<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For
Use of the
Commission Only (as
permitted by Rule
14a-6(e)(2)) Proxy
Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
-----------
STERLING SOFTWARE, INC.
(Name of Registrant as specified in Its Charter)
-----------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
STERLING SOFTWARE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
February 2, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Meeting") of Sterling Software, Inc. (the "Company") to be held at The
Crescent Club, 200 Crescent Court, 17th Floor, Dallas, Texas, on Wednesday,
March 11, 1998, commencing at 10:00 a.m., local time. All stockholders of
record as of January 22, 1998 are entitled to vote at the Meeting. I urge you
to be present in person or represented by proxy at the Meeting.
The enclosed Notice of Annual Meeting and Proxy Statement fully describe the
business to be transacted at the Meeting, which includes (i) the election of
three directors of the Company; (ii) the approval of an amendment of the
Company's Certificate of Incorporation to increase the number of shares of the
Company's Common Stock authorized for issuance from 75,000,000 shares to
125,000,000 shares; and (iii) the approval of the Sterling Software, Inc.
Employee Stock Purchase Plan.
The Company's Board of Directors believes that increasing the number of
authorized shares of Common Stock is in the best interests of the Company and
its stockholders because it would permit the Company to issue additional
shares of Common Stock, for example, in connection with future stock splits or
acquisitions. Such increase is not being proposed in connection with any
specific transaction. The Board of Directors also believes that approval of
the Sterling Software, Inc. Employee Stock Purchase Plan will be an important
factor in attracting and retaining qualified employees essential to the
continued success of the Company.
The Company's Board of Directors believes that a favorable vote on each of
the matters to be considered at the Meeting is in the best interests of the
Company and its stockholders and unanimously recommends a vote "FOR" each such
matter. Accordingly, we urge you to review the accompanying material carefully
and to return the enclosed proxy promptly.
Directors and officers of the Company will be present to help host the
Meeting and to respond to any questions that our stockholders may have. I hope
you will be able to attend. Even if you expect to attend the Meeting, please
sign, date and return the enclosed proxy without delay. If you attend the
Meeting, you may vote in person even if you have previously mailed a proxy.
Sincerely,
Sam Wyly
Chairman of the Board
<PAGE>
STERLING SOFTWARE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 11, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Sterling Software, Inc. (the "Company") will be held at The
Crescent Club, 200 Crescent Court, 17th Floor, Dallas, Texas, on Wednesday,
March 11, 1998, commencing at 10:00 a.m., local time. A proxy card and a Proxy
Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
(1) The election of three Class B directors for three-year terms expiring
at the Company's Annual Meeting of Stockholders in 2001;
(2) A proposal to amend the Company's Certificate of Incorporation to
increase the number of shares of Common Stock, $.10 par value,
authorized for issuance from 75,000,000 shares to 125,000,000 shares;
(3) A proposal to approve the Sterling Software, Inc. Employee Stock
Purchase Plan; and
(4) Such other matters as may properly come before the Meeting or any
adjournment thereof.
The close of business on January 22, 1998 has been fixed as the record date
for determining stockholders entitled to notice of and to vote at the Meeting
or any adjournment thereof. For a period of at least 10 days prior to the
Meeting, a complete list of stockholders entitled to vote at the Meeting shall
be open to examination by any stockholder during ordinary business hours at
the offices of the Company at 300 Crescent Court, Suite 1200, Dallas, Texas
75201.
Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Proxy Statement.
YOUR VOTE IS IMPORTANT. STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE
MEETING IN PERSON ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
By Order of the Board of Directors
Jeannette P. Meier
Secretary
Dallas, Texas
February 2, 1998
<PAGE>
STERLING SOFTWARE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 11, 1998
----------------
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is being first mailed on or about February 2, 1998 to
stockholders of Sterling Software, Inc. (the "Company") at the direction of
the Board of Directors of the Company (the "Board") to solicit proxies in
connection with the 1998 Annual Meeting of Stockholders (the "Meeting"). The
Meeting will be held at The Crescent Club, 200 Crescent Court, 17th Floor,
Dallas, Texas, on Wednesday, March 11, 1998, commencing at 10:00 a.m., local
time, or at such other time and place to which the Meeting may be adjourned.
All shares represented by valid proxies at the Meeting, unless the
stockholder otherwise specifies, will be voted (i) FOR the election of the
three persons named under "Proposal I--Election of Directors" as nominees for
election as Class B directors of the Company for three-year terms expiring at
the Company's Annual Meeting of Stockholders in 2001, (ii) FOR the proposal to
amend the Company's Certificate of Incorporation to increase the number of
shares of Common Stock, $.10 par value ("Common Stock"), authorized for
issuance from 75,000,000 shares to 125,000,000 shares, (iii) FOR the proposal
to approve the Sterling Software, Inc. Employee Stock Purchase Plan and (iv)
at the discretion of the proxy holders, with regard to any matter not known to
the Board of Directors on the date of mailing this Proxy Statement that may
properly come before the Meeting or any adjournment thereof. Where a
stockholder has appropriately specified how a proxy is to be voted, it will be
voted accordingly.
A proxy may be revoked at any time by providing written notice of such
revocation to the Company's stock transfer agent, BankBoston, N.A., P.O. Box
9381, Boston, Massachusetts 02205-9956, or 150 Royall Street, Canton,
Massachusetts 02021, which notice must be received prior to the Meeting. If
notice of revocation is not received prior to the Meeting, a stockholder may
nevertheless revoke a proxy if he or she attends the Meeting and desires to
vote in person.
RECORD DATE AND VOTING SECURITIES
The close of business on January 22, 1998 is the record date (the "Record
Date") for determining the stockholders entitled to vote at the Meeting, at
which time the Company had issued and outstanding approximately 38,636,639
shares of Common Stock. The Common Stock constitutes the only outstanding
class of voting securities of the Company entitled to be voted at the Meeting.
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock is necessary to constitute
a quorum. Each share of Common Stock represented at the Meeting, in person or
by proxy, will be counted toward a quorum. If a quorum should not be present,
the Meeting may be adjourned from time to time until a quorum is obtained.
Each share of Common Stock is entitled to one vote with respect to each
proposal to be voted on at the Meeting. Cumulative voting is not permitted
with respect to the election of directors.
<PAGE>
The accompanying proxy card is designed to permit each holder of Common
Stock as of the close of business on the Record Date to vote on each of the
matters to be considered at the Meeting. The proxy card provides space for a
stockholder to vote in favor of, or to withhold authority to vote for, any or
all nominees for election to the Board and to vote in favor of or against or
to abstain from voting with respect to the proposal to amend the Company's
Certificate of Incorporation and the proposal to approve the Sterling
Software, Inc. Employee Stock Purchase Plan. Brokers will have discretionary
voting authority with respect to the proposals to be acted upon at the Meeting
where beneficial owners do not provide voting instructions.
To be elected, each nominee for election as a Class B director must receive
the affirmative vote of the holders of a majority of the shares of Common
Stock present at the Meeting, in person or by proxy. Instructions to withhold
authority to vote for any nominee will be counted as shares present for
purposes of determining a quorum, but will have the effect of a vote against
the nominee for which the vote was withheld.
Approval of the amendment of the Company's Certificate of Incorporation
requires the affirmative vote of a majority of the outstanding shares of
Common Stock. As a result, abstentions on such proposal will have the same
effect as a vote against such proposal. Broker non-votes, which occur when
brokers who are the record holders of shares do not exercise discretionary
voting authority with respect to those beneficial owners who have not provided
voting instructions, will have the same effect as a vote against such
proposal.
Approval of the Sterling Software, Inc. Employee Stock Purchase Plan
requires the affirmative vote of a majority of the shares of Common Stock
present at the Meeting, in person or by proxy. Abstentions on such proposal
will have the same effect as a vote against such proposal. Broker non-votes
will neither count for nor against this proposal and as a result will have no
effect on the vote with respect thereto.
PARTICIPANTS IN THE STERLING SOFTWARE, INC.
SAVINGS AND SECURITY PLAN
A participant in the Sterling Software, Inc. Savings and Security Plan (the
"Savings Plan") will receive a voting instruction card relating to the shares
of Common Stock allocated to such participant's account in the Savings Plan. A
properly completed voting instruction card will serve as voting instructions
to the trustee of the Savings Plan. If a participant holds Common Stock
outside of the Savings Plan, such participant will also receive, in a separate
mailing, a proxy card relating to those shares. In order for all shares owned
by, or allocated under the Savings Plan to, a participant to be voted at the
Meeting in accordance with such participant's direction, both the proxy card
and the voting instruction card received by the participant will need to be
signed and returned to BankBoston, N.A. Information in the voting instruction
card will not be disclosed to the Company.
PROPOSAL I
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a board of directors
divided into three classes, as nearly equal in number as possible, with the
term of office of one class expiring each year at the Company's Annual Meeting
of Stockholders. Each class of directors is elected for a term of three years
except in the case of elections to fill vacancies or newly created
directorships.
NOMINEES FOR DIRECTOR
Each of Charles J. Wyly, Jr., Phillip A. Moore and Michael C. French has
been nominated for election at the Meeting to serve as a director for a three-
year term expiring at the Company's Annual Meeting of Stockholders in 2001 or
until his respective successor has been duly elected and qualified. It is
intended that the persons named in the proxy will vote for the election of
each of the three nominees. Each of the nominees has indicated his willingness
to continue to serve as a member of the Board if elected; however, in case any
nominee should become unavailable for election to the Board for any reason not
presently known or contemplated, the proxy holders will have discretionary
authority in that instance to vote for a substitute nominee.
