, uncertainties with respect to changes or developments in social,
economic, business, industry, market, legal and regulatory circumstances and
conditions and actions taken or omitted to be taken by third parties, including
the Company's stockholders, customers, suppliers, business partners,
competitors, and legislative, regulatory, judicial and other governmental
authorities and officials. Should one or more of these risks or uncertainties
materialize, or should the underlying estimates or assumptions prove incorrect,
actual results or outcomes may vary significantly from those anticipated,
believed, estimated, expected, intended or planned.
-12-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES TO ANY PERSON
OR BY ANYONE IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------------------------------
TABLE OF CONTENTS
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Page
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Available Information................................................. 2
Incorporation of Certain
Documents by Reference............................................. 2
The Company........................................................... 3
Use of Proceeds....................................................... 3
Selling Stockholders.................................................. 3
1996 Stock Option Plan................................................ 6
Plan of Distribution..................................................11
Legal Matters.........................................................11
Experts...............................................................11
Forward-Looking Information...........................................12
15,138,450 SHARES
STERLING SOFTWARE,
INC.
COMMON STOCK
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PROSPECTUS
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APRIL 14, 1998