2
<PAGE>
The nominees for election at the Meeting are as follows:
Charles J. Wyly, Jr., age 64. Mr. Wyly co-founded the Company in 1981 and
since such time has served as a director of the Company, and as Vice Chairman
since 1984. He served as an officer and director of University Computing
Company, a computer software and services company, from 1964 to 1975,
including President from 1969 to 1973. Mr. Wyly and his brother, Sam Wyly,
also a director of the Company, founded Earth Resources Company, an oil
refining and silver mining company, and Charles J. Wyly, Jr. served as its
Chairman of the Board from 1968 to 1980. Mr. Wyly served as Vice Chairman of
the Bonanza Steakhouse chain from 1967 to 1989. Mr. Wyly currently serves as
Vice Chairman of Michaels Stores, Inc., a specialty retail chain ("Michaels
Stores"), and as a director of Sterling Commerce, Inc., a provider of
electronic commerce software and network services ("Sterling Commerce").
Charles J. Wyly, Jr. is the father-in-law of Donald R. Miller, Jr., also a
director of the Company. Mr. Wyly is a member of the Executive Committee and
the 1996 Stock Option Committee of the Board.
Phillip A. Moore, age 55. Mr. Moore co-founded the Company in 1981 and since
such time has served as a director of the Company. He served as Executive Vice
President of the Company from July 1993 to September 1997, serving also as
Chief Technology Officer from October 1995 to April 1996. Prior to July 1993,
Mr. Moore served as Senior Vice President, Technology of the Company. In
connection with his retirement as an executive officer of the Company in
September 1997, the Company agreed to nominate Mr. Moore and he agreed to
stand for re-election to the Board at the Meeting.
Michael C. French, age 54. Mr. French has served as a director of the
Company since July 1992. He is currently a Partner of Maverick Capital, Ltd.,
an investment fund management company ("Maverick Capital"), and a consultant
to the international law firm of Jones, Day, Reavis & Pogue. He was a partner
with the law firm of Jackson & Walker, L.L.P. from 1976 through 1995. Mr.
French is also a director of Michaels Stores.
CURRENT DIRECTORS
The current Class A directors of the Company, who are not standing for re-
election at the Meeting and whose terms will expire at the Company's Annual
Meeting of Stockholders in 2000, are as follows:
Robert J. Donachie, age 69. Mr. Donachie has served as a director of the
Company since May 1983. He has been principally employed as a private business
consultant since March 1981. Mr. Donachie is Chairman of the Audit Committee
and a member of the 1996 Special Stock Option Committee of the Board.
Alan W. Steelman, age 55. Mr. Steelman has served as a director of the
Company since February 1997. He is a Senior Principal with Monitor Company, a
leading international consulting firm which specializes in competitive
strategy. Headquartered in Cambridge, Massachusetts, Monitor Company has
operations on six continents and employs over 800 professionals. Mr. Steelman
also serves on the Advisory Board of Richmont-Parly Investment Company, a
Dallas- and Hong Kong-based private investment trust devoted to investments in
listed Asian companies, and on the Advisory Board of Asia Information
Services, a Beijing-based information technology company. Prior to joining
Monitor Company in 1993, Mr. Steelman was Chief Operating Officer of the
Alexander Proudfoot Company, a consulting company listed on The London Stock
Exchange. During his 15 years at Alexander Proudfoot, Mr. Steelman held
several assignments, including Group President of the Asia-Pacific region and
Executive Vice President of worldwide sales and marketing. Prior to joining
Alexander Proudfoot, Mr. Steelman served in the U.S. Congress, representing
Texas' 5th Congressional District, and also held several appointed positions
in government. Mr. Steelman is a member of the Audit Committee of the Board.
Evan A. Wyly, age 36. Mr. Wyly has served as a director of the Company since
July 1992 and as a Vice President of the Company since December 1994. He has
been a Managing Partner of Maverick Capital since 1991. In 1988, Mr. Wyly
founded Premier Partners Incorporated, a private investment firm, and served
as its President prior to joining Maverick Capital. Mr. Wyly also serves as a
director of Sterling Commerce and as a director and officer of Michaels
Stores. Evan Wyly is Sam Wyly's son.
3
<PAGE>
The current Class C directors of the Company, who are not standing for re-
election at the Meeting and whose terms will expire at the Company's Annual
Meeting of Stockholders in 1999, are as follows:
Sam Wyly, age 63. Sam Wyly has served as Chairman of the Board since co-
founding the Company in 1981. Companies founded by Mr. Wyly were among the
forerunners of the electronic commerce industry. In 1963, he founded
University Computing Company, which became one of the largest computer
services and software companies. His data transmission company, Datran, Inc.,
was one of the pioneering telecommunications ventures which broke up the
telephone monopoly and led to the creation of today's electronic commerce
industry. Sterling Commerce, a leader in this industry, was spun off to the
Company's stockholders in 1996 and now has a market value in excess of $3
billion. Mr. Wyly currently serves as a director of Sterling Commerce, as
Chairman of Michaels Stores and as Partner of the General Partner of Maverick
Capital. Mr. Wyly is Chairman of each of the Executive Committee and the 1996
Stock Option Committee of the Board.
Sterling L. Williams, age 54. Mr. Williams co-founded the Company in 1981
and since such time has served as President, Chief Executive Officer and a
director of the Company. Mr. Williams has served as Chairman of the Board and
a director of Sterling Commerce since December 1995. From December 1995 to
October 1996, Mr. Williams also served as Chief Executive Officer of Sterling
Commerce. He also currently serves as a director of INPUT, an information
technology market research company. Mr. Williams is a member of the Executive
Committee and the 1996 Stock Option Committee of the Board.
Donald R. Miller, Jr., age 43. Mr. Miller has served as a director of the
Company since September 1993. He has served as Vice President-Market
Development of Michaels Stores since November 1990 and also serves as a
Managing Director and a member of the Board of Directors of Michaels Stores.
Mr. Miller is a member of the 1996 Special Stock Option Committee of the
Board.
BOARD OF DIRECTORS AND COMMITTEES
General. The business of the Company is managed under the direction of the
Board. The Board meets on a regularly scheduled basis during the Company's
fiscal year to review significant developments affecting the Company and to
act on matters requiring Board approval. It also holds special meetings when
an important matter requires Board action between scheduled meetings. The
Board met or acted by written consent 10 times during the fiscal year ended
September 30, 1997. During fiscal 1997, each member of the Board participated
in at least 75% of all Board and applicable committee meetings held during the
period for which he was a director.
The Board has established Executive, Audit and Stock Option Committees to
devote attention to specific subjects and to assist the Board in the discharge
of its responsibilities. The functions of those committees, their current
members and the number of meetings held during fiscal 1997 are set forth
below.
Executive Committee. The Executive Committee is empowered to act on any
matter except those matters specifically reserved to the full Board by
applicable law. Sam Wyly (Chairman), Charles J. Wyly, Jr. and Sterling L.
Williams are the current members of the Executive Committee. The Executive
Committee met or acted by written consent 19 times during fiscal 1997. The
Executive Committee was responsible for determining executive compensation for
fiscal 1997, except for decisions relating to grants of stock options under
the Company's 1996 Stock Option Plan (the "Option Plan").
Audit Committee. The Audit Committee recommends to the Board the appointment
of the firm selected to serve as the independent auditors for the Company and
its subsidiaries and monitors the performance of such firm; reviews and
approves the scope of the annual audit and evaluates with the independent
auditors the Company's annual audit and annual consolidated financial
statements; reviews with management the status of internal accounting
controls; evaluates issues having a potential financial impact on the Company
which may be brought to the Committee's attention by management, the
independent auditors or the Board; and evaluates public financial reporting
documents of the Company. Robert J. Donachie and Alan W. Steelman are the
current members of the Audit Committee. The Audit Committee met two times
during fiscal 1997.
4
<PAGE>
Option Committees. The 1996 Stock Option Committee and the 1996 Special
Stock Option Committee (collectively, the "Option Committees") administer the
Option Plan. In this capacity, the Option Committees have the authority,
subject to certain restrictions set forth in the Option Plan, to determine
from time to time the individuals to whom options are granted under the Option
Plan, the number of shares covered by each option grant, the time or times at
which options become exercisable and other terms and conditions of such
options. Sam Wyly (Chairman), Charles J. Wyly, Jr. and Sterling L. Williams
are the current members of the 1996 Stock Option Committee and Robert J.
Donachie (Chairman) and Donald R. Miller, Jr. are the current members of the
1996 Special Stock Option Committee. The 1996 Stock Option Committee met or
acted by written consent five times during fiscal 1997. The 1996 Special Stock
Option Committee met or acted by written consent four times during fiscal
1997.
Other. The Company does not have a nominating or compensation committee. The
functions customarily attributable to a nominating committee are performed by
the Board as a whole, and the functions customarily attributable to a
compensation committee generally are performed by the Executive Committee and
the Option Committees.
DIRECTOR COMPENSATION
Each of Messrs. Donachie, French, Miller and Steelman (as well as Mr. Fran
Tarkenton, who served as a director of the Company until the expiration of his
term in February 1997) received an annual directors' fee of $30,000 for his
service as a director of the Company plus $2,500 for each meeting of the Board
and each meeting of any committee of the Board that he attended during fiscal
1997. During fiscal 1997, Sam Wyly and Charles J. Wyly, Jr. received annual
directors' fees of $500,000 and $250,000 in their capacities as Chairman and
Vice Chairman of the Board, respectively. For fiscal 1998, the annual
retainers and committee fees to be received by each of these directors will
remain at the same level as for fiscal 1997. Messrs. Williams, Moore and Evan
Wyly did not receive directors' fees for their services as directors in fiscal
1997.
All directors of the Company are eligible to receive options under the
Option Plan. During fiscal 1997, Messrs. Sam Wyly, Sterling L. Williams,
Charles J. Wyly, Jr. and Evan Wyly, each of whom is both a director and an
executive officer of the Company, received options to purchase 1,800,000,
1,800,000, 900,000 and 100,000 shares of Common Stock, respectively. See
"Management Compensation--Option Grants in Fiscal 1997." Additionally, in
fiscal 1997, Mr. Moore, who at the time of the grant was both a director and
an executive officer of the Company, received options to purchase 150,000
shares of Common Stock. Messrs. Donachie, French, Miller, Steelman and
Tarkenton received options to purchase 50,000, 75,000, 50,000, 50,000 and
50,000 shares of Common Stock, respectively, in fiscal 1997.
See "Certain Transactions" for a discussion of certain agreements between
the Company and certain current and former directors of the Company.
5
<PAGE>
PROPOSAL II
INCREASE IN AUTHORIZED COMMON STOCK
The Board has unanimously approved, subject to the consideration and
approval of the stockholders of the Company, an amendment to the Company's
Certificate of Incorporation increasing the number of shares of Common Stock
authorized for issuance from 75,000,000 shares to 125,000,000 shares. The
Board believes that this amendment is in the best interests of the Company and
its stockholders because it would permit the Company to issue additional
shares of Common Stock, for example, in connection with future stock splits or
acquisitions. Such amendment is not being proposed in connection with any
specific transaction. Moreover, although the Company actively considers
acquisition transactions that may involve the issuance of additional shares of
Common Stock (any one or more of which may be under consideration or acted
upon at any given time), the Company is not presently a party to any such
agreement or understanding involving the issuance of additional shares of
Common Stock.
As of January 15, 1998, after giving effect to approximately 9.6 million
shares of Common Stock reserved for issuance under the Company's stock option
plans, the Company had approximately 26.8 million shares of Common Stock
available for issuance, of which 1.75 million have been reserved for issuance
pursuant to the Sterling Software, Inc. Employee Stock Purchase Plan, subject
to its approval by the stockholders of the Company at the Meeting. The
availability of additional authorized but unissued shares of Common Stock
would provide the Company with greater flexibility by allowing additional
shares to be issued without the expense and delay of a stockholders meeting,
unless stockholder approval is otherwise required.
If the proposed amendment is approved by the Company's stockholders,
generally no further stockholder approval would be required for the issuance
of such authorized shares of Common Stock, unless required by law or any rules
or regulations to which the Company is subject, including the rules of the New
York Stock Exchange ("NYSE"), the exchange on which the Common Stock is
listed. The rules of the NYSE currently require stockholder approval prior to
the taking of the following actions: (i) the issuance of shares of Common
Stock, other than a public offering for cash, if the number of shares to be
issued will be equal to or in excess of 20% of the number of shares of Common
Stock outstanding prior to the issuance; (ii) the establishment of a stock
option or other plan pursuant to which Common Stock may be acquired by
directors or officers, except for warrants or rights distributed generally to
stockholders of the Company or broad-based plans or arrangements including
other employees (unless such warrants, rights, broadly-based plans or
arrangements would result in the issuance of shares in excess of the
limitations set forth in clause (i) above); (iii) the acquisition, directly or
indirectly, of property or assets from a director, officer or substantial
security holder of the Company if the number of shares of Common Stock to be
issued in connection with the acquisition exceeds 1% of the number of shares
of Common Stock outstanding prior to the acquisition; and (iv) an issuance of
Common Stock that would result in a change of control of the Company within
the meaning of the rules of the NYSE.
The Board believes that a vote to approve the amendment of the Certificate
of Incorporation is in the best interests of the Company and its stockholders
and unanimously recommends a vote "FOR" such proposal.
6
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PROPOSAL III
APPROVAL OF THE STERLING SOFTWARE, INC.
EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
The Sterling Software, Inc. Employee Stock Purchase Plan (the "Plan")
provides a systematic method for the purchase of the Company's Common Stock by
employees of the Company. The Board has unanimously approved the Plan and the
reservation of 1,750,000 shares of Common Stock for issuance pursuant to the
Plan, subject to its approval by the stockholders of the Company at the
Meeting.
The Board believes that, in concert with the Company's other compensation
and benefit programs, the Plan will be an important factor in attracting and
retaining qualified employees essential to the continued success of the
Company. Thus, the Board believes that approval of the Plan is in the best
interests of the Company and its stockholders.
SUMMARY OF PROVISIONS OF THE PLAN
The following summary of the Plan is qualified in its entirety by the terms
of the Plan, a copy of which is attached as Annex I to this Proxy Statement.
Capitalized terms used and not otherwise defined in this portion of the Proxy
Statement have the respective meanings ascribed to such terms in the Plan.
The Plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
Shares of Common Stock will be offered under the Plan through a series of
successive six-month periods (each a "Purchase Period") until such time as the
maximum number of shares of Common Stock authorized for issuance under the
Plan have been purchased or the Plan has been sooner terminated. Purchase
Periods will run from January 1 to June 30 and from July 1 to December 31;
provided, however, that the first Purchase Period will begin on February 1,
1998 and end on June 30, 1998. The last business day of each Purchase Period
is the "Purchase Date" on which shares of Common Stock are actually purchased
under the Plan. During each Purchase Period, a Participant may authorize
payroll deductions in any whole multiple of 1% of the Participant's
Compensation (defined generally under the Plan to mean base salary and other
cash compensation), up to a maximum of 25%. In addition to payroll deductions,
a Participant may make one additional lump-sum contribution to the Plan during
each Purchase Period in an amount not to exceed $2,000.
The purchase price of shares of Common Stock acquired in any Purchase Period
will be 85% of the lesser of (a) the Fair Market Value of the shares on the
first day of the Purchase Period or (b) the Fair Market Value of the shares on
the Purchase Date. The closing price of the Company's Common Stock as reported
on the NYSE on January 15, 1998 was $38 3/4.
Interest will be credited to the account of each Participant on each regular
payroll date at a rate of interest, to be fixed for each Purchase Period,
equal to the six-month U.S. treasury bill rate published immediately prior to
the first day of each Purchase Period. No interest will be paid on amounts
credited to a Participant's account for less than a full pay period.
Participants may withdraw from the Plan at any time prior to the last 10
business days of each Purchase Period, whereupon their accrued payroll
deductions and any additional lump-sum contribution will be refunded to them
with credited interest.
Any employee (including officers and directors who are employees) of the
Company, its domestic subsidiaries and such non-U.S. subsidiaries as are from
time to time designated by the Administrative Committee (as defined below),
will be eligible to participate in the Plan, as long as that employee is
regularly expected to work at least 20 hours per week for more than five
months per calendar year. However, no person who owns or holds options to
purchase or who, as a result of participation in the Plan, would own or hold
options to purchase 5% or more of the outstanding shares of Common Stock is
entitled to participate in the Plan. As of January 15,
7
<PAGE>
1998, approximately 3,100 employees, including 11 of the Company's executive
officers, would have been eligible to participate in the Plan. Subject to
stockholder approval, the Company will implement the Plan in the U.S. on
February 1, 1998, and presently intends to implement the Plan in other
countries as soon as administratively feasible.
Participation in the Plan is limited to eligible employees who authorize
payroll deductions prior to the start of a Purchase Period. A participating
employee's payroll deductions may not exceed 25% of that employee's
Compensation during any pay period. In addition, no Participant may purchase
shares with a Fair Market Value (determined on the first day of the Purchase
Period) exceeding $25,000 for each calendar year in which the Participant
participates in the Plan.
The Plan is administered by a Plan administrator (the "Plan Administrator")
and a committee (the "Administrative Committee") that are appointed by and
serve at the discretion of the Board. The Plan Administrator will administer
and interpret the Plan. All determinations of the Plan Administrator will be
final and binding on all persons having an interest in the Plan. Under the
Plan, the Administrative Committee is authorized to from time to time
designate which of the Company's non-U.S. subsidiaries will be permitted to
offer participation in the Plan to their respective Eligible Employees, to
decide any questions relating to administration of the Plan referred to the
Administrative Committee by the Plan Administrator and to amend the Plan from
time to time to the same extent such power is granted to the Board.
The Plan authorizes the Board and the Administrative Committee to amend the
Plan from time to time, provided that no such amendment may increase the
number of shares of Common Stock reserved for issuance thereunder without
stockholder approval, except under the circumstances described below
concerning a change in the Company's capital structure. The Board is
authorized to terminate the Plan at any time, provided that no such
termination may suspend or terminate a currently pending Purchase Period or
affect the rights of Participants to purchase shares of Common Stock on the
related Purchase Date.
The Plan provides that in the event of a Corporate Transaction (generally
defined as the sale of all or substantially all of the assets of the Company
or a merger, consolidation or other transaction in which the persons who owned
the Company's voting securities prior to the transaction cease to own a
majority of the voting securities of the surviving or successor corporation or
other legal entity in such transaction), each Participant's right to purchase
shares of Common Stock will be automatically exercised to the extent of the
Participant's accumulated payroll deductions, any additional lump-sum
contribution and credited interest as of a date immediately prior to the
Corporate Transaction.
Up to 1,750,000 shares of Common Stock may be issued under the Plan, subject
to adjustment in the event of a stock dividend, stock split, reverse stock
split, recapitalization, combination, reclassification or similar change in
the Company's capital structure.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Plan and does not attempt to describe all possible federal tax
consequences or any foreign, state, local or other tax consequences of such
participation or tax consequences based on particular circumstances.
Assuming the Plan is qualified under Section 423 of the Code, the grant of
the right to purchase and the purchase of shares of Common Stock under the
Plan are not taxable. All tax consequences are deferred until the Participant
sells or otherwise disposes of shares or dies. However, payroll deductions and
credited interest are taxable as wages subject to applicable withholding taxes
in the year in which such amounts are credited to the Participant's account.
The tax consequences of a disposition of shares vary depending on the time
period such stock is held before its disposition. If a Participant disposes of
shares within two years after the first day of the Purchase Period in which
such shares were acquired (a "disqualifying disposition"), the Participant
recognizes ordinary income in the year of disposition in an amount equal to
the difference between the Fair Market Value
8
<PAGE>
of the shares on the Purchase Date and the purchase price paid for such
shares. Any additional resulting gain or loss recognized by the Participant
from the disposition of the shares is a capital gain or loss. If the
Participant disposes of shares more than two years after the first day of the
Purchase Period in which such shares were acquired, the Participant recognizes
ordinary income in the year of disposition in an amount equal to the lesser of
(i) the difference between the Fair Market Value of the shares on the date of
disposition and the purchase price or (ii) 15% of the Fair Market Value of the
shares on the first day of the Purchase Period in which such shares were
acquired. Any additional gain recognized by the Participant on the disposition
of the shares is a capital gain.
If the Participant disposes of the shares in a disqualifying disposition,
the Company generally is entitled to a federal income tax deduction equal to
the amount of ordinary income recognized by the Participant as a result of the
disposition, except to the extent such deduction is limited by applicable
provisions of the Code. In all other cases, no federal income tax deduction is
allowed the Company. Under generally accepted accounting principles, the
Company should not be required to recognize any compensation expense in
connection with the purchase or sale of shares by Participants pursuant to the
Plan.
BOARD RECOMMENDATION
The Board believes that a vote to approve the Plan is in the best interests
of the Company and its stockholders and unanimously recommends a vote "FOR"
such proposal.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Stock by each director of the Company, each of the Named
Executive Officers (as defined below), the directors and executive officers of
the Company as a group and each person or entity known by the Company to own
5% or more of the outstanding shares of Common Stock. The persons and entities
named in the table have sole voting and investment power with respect to all
shares of Common Stock owned by them, except as otherwise noted.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK OWNED
BENEFICIALLY(1)
------------------------
PERCENT
NAME NUMBER OF CLASS
---- --------- --------
<S> <C> <C>
Sam Wyly......................................... 2,599,195(2)(3) 6.4%
Sterling L. Williams............................. 1,804,156(4) 4.5%
Charles J. Wyly, Jr.............................. 1,900,877(3)(5) 4.8%
Robert J. Donachie............................... 14,100(6) *
Michael C. French................................ 19,550(7) *
Donald R. Miller, Jr............................. 12,500(8) *
Phillip A. Moore................................. 81,456(9) *
Alan W. Steelman................................. 12,500(10) *
Evan A. Wyly..................................... 109,555(11) *
Geno P. Tolari................................... 142,197(12) *
Jeannette P. Meier............................... 106,723(13) *
All current directors and executive officers as a
group (19 persons).............................. 6,730,562(14) 15.5%
Wellington Management Company, LLP............... 2,510,650(15) 6.5%
Alpha Assurances Vie Mutuelle and related
entities, AXA-UAP and-
The Equitable Companies Incorporated............ 3,941,519(16) 10.2%
</TABLE>
- --------
* Less than 1%.
(1) The number of shares shown includes outstanding shares owned by the
person or entity indicated on December 31, 1997 and shares underlying
options owned by such person on December 31, 1997 that were exercisable
within 60 days of such date. Persons holding shares of Common Stock
pursuant to the Savings Plan generally have sole voting power, but not
investment power, with respect to such shares.
(footnotes continued on following page)
9
<PAGE>
(2) Includes 1,800,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan. Also includes 358,353
shares of Common Stock owned by family trusts of which Sam Wyly is
trustee and 438,612 shares of Common Stock (300,000 of which are also
beneficially owned by Charles J. Wyly, Jr.) held of record by two limited
partnerships of which Sam Wyly is a general partner. Also includes 2,230
shares of Common Stock held pursuant to the Savings Plan.
(3) Based on an amended Schedule 13D filed on August 28, 1997 by Sam Wyly,
Charles J. Wyly, Jr. and Maverick Entrepreneurs Fund, Ltd., a Texas
limited partnership, of which Sam Wyly and Charles J. Wyly, Jr. are the
sole general partners. See footnotes (2) and (5). The address of Sam
Wyly, Charles J. Wyly, Jr. and Maverick Entrepreneurs Fund, Ltd. is 300
Crescent Court, Suite 1000, Dallas, Texas 75201.
(4) Includes 1,800,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 156 shares of
Common Stock held pursuant to the Savings Plan.
(5) Includes 900,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan. Also includes 441,699
shares of Common Stock owned by family trusts of which Charles J. Wyly,
Jr. is trustee and 556,574 shares of Common Stock (300,000 of which are
also beneficially owned by Sam Wyly) held of record by two limited
partnerships of which Charles J. Wyly, Jr. is a general partner. Also
includes 2,604 shares of Common Stock held pursuant to the Savings Plan.
(6) Includes 12,500 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 1,000 shares held in a
retirement account directed by Mr. Donachie.
(7) Consists of 18,750 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 800 shares held in
a retirement account directed by Mr. French.
(8) Consists of 12,500 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan.
(9) Includes of 37,500 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan, 5,057 shares of Common
Stock held pursuant to the Savings Plan and 150 shares owned by Mr.
Moore's son.
(10) Consists of 12,500 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan.
(11) Includes 25,000 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 115 shares of Common Stock
held pursuant to the Savings Plan.
(12) Consists of 137,500 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 4,697 shares of
Common Stock held pursuant to the Savings Plan.
(13) Includes 100,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 6,270 shares of
Common Stock held pursuant to the Savings Plan.
(14) Includes 89,850 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 17,481 shares of Common
Stock held pursuant to the Savings Plan, in each case by executive
officers of the Company not named in the table above.
(15) Based on a Schedule 13G filed on February 22, 1997 by Wellington
Management Company, LLP ("Wellington"), Wellington has shared voting
power with respect to 1,247,710 shares and shared dispositive power with
respect to 2,510,650 shares. The address of Wellington is 75 State
Street, Boston, Massachusetts 02109. The information regarding beneficial
ownership of Common Stock by Wellington is included in reliance on a
report filed with the Securities and Exchange Commission (the "SEC") by
Wellington, except that the percentage of Common Stock beneficially owned
is based upon the Company's calculations made in reliance upon the number
of shares of Common Stock reported to be beneficially owned by such
person in such report and the number of shares of Common Stock
outstanding on December 31, 1997.
(16) Based on an amended Schedule 13G filed on December 10, 1997 by Alpha
Assurances Vie Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances
Vie Mutuelle and AXA Courtage Assurance Mutuelle, as a group, AXA-UAP and
The Equitable Companies Incorporated. It was reported that four
subsidiaries of The Equitable Companies Incorporated, The Equitable Life
Assurance Society of the United States, Alliance Capital Management L.P.,
Donaldson, Lufkin & Jenrette Securities Corporation and Wood, Struthers
and Winthrop Management Corp., are deemed to have sole voting power with
respect to 3,507,067 shares, shared voting power with respect to 355,743
shares, sole dispositive power with respect to 3,891,399 shares and
shared dispositive power with respect to 49,620 shares. The address of
Alpha Assurances Vie Mutuelle is 100-101 Terrasse Boieldieu, 92042 Paris
La Defense, France; the address of AXA Assurances I.A.R.D. Mutuelle and
AXA Assurances Vie Mutuelle is 21, rue de Chateaudun, 75009 Paris,
France; the address of AXA Courtage Assurance Mutuelle is 26, rue Louis
le Grand, 75002 Paris, France; the address of AXA-UAP is 23, avenue
Matignon, 75008 Paris, France; and the address of The Equitable Companies
Incorporated is 787 Seventh Avenue, New York, New York 10019. The
information regarding beneficial ownership of Common Stock by this group
is included in reliance on a report filed with the SEC by such parties,
except that the percentage of Common Stock beneficially owned is based
upon the Company's calculations made in reliance upon the number of
shares of Common Stock reported to be beneficially owned by such parties
in such report and the number of shares of Common Stock outstanding on
December 31, 1997.
10
<PAGE>
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid or accrued for services rendered during each of the Company's last three
fiscal years to the Company's Chief Executive Officer and each of the other
four most highly compensated executive officers of the Company and its
subsidiaries (collectively, the "Named Executive Officers") based on salary
and bonus earned during fiscal 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY(2) BONUS(2) COMPENSATION(3) OPTIONS(4) COMPENSATION
--------------------------- ------- ---------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams........ 1997 $ 650,000 $250,000 $ 35,868(5) 1,800,000 $ 42,252(6)
President, Chief Executive 1996 900,000 500,000 48,499(5) 3,750,000 41,297
Officer and Director 1995 750,000 450,000 168,833(7) 650,000 36,492
Sam Wyly.................... 1997 1,000,000(8) 500,000 53,363(5) 1,800,000 182,691(9)
Chairman of the 1996 971,000(8) 500,000 100,115(5) 3,000,000 110,177
Board and Director 1995 850,000(8) 450,000 44,417(5) 1,466,666 126,002
Charles J. Wyly, Jr......... 1997 500,000(10) 250,000 29,249(5) 900,000 49,669(11)
Vice Chairman of the 1996 496,000(10) 250,000 69,730(5) 1,600,000 59,292
Board and Director 1995 425,000(10) 225,000 66,738(12) 733,334 62,345
Geno P. Tolari.............. 1997 435,000 215,000 3,301(5) 600,000 9,121(14)
Executive Vice President 1996 386,000 149,338 137,050(13) 0 12,748
and Chief Operating Officer 1995 318,000 183,779 90,908(13) 47,500 4,673
Jeannette P. Meier.......... 1997 300,000 150,000 104,930(15) 500,000 4,946(16)
Executive Vice President, 1996 422,000 250,000 144,917(15) 550,000 6,031
Finance and Administration 1995 340,000 140,000 69,598(15) 125,000 7,860
</TABLE>
- --------
(1) In accordance with SEC regulations, amounts for fiscal 1996 include
compensation paid to certain of the Named Executive Officers by both the
Company and Sterling Commerce, a former wholly owned subsidiary of the
Company. Sterling Commerce completed an initial public offering of 18.4%
of its shares in March 1996, and in September 1996 Sterling Software
completed the tax-free spin-off of its remaining 81.6% ownership of
Sterling Commerce.
(2) Reflects salary and bonus earned during the fiscal year. In some
instances, the payment of all or a portion of salary or bonus was
deferred by the Named Executive Officer to a subsequent year.
(3) Excludes perquisites and other personal benefits if the aggregate amount
of such compensation is less than the lesser of $50,000 or 10% of the
total annual salary and bonus reported for such Named Executive Officer.
(4) For fiscal 1997 and fiscal 1995, reflects options to purchase Common
Stock. For fiscal 1996, reflects options to purchase both Common Stock
and common stock of Sterling Commerce ("Commerce Stock") as follows:
Sterling L. Williams, 750,000 shares of Common Stock and 3,000,000 shares
of Commerce Stock; Sam Wyly, 3,000,000 shares of Commerce Stock; Charles
J. Wyly, Jr., 1,600,000 shares of Commerce Stock; and Jeannette P. Meier,
50,000 shares of Common Stock and 500,000 shares of Commerce Stock.
Neither the Company nor Sterling Commerce has granted stock appreciation
rights.
(5) Consists of reimbursements for the payment of taxes.
(6) Consists of $4,500 in Company contributions to the Savings Plan and
$37,752 in respect of premiums on life insurance policies for Mr.
Williams' benefit.
(7) Includes a $47,897 reimbursement for medical expenses, a $44,222 housing
allowance bonus and a $55,541 reimbursement for the payment of taxes.
(8) Includes director's fees of $500,000, $475,000 and $425,000 paid to Sam
Wyly in fiscal 1997, 1996 and 1995, respectively, for his services as
Chairman of the Board of the Company, and $21,000 paid to Sam Wyly in
fiscal 1996 for his services as a director of Sterling Commerce.
(9) Consists of $4,500 in Company contributions to the Savings Plan, $20,358
in respect of premiums on a life insurance policy for Mr. Wyly's benefit
and $157,833 representing compensation deemed received by Mr. Wyly as a
result of insurance policy premiums paid by the Company pursuant to a
split dollar insurance agreement (which dollar amount was determined
based on an actuarial computation in accordance with SEC regulations).
(footnotes continued on following page)
11
<PAGE>
(10) Includes director's fees of $250,000, $237,500 and $212,500 paid to
Charles J. Wyly, Jr. in fiscal 1997, 1996 and 1995, respectively, for his
services as Vice Chairman of the Board of the Company and $21,000 paid to
Charles J. Wyly, Jr. in fiscal 1996 for his services as a director of
Sterling Commerce.
(11) Consists of $4,500 in Company contributions to the Savings Plan and
$45,169 in respect of premiums on life insurance policies for Mr. Wyly's
benefit.
(12) Includes $43,046 for costs related to Mr. Wyly's use of a Company-
provided automobile and a $14,626 reimbursement for the payment of taxes.
(13) For fiscal 1996, includes a $64,732 reimbursement for the payment of
taxes and $41,417 in the form of incentive travel; for fiscal 1995,
includes a $73,587 reimbursement for relocation expenses.
(14) Consists of $1,676 in Company contributions to the Savings Plan and
$7,445 in respect of premiums on a life insurance policy for Mr. Tolari's
benefit.
(15) For fiscal 1997, includes a $44,305 reimbursement for the payment of
taxes, $23,127 for costs related to Ms. Meier's use of a Company-provided
automobile and an $18,944 reimbursement for medical expenses; for fiscal
1996, includes a $34,937 reimbursement for professional expenses, a
$33,703 reimbursement for the payment of taxes and $34,489 in the form of
incentive travel; and for fiscal 1995, includes a $10,871 reimbursement
for the payment of taxes and $30,012 in the form of incentive travel.
(16) Consists of $3,100 in Company contributions to the Savings Plan and
$1,845 in respect of premiums on a life insurance policy for Ms. Meier's
benefit.
OPTION GRANTS IN FISCAL 1997
The following table provides information related to options to purchase
Common Stock granted to the Named Executive Officers during fiscal 1997. The
Company has not granted stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS(1) TERM(3)
------------------------------------------------- -----------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES IN PER
NAME GRANTED FISCAL 1997 SHARE(2) EXPIRATION DATE 5% 10%
- ---- ---------- ------------- -------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sterling Williams....... 1,600,000 16.75% $28.25 October 8, 2006 $28,426,037 $72,037,159
200,000 2.09 27.25 March 31, 2007 3,427,476 8,685,896
Sam Wyly................ 1,600,000 16.75 28.25 October 8, 2006 28,426,037 72,037,159
200,000 2.09 27.25 March 31, 2007 3,427,476 8,685,896
Charles J. Wyly, Jr..... 800,000 8.38 28.25 October 8, 2006 14,213,019 36,018,580
100,000 1.05 27.25 March 31, 2007 1,713,738 4,342,948
Geno P. Tolari.......... 550,000 5.76 28.25 October 8, 2006 9,771,450 24,762,773
50,000 0.52 27.25 March 31, 2007 856,869 2,171,474
Jeannette P. Meier...... 400,000 4.19 28.25 October 8, 2006 7,106,509 18,009,290
100,000 1.05 27.25 March 31, 2007 1,713,738 4,342,948
</TABLE>
- --------
(1) The agreements underlying such options (the "Option Agreements") provide
that the options are immediately exercisable in the case of Mr. Williams,
are exercisable 90 days after the date of grant in the case of Messrs. Sam
Wyly and Charles J. Wyly, Jr., and vest 25% each year on the anniversary
of the grant date in the case of Mr. Tolari and Ms. Meier. All such
options have a ten-year term and are transferable by the option holder.
(2) The Option Agreements provide that the option exercise price may be paid
in cash, in shares of Common Stock owned by the Named Executive Officer or
in a combination of the foregoing.
(3) The potential realizable value columns of the table above illustrate the
value that might be realized upon exercise of the options immediately
prior to the expiration of their terms, assuming the specified compounded
rates of appreciation of the price of the Common Stock over the terms of
the options. These amounts do not take into account provisions of certain
options providing for termination of the options following termination of
employment or vesting over periods of up to four years. The use of the
assumed 5% and 10% returns is established by the SEC and is not intended
by the Company to forecast possible future appreciation of the price of
the Common Stock.
12
<PAGE>
OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options to purchase
Common Stock exercised by the Named Executive Officers during fiscal 1997 and
the number and value of such options held at September 30, 1997, the last day
of fiscal 1997. The Company does not have any outstanding stock appreciation
rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED SEPTEMBER 30, 1997 SEPTEMBER 30, 1997(1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams.... 0 0 1,800,000 0 $13,925,000 $ 0
Sam Wyly................ 0 0 1,800,000 0 13,925,000 0
Charles J. Wyly, Jr..... 0 0 900,000 0 6,962,500 0
Geno P. Tolari.......... 0 0 137,500 462,500 1,048,438 3,576,563
Jeannette P. Meier...... 0 0 100,000 400,000 762,500 3,150,000
</TABLE>
- --------
(1) The closing price of the Common Stock as reported by the NYSE on September
30, 1997 was $35.875. In accordance with SEC regulations, value is
calculated based on the difference between the option exercise price and
$35.875, multiplied by the number of shares of Common Stock underlying the
options.
CHANGE-IN-CONTROL AND SEVERANCE AGREEMENTS
The Company has entered into an agreement (a "Change-in-Control Agreement")
with each of the Named Executive Officers and certain of its other officers.
Each Change-in-Control Agreement provides for certain payments and benefits
upon the termination of the employment of such person with the Company
following a Change in Control (as defined in such agreement). Each Change-in-
Control Agreement covers termination within a specified number of years after
the date of a Change in Control and requires the Company to pay to such
officer, if prior to the expiration of such period his or her employment is
terminated with or without cause by the Company (other than upon such
officer's death) or by such officer upon the occurrence of certain
constructive termination events, a lump-sum amount equal to a multiple of such
officer's annual salary, bonus and cash incentive compensation preceding such
termination and to continue certain benefits for a specified number of months.
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 any excise tax imposed by the Code on such
payments. The specified number of years, the multiple and the specified number
of months referred to above are five, 500% and 60, in the case of Mr.
Williams; seven, 700% and 84, in the case of each of Messrs. Sam Wyly and
Charles J. Wyly, Jr.; and four, 400% and 48, in the case of each of Mr. Tolari
and Ms. Meier.
The Company has also entered into an agreement (the "CEO Agreement") with
Sterling L. Williams, providing for a minimum base salary (subject to mutually
agreeable annual increases) and certain benefits plus such bonuses and other
benefits which the Company and Mr. Williams may agree upon. Mr. Williams' base
salary for fiscal 1998 is $650,000, the same as for fiscal 1997. Under the
terms of the CEO Agreement, upon the termination of Mr. Williams' employment
by (i) the Company (with or without cause) or (ii) Mr. Williams as a result of
a reduction in his compensation or of the nature or scope of his authority or
duties, the CEO Agreement will convert into a five-year consulting agreement.
In such event, Mr. Williams would be entitled to continue receiving
compensation and certain benefits at the levels specified in the CEO
Agreement. Prior to the expiration of its five-year term, the consulting
agreement could be terminated by Mr. Williams at any time and by the Company
at Mr. Williams' death. In the event of termination of Mr. Williams'
employment following a Change in Control, at Mr. Williams' option, the terms
of his Change-in-Control Agreement may govern such termination in lieu of the
conversion of the CEO Agreement into a consulting agreement. In the event of a
Change in Control following conversion of the CEO Agreement into a consulting
agreement, Mr. Williams would have the option of terminating the consulting
agreement and would be entitled to receive a lump-sum amount equal to all
13
<PAGE>
compensation due through the unexpired portion of the five-year consulting
agreement. In addition, the CEO Agreement provides that, in the event that Mr.
Williams' employment with Sterling Commerce is terminated (with or without
cause) and Mr. Williams is willing and able to devote his full-time efforts to
the Company, the Company will offer to increase his compensation and benefits
paid by the Company to a level reasonably equivalent to the combined
compensation and benefits he is entitled to receive from both the Company and
Sterling Commerce immediately prior to such termination. Mr. Williams has a
similar agreement with Sterling Commerce. If Mr. Williams' employment with the
Company is terminated and he accepts full-time employment with Sterling
Commerce, Mr. Williams' rights to compensation and benefits from the Company
under the CEO Agreement and his right to convert the CEO Agreement into a
consulting agreement would terminate.
The Company has entered into an agreement (a "Severance Agreement") with
each of Mr. Tolari, Ms. Meier and certain of its other officers (other than
Messrs. Sterling L. Williams, Sam Wyly and Charles J. Wyly, Jr.), providing
for the continued compensation of such officer in the event that the Company
terminates his or her employment, with or without cause. Each Severance
Agreement expires a specified number of years after the date on which notice
of termination is given to him or her by the Company and requires the Company
to continue to pay such officer, upon his or her termination from employment
by the Company, for a specified number of months, the salary, bonus and
certain benefits in effect prior to the termination of his or her employment.
The specified number of years and months referred to above are four and 48 for
each of Mr. Tolari and Ms. Meier. In the event of a termination of employment
following a Change in Control, at the officer's option, the terms of his or
her Change-in-Control Agreement may govern such termination in lieu of the
terms of his or her Severance Agreement. In addition, Ms. Meier's Severance
Agreement provides that, in the event that her employment with Sterling
Commerce is terminated (with or without cause) and she is willing and able to
devote her full-time efforts to the Company, the Company will offer to
increase her compensation and benefits paid by the Company to a level
reasonably equivalent to the combined compensation and benefits she is
entitled to receive from both the Company and Sterling Commerce immediately
prior to such termination. Ms. Meier has a similar agreement with Sterling
Commerce. If her employment with the Company is terminated and she accepts
full-time employment with Sterling Commerce, her rights to compensation and
benefits from the Company under the Severance Agreement would terminate.
In addition to the above-described agreements, the Company has agreed to
reimburse each of Mr. Williams, Mr. Tolari and Ms. Meier for certain legal,
financial and other professional services.
SERP II
In connection with its acquisition of Informatics General Corporation
("Informatics") in 1985, the Company retained the Informatics Supplemental
Executive Retirement Plan II ("SERP II"). As of January 15, 1998, Geno P.
Tolari had accrued approximately 27 years of service under SERP II. None of
the other Named Executive Officers participates in SERP II. The annual benefit
payable upon retirement at age 65 or above under SERP II is equal to the
lesser of the following amounts: (i) 2% of the participant's "final average
pay," which is equal to the highest average of the participant's base salary
plus the participant's bonuses (up to a maximum bonus amount not to exceed 50%
of the participant's base salary) over three consecutive years of service,
multiplied by the participant's years of service and (ii) 50% of the
participant's final average pay less the annuity equivalent of the
participant's account balance under the Sterling Software, Inc. Subsidiary
Retirement Plan (a former Informatics plan) as of June 30, 1987 (plus
interest) and the annuity equivalent of the assumed Company matching
contribution under the Savings Plan thereafter, plus interest (collectively,
the "annuity offset"). Benefits paid under SERP II 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 compared to
the Consumer Price Index for the next preceding calendar year exceeds 5%.
Amounts paid under SERP II are taxable as income. SERP II is not funded and
benefits are paid as they become due. Benefits under SERP II are paid in the
form of a joint and 50% survivor annuity.
14
<PAGE>
The following table shows the estimated annual benefits payable upon the
retirement at age 65 to the participants in SERP II 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, the amount of
which depends on the pay history of the participant and the return on amounts
held in the Savings Plan.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
500,000..................... $150,000 $200,000 $250,000 $250,000 $250,000
600,000..................... 180,000 240,000 300,000 300,000 300,000
700,000..................... 210,000 280,000 350,000 350,000 350,000
800,000..................... 240,000 320,000 400,000 400,000 400,000
</TABLE>
REPORT OF THE EXECUTIVE AND OPTION COMMITTEES ON EXECUTIVE COMPENSATION
Overview and Philosophy. The Company is engaged in an industry in which
executives and key employees are the principal productive assets. The Company
faces an intensely competitive market for such persons. In order to succeed,
the Company believes that it must be able to attract and retain qualified
executives. To achieve this objective, the Company believes that its executive
compensation policies must include two essential components:
. a cash compensation arrangement, comprised principally of annual base
compensation and bonuses based on operating performance, and
. an equity compensation arrangement, comprised principally of stock option
awards that provide rewards for increases in the value of the Common
Stock.
The Board believes that, in the long run, the Company's executive
compensation policies should attempt to ensure that its executives and other
key employees are compensated at levels that, through a combination of
generous cash- and equity-based compensation components, effectively preempt
competitive offers. The Executive Committee and the Stock Option Committees
are charged with the responsibility for carrying out this executive
compensation philosophy in individual compensation decisions.
During fiscal 1997, the members of the Executive Committee had primary
responsibility for determining executive cash compensation levels. The
Executive Committee, as part of its review and consideration of executive cash
compensation, took into account, among other things, the following goals:
. providing incentives and rewards to attract and retain highly qualified
and productive people,
. motivating employees to high levels of performance,
. differentiating individual executives' pay based on performance,
. preempting external competitive offers, and
. ensuring internal equity.
To achieve these goals, the Company's executive compensation policies
integrate annual base compensation with cash bonuses based on operating
performance with a particular emphasis on attainment of planned objectives,
and on individual initiatives and performance.
During fiscal 1997, the members of the Option Committees had primary
responsibility for determining awards of stock options as part of executive
compensation. The Option Committees, as part of their review and consideration
of awards of stock options, took into account, among other things, the same
goals as the Executive Committee in awarding cash compensation and the
additional goal of directly aligning the interests of executives with the
interests of the Company and its stockholders by ensuring that executives have
a direct and continuing stake in the long-term success of the Company. When
granting stock options, the Option Committees evaluate a number of criteria,
including the recipient's level of cash compensation, years of service with
the Company,
15
<PAGE>
position with the Company, the number of unexercised options held by the
recipient and other factors. The Option Committees have not established
formulas to assign specific weights to any of these factors when making their
determinations.
The Option Committees believe that the grant of stock options aligns
executive and stockholder long-term interests by creating a strong and direct
link between executive compensation and stockholder returns and enables
executives to develop and maintain a significant interest in the long-term
growth and profitability of the Company.
Chief Executive Officer's Compensation for Fiscal 1997. In fiscal 1997,
Sterling L. Williams, the Company's Chief Executive Officer, was compensated
in accordance with the CEO Agreement described above. This agreement provides
for an annual base salary and certain benefits plus such bonuses or other
benefits on which the Company and Mr. Williams agree. Mr. Williams' annual
base salary was established at $650,000 for fiscal 1997. Because there was no
pre-established formula for determining Mr. Williams' bonus for fiscal 1997,
the Executive Committee exercised its judgment in awarding Mr. Williams'
fiscal 1997 bonus of $250,000. The Company's fiscal 1997 results reflected
record revenue and profit performance. Revenue increased 11% in fiscal 1997
over fiscal 1996, and earnings per share from continuing operations increased
4% in fiscal 1997 over fiscal 1996 (before one-time charges and associated tax
benefits relating primarily to the Company's acquisition of the software
division of Texas Instruments Incorporated ("TI Software"), and to a lesser
extent, the early termination of the Company's International Distributor
Agreement with Sterling Commerce). In addition, the Executive Committee took
into account Mr. Williams' key role in the Company's successful acquisition of
TI Software, the Company's largest acquisition to date, and the related
reorganization of the Company's operating groups. Based on these factors, the
Executive Committee concluded that Mr. Williams' outstanding performance for
the Company merited his bonus award. Mr. Williams was also granted stock
options in fiscal 1997 to purchase 1,800,000 shares of the Company's Common
Stock. See "--Option Grants in Fiscal 1997."
Compensation of Other Executive Officers. Compensation of the Company's
other executive officers is comprised of base salary, annual cash incentive
compensation, long-term incentive compensation in the form of stock options
and various benefits. Each element has a somewhat different purpose and all of
the determinations of the Executive Committee and Option Committees regarding
the appropriate form and level of executive compensation were ultimately
judgments based on such Committees' ongoing assessment and understanding of
the computer software and services industry, the Company and the Company's
executive officers. In determining salaries for executive officers, the
Executive Committee considers the individual experience and performance of the
Company's executive officers, as well as the Company's operating performance
and the attainment of financial and strategic objectives. In establishing
bonuses and other incentive compensation awards for fiscal 1997, the Executive
Committee and the Option Committees took into consideration the same types of
factors (such as revenue, earnings per share and the acquisition of TI
Software and the related reorganization of the Company's operating groups) as
were considered with respect to the Chief Executive Officer.
In addition, the Company had a cash compensation plan for fiscal 1997 for
the presidents of its operating groups (the "Group Presidents Plan"), which
was based on operating profits. All group presidents were eligible to
participate in the Group Presidents Plan and, pursuant to such Plan, each
received a salary as well as a bonus calculated as a percentage of the
operating profits for each of their respective groups. No group president was
eligible for a bonus, however, unless his or her group met certain minimum
operating profit performance criteria. Insofar as the Group Presidents Plan
did not constitute an employment agreement, a participant's employment or
participation in this Plan could be terminated by the Company's Chief
Operating Officer at any time.
In August 1993, as part of the Omnibus Budget Reconciliation Act of 1993,
Section 162(m) of the Code was enacted, which provides for an annual
$1,000,000 limitation on the deduction that an employer may claim for
compensation of certain executives. Section 162(m) of the Code provides
exceptions to the deduction limitation, and it is the intent of the Executive
Committee and the Option Committees to qualify for such exceptions to the
extent feasible and in the best interests of the Company.
16
<PAGE>
This report is submitted by the members of the Executive Committee and the
Option Committees:
<TABLE>
<CAPTION>
1996 STOCK OPTION 1996 SPECIAL STOCK
EXECUTIVE COMMITTEE COMMITTEE OPTION COMMITTEE
------------------- ----------------- ------------------
<S> <C> <C>
Sam Wyly Sam Wyly Robert J. Donachie
Charles J. Wyly, Jr. Charles J. Wyly, Jr. Donald R. Miller, Jr.
Sterling L. Williams Sterling L. Williams
</TABLE>
EXECUTIVE AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the members of the Executive Committee were primarily
responsible for determining executive compensation, and the members of the
Option Committees made decisions related to stock option grants to executive
officers. The following directors, who also are members of the Executive
Committee, 1996 Stock Option Committee and/or 1996 Special Stock Option
Committee, participated in meetings with respect to executive officer
compensation matters: Sam Wyly, Charles J. Wyly, Jr., Sterling L. Williams,
Robert J. Donachie and Donald R. Miller, Jr. Each of Sam Wyly, Charles J.
Wyly, Jr. and Sterling L. Williams is an executive officer of the Company.
Sam Wyly and Charles J. Wyly, Jr. are executive officers of both the Company
and Michaels Stores and are members of the executive committees, the stock
option committees and the boards of directors of the Company, Sterling
Commerce and Michaels Stores. Sam Wyly and Charles J. Wyly, Jr. are also
members of the compensation committee of the Michaels Stores' Board of
Directors. Sterling L. Williams is an executive officer and a member of the
executive and stock option committees of both the Company and Sterling
Commerce. Accordingly, Sam Wyly and Charles J. Wyly, Jr. have participated in
decisions related to compensation of executive officers of each of the
Company, Sterling Commerce and Michaels Stores and Sterling Williams has
participated in decisions related to compensation of executive officers of
each of the Company and Sterling Commerce. Donald R. Miller, Jr., a director
and a member of the 1996 Special Stock Option Committee of the Company, is
also an officer and a director of Michaels Stores. Evan A. Wyly, an executive
officer and a director of the Company, is also an executive officer and a
director of Michaels Stores and a director of Sterling Commerce. See "Certain
Transactions."
17
<PAGE>
STOCK PERFORMANCE CHART
The following chart compares the yearly percentage change in the cumulative
total stockholder return on the Common Stock during the five fiscal years
ended September 30, 1997 with the cumulative total return on the S&P 500 Index
and the S&P Computer Software and Services Index. The comparison assumes $100
was invested on September 30, 1992 in Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends. Dividends include the
then fair market value of the special dividend paid by the Company on
September 30, 1996, consisting of 1.5926 shares of common stock of Sterling
Commerce for each share of the Company's Common Stock then outstanding.
[PERFORMANCE CHART APPEARS HERE]
<TABLE>
<CAPTION>
9/92 9/93 9/94 9/95 9/96 9/97
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sterling Software, Inc............................ 100 142 184 270 453 558
S&P 500 Index..................................... 100 113 117 152 183 257
S&P Computers (Software and Services) Index....... 100 133 158 230 334 549
</TABLE>
18
<PAGE>
CERTAIN TRANSACTIONS
In anticipation of Sterling Commerce's initial public offering in March
1996, the Company and Sterling Commerce entered into various agreements (the
"Intercompany Agreements"), including an International Distributor Agreement
pursuant to which the Company acted as the exclusive distributor of certain
Sterling Commerce products outside the United States and Canada. The
Intercompany Agreements are further described in the Company's Annual Report
on Form 10-K, which accompanies this Proxy Statement. The International
Distributor Agreement provided for the payment of royalties to Sterling
Commerce equal to 50% of the revenue that the Company derived from licenses of
Sterling Commerce's interchange and communications software products and
related product support services. In fiscal 1997, the Company paid aggregate
royalties of approximately $21,500,000 to Sterling Commerce under the
International Distributor Agreement. Effective as of June 30, 1997, the
Company and Sterling Commerce entered into an agreement terminating the
International Distributor Agreement. Contemporaneously with such termination,
the Company sold to Sterling Commerce certain of the assets formerly used by
the Company in connection with the distribution of Sterling Commerce's
products outside the United States and Canada. In addition, the Company and
Sterling Commerce entered into certain short-term transitional arrangements
relating to the facilities sharing and administrative and other services. In
consideration of the termination of the International Distributor Agreement
and the sale of assets described above, Sterling Commerce (i) paid to the
Company $5,226,000 on June 30, 1997, (ii) subsequently paid to the Company
$10,076,000, which was equal to the net book value of the acquired assets, and
(iii) assumed certain liabilities of the Company.
As a result of various transactions between the Company and Sterling
Commerce, including royalties due to Sterling Commerce under the International
Distributor Agreement as well as tax and other expenses charged to Sterling
Commerce under the other Intercompany Agreements, amounts payable to and
receivable from Sterling Commerce arise from time to time. At September 30,
1996, amounts due to Sterling Commerce totaled $35,134,000, which were
remitted to Sterling Commerce by the Company during fiscal 1997.
The Company remains the guarantor of certain office lease and other
obligations of Sterling Commerce incurred pursuant to agreements entered into
prior to the spin-off of Sterling Commerce. The aggregate amount due over the
remaining terms of the agreements guaranteed by the Company is approximately
$33,000,000. Sterling Commerce is obligated to indemnify the Company for any
liabilities incurred by the Company as guarantor of such obligations, and
Sterling Commerce has agreed to use reasonable efforts to promptly obtain the
Company's release from its obligations under the related guaranties. The
Company did not make any payments with respect to such guaranties during
fiscal 1997.
In connection with Geno P. Tolari's promotion as the Company's Executive
Vice President and Chief Operating Officer and his relocation to the Company's
headquarters in Dallas, Texas, in December 1996, the Company purchased for
resale his home in Reston, Virginia for $965,000. The purchase price was based
on independent third-party appraisals. Further, during fiscal 1997, Mr. Tolari
received unsecured, non-interest bearing advances from the Company. The
largest amount of indebtedness outstanding since the beginning of fiscal 1997
was $168,234. As of January 15, 1998, no advances remained outstanding.
Since the beginning of fiscal 1997, the Company has made payments totaling
$316,423 to Intelecon Services, Inc. ("Intelecon") for providing audio and
visual aids and other related services at prevailing rates at customer
conferences, trade shows, user group meetings and other corporate meetings.
Laurie and David Matthews, the daughter and son-in-law of Sam Wyly, jointly
hold approximately 40% of the outstanding capital stock of Intelecon. David
Matthews is also an officer and a director of Intelecon.
Pursuant to a consulting arrangement with the Company, Michael C. French, a
director of the Company, received from the Company a non-refundable retainer
of $17,500 per month during fiscal 1997 for his assistance in significant
acquisitions and other Company-related matters. Since January 15, 1996, Mr.
French has received $1,000 per month as an employee of the Company, which
amount is deducted from amounts paid to him as a retainer. Jones, Day, Reavis
& Pogue, a law firm for which Mr. French is currently a consultant, provides
legal
19
<PAGE>
services to the Company. Such firm does not charge the Company for any time
spent by Mr. French on Company-related matters.
Pursuant to the terms of a merger agreement between the Company and
KnowledgeWare, Inc., in December 1994 the Company entered into a Consultation
Agreement pursuant to which Fran Tarkenton received a monthly fee of $25,000
during the three-year period that expired on November 30, 1997. In
consideration for such fee, Mr. Tarkenton served in an advisory capacity to
the President of the Company. In addition, Mr. Tarkenton received secretarial
assistance and an allowance of $3,000 per month for office and other expenses
relating to the performance of his duties under the Consultation Agreement.
During the three-year term, Mr. Tarkenton also received $10,000 per year as an
employee of the Company in order to meet certain obligations to Mr. Tarkenton
in effect prior to the Company's acquisition of KnowledgeWare, Inc., which
amount was deducted from amounts paid to him under the Consultation Agreement.
Effective December 1, 1996, the Company subleased certain office space to two
companies affiliated with Mr. Tarkenton. The sublease provides for monthly
payments to the Company of $7,018 through December 1998. Mr. Tarkenton served
as a director of the Company until the expiration of his term in February
1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of the Company's outstanding Common Stock, to
file initial reports of ownership and reports of changes in ownership with the
SEC and the NYSE. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) reports they file.
Based solely on its review of such reports received by the Company with
respect to fiscal 1997, or written representations from certain reporting
persons, the Company believes that all reports required to be filed under
Section 16(a) have been filed by such persons.
INDEPENDENT AUDITORS
The Board has selected Ernst & Young LLP as independent auditors to examine
the Company's accounts for fiscal 1998. Representatives of Ernst & Young LLP
are expected to be present at the Meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for stockholder
action at subsequent annual meetings of the Company consistent with Rule 14a-8
promulgated under the Exchange Act. For such proposals to be considered for
inclusion in the Proxy Statement and proxy relating to the 1999 Annual Meeting
of Stockholders, such proposals must be received by the Company no later than
October 5, 1998. Such proposals should be directed to Sterling Software, Inc.,
Attention: Secretary, at 300 Crescent Court, Suite 1200, Dallas, Texas 75201.
OTHER MATTERS
The Board knows of no matters other than those described herein that will be
presented for consideration at the Meeting. However, should any other matters
properly come before the Meeting or any adjournment thereof, it is the
intention of the persons named in the accompanying proxy to vote in accordance
with their best judgment in the interests of the Company.
20
<PAGE>
MISCELLANEOUS
All costs incurred in the solicitation of proxies will be borne by the
Company. In addition to the solicitation by mail, officers and employees of
the Company may solicit proxies by mail, telephone or in person, without
additional compensation. The Company may also make arrangements with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation materials to the beneficial owners of Common Stock held of record
by such persons, and the Company may reimburse such brokerage houses and other
custodians, nominees and fiduciaries for their out-of-pocket expenses incurred
in connection therewith. In addition, Georgeson & Company has been retained by
the Company to assist in the solicitation of proxies and will solicit proxies
by mail, telephone or in person and may request brokerage houses and nominees
to forward soliciting material to beneficial owners of Common Stock. For these
services, Georgeson & Company will be paid $10,000, plus expenses.
The Company's Annual Report on Form 10-K with respect to the fiscal year
ended September 30, 1997, which includes the Company's audited financial
statements, accompanies this Proxy Statement.
ADDITIONAL COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K WILL BE
FURNISHED AT NO CHARGE TO EACH PERSON TO WHOM A PROXY STATEMENT IS DELIVERED
UPON RECEIPT OF A WRITTEN OR ORAL REQUEST OF SUCH PERSON ADDRESSED TO STERLING
SOFTWARE, INC., ATTN: INVESTOR RELATIONS, 300 CRESCENT COURT, SUITE 1200,
DALLAS, TEXAS 75201 (TELEPHONE: (214) 981-1000).
By Order of the Board of Directors
Jeannette P. Meier
Secretary
Dallas, Texas
February 2, 1998
21
<PAGE>
ANNEX I
STERLING SOFTWARE, INC.
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests of
Sterling Software, Inc. and certain of its subsidiaries by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Company through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan Administrator shall administer the Plan and shall have full
authority and discretion to interpret and construe any provision of the Plan
and to adopt such rules and regulations for administering the Plan as it may
deem necessary, and to take any action it may deem necessary in order to
comply with the requirements of Section 423 of the Code. Decisions of the Plan
Administrator and the Administrative Committee described in paragraph B. below
shall be final and binding on all parties having an interest in the Plan. The
Plan Administrator shall have full authority and discretion to retain and
engage such third party firms (including, without limitation, brokerage and
record keeping firms) as it shall from time to time deem advisable or
appropriate.
B. The Administrative Committee for the Plan shall have the full authority
and discretion to designate Corporate Affiliates (other than domestic
subsidiaries of the Company) as Participating Companies from time to time and
to terminate any such designation; to decide any questions relating to the
administration of the Plan that are referred to the Administrative Committee
by the Plan Administrator; and to amend the Plan as provided in Section X.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized but
unissued Common Stock or shares of Common Stock held in the Company's
treasury. The maximum number of shares of Common Stock which may be issued
over the term of the Plan shall not exceed 1,750,000 shares.
B. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration, appropriate adjustments shall
be made to (i) the maximum number and class of securities issuable under the
Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. PURCHASE PERIODS
Shares of Common Stock shall be offered for purchase under the Plan through
a series of successive Purchase Periods until such time as (i) the maximum
number of shares of Common Stock available for issuance under the Plan shall
have been purchased or (ii) the Plan shall have been sooner terminated.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the Effective Date shall
be eligible to participate in the Plan on the first day of any Purchase Period
under the Plan, provided such individual remains an Eligible
I-1
<PAGE>
Employee on such day. Until the Administrative Committee designates one or
more foreign subsidiaries of the Company as a Participating Company,
eligibility to participate in the Plan shall be limited to Eligible Employees
employed by the Company or by a U.S. subsidiary of the Company.
B. Each individual who becomes an Eligible Employee after the Effective
Date shall be eligible to participate in the Plan on the first day of any
Purchase Period commencing thereafter, provided such individual remains an
Eligible Employee on such day.
C. To participate in the Plan for a particular Purchase Period, an Eligible
Employee must complete the enrollment forms prescribed by the Plan
Administrator and file such forms with the Plan Administrator (or its
designee) before the first day of such Purchase Period. An Eligible Employee's
enrollment in the Plan for a Purchase Period will remain in effect for all
subsequent Purchase Periods until modified or terminated by the Eligible
Employee or until he or she no longer qualifies as an Eligible Employee.
VI. PAYROLL DEDUCTIONS; ADDITIONAL CONTRIBUTIONS; SHORTFALL CONTRIBUTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any whole multiple of
one percent (1%) of the Eligible Compensation paid to the Participant during
each Purchase Period, up to a maximum of twenty-five percent (25%). The
deduction rate so authorized shall continue in effect for the entire Purchase
Period. The Participant may not increase his or her rate of payroll deduction
during a Purchase Period. However, the Participant may, at any time prior to
the tenth (10th) Business Day immediately preceding the Purchase Date for the
Purchase Period, reduce his or her rate of payroll deduction to any whole
percentage or to zero, such reduction to become effective prospectively as
soon as administratively feasible after filing the appropriate form with the
Plan Administrator. The Participant may not, however, effect more than one (1)
such reduction per Purchase Period. If a Participant reduces his or her
payroll deductions to zero, the Participant's previous payroll deductions for
the Purchase Period will still be applied to the purchase of shares of Common
Stock on the Purchase Date, unless the Participant elects to terminate his or
her purchase rights for the Purchase Period in accordance with Section VII.E.
B. Payroll deductions shall begin on the first pay day of each Purchase
Period and shall (unless sooner terminated) continue through the pay day
ending on or immediately prior to the last day of the Purchase Period. The
amounts so collected shall be credited to the Participant's Account under the
Plan. Except as otherwise provided in paragraph D below, Interest shall accrue
and be credited on each pay day in the Purchase Period on the amount of the
Participant's Account balance that has been credited to the Participant's
Account during the entire pay period ending on such pay day. No Interest will
accrue or be credited on any amount that is credited to the Participant's
Account for any period that is less than a full pay period. Payroll deduction
amounts, Additional Contribution amounts and credited Interest need not be
held in any segregated account or trust fund and may be commingled with the
general assets of the Company and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of the
Participant's purchase right in accordance with the provisions of the Plan.
D. In addition to payroll deductions, a Participant may make one Additional
Contribution to the Plan during each Purchase Period. An Additional
Contribution may be made in cash, by personal check or in any other form
permitted from time to time by the Plan Administrator. All Additional
Contributions will be credited to the Participant's Account and will be
credited with Interest. Such Interest will accrue and be credited to the
Participant's Account in the same manner as Interest is accrued and credited
to the Participant's Account under paragraph B of this Section. An Eligible
Employee who has not authorized payroll deductions, or who has terminated
payroll deductions, for a Purchase Period may not thereafter make an
Additional Contribution to the Plan for such Purchase Period.
I-2
<PAGE>
E. A Participant whose net pay after all deductions therefrom on any given
pay day is not sufficient to fund the payroll deduction authorized by the
Participant for a Purchase Period shall be permitted to fund any such
shortfall by contributing the amount thereof to the Plan in cash, by personal
check or in any other form permitted from time to time by the Plan
Administrator ("Shortfall Contributions"). Shortfall Contributions must be
contributed to the Plan before the tenth (10th) Business Day immediately
preceding the Purchase Date for the Purchase Period. Interest will accrue and
be credited in respect of Shortfall Contributions in the same manner as for
Additional Contributions. All references in this Plan to payroll deductions
also shall be deemed to refer to and include Shortfall Contributions, except
where the context clearly requires otherwise.
VII. PURCHASE RIGHTS
A. A Participant shall be granted a separate purchase right on the first
day of each Purchase Period in which he or she participates. The purchase
right shall provide the Participant with the right to purchase shares of
Common Stock on the Purchase Date upon the terms set forth below. Under no
circumstances shall purchase rights be granted under the Plan to any Eligible
Employee if such individual would, immediately after the grant, own (within
the meaning of Section 424(d) of the Code) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any Corporate Affiliate.
B. Each purchase right shall be automatically exercised on the Purchase
Date, and shares of Common Stock shall accordingly be purchased on such date
on behalf of each Participant participating in the related Purchase Period
(other than any Participant whose payroll deductions have previously been
refunded in accordance with paragraph E below). The purchase shall be effected
by applying the Participant's Account balance as of the last day of the
Purchase Period (including Interest credited through such day) to the purchase
of shares of Common Stock (subject to the limitation on the maximum number of
shares purchasable per Participant) at the Purchase Price in effect for that
Purchase Period.
C. The number of shares of Common Stock purchasable by a Participant on
each Purchase Date shall be the number of whole shares obtained by dividing
the Participant's Account balance on the last day of the Purchase Period by
the Purchase Price in effect for that Purchase Date. However, the maximum
number of shares of Common Stock purchasable per Participant on any one
Purchase Date shall not exceed 3,000 shares.
D. Any portion of the Participant's Account balance that is not applied to
the purchase of shares of Common Stock on any Purchase Date because such
portion is not sufficient to purchase a whole share of Common Stock shall be
held for the purchase of Common Stock on the next Purchase Date, unless the
Participant has elected not to participate during the next Purchase Period, in
which case the Participant's entire remaining Account balance shall be
refunded to the Participant as soon as administratively feasible. Any portion
of the Participant's Account balance that is not applied to the purchase of
Common Stock by reason of the limitation on the maximum number of shares
purchasable by the Participant on the Purchase Date shall be refunded as soon
as administratively feasible.
E. The following provisions shall govern the termination of outstanding
purchase rights:
(i) A Participant may, at any time prior to the tenth (10th) Business
Day immediately preceding the Purchase Date for the Purchase Period,
terminate his or her outstanding purchase right by filing the appropriate
form with the Plan Administrator (or its designee), and no further payroll
deductions or Additional Contributions shall be collected from or made by
the Participant with respect to such terminated purchase right. The
Participant's entire Account balance as of the effective date of such
termination shall be refunded as soon as administratively feasible.
(ii) The termination of such purchase right shall be irrevocable, and
the Participant may not subsequently rejoin the Purchase Period for which
the terminated purchase right was granted. In order to resume participation
in any subsequent Purchase Period, such individual must re-enroll in the
Plan (by making a timely filing of the prescribed enrollment forms) before
the first day of the new Purchase Period.
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(iii) Should the Participant cease to remain an Eligible Employee for any
reason (including death, disability or change in employment status) while
his or her purchase right remains outstanding, then that purchase right
shall immediately terminate, and the Participant's entire Account balance
shall be refunded as soon as administratively feasible. However, should the
Participant cease to remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall have the right,
exercisable up until the tenth (10th) Business Day immediately preceding
the Purchase Date for the Purchase Period in which such leave commences, to
withdraw his or her entire Account balance. If a Participant on such an
unpaid leave does not exercise this right, such Participant's Account
balance shall be held for the purchase of shares at the next Purchase Date.
In no event, however, shall any Additional Contributions or any further
payroll deductions be collected on the Participant's behalf during any such
unpaid leave. Upon the return to active service of any Participant
previously on unpaid leave, his or her payroll deductions under the Plan
shall automatically resume at the rate in effect at the time the leave
began, unless the Participant elected to withdraw his or her Account
balance for the Purchase Period in which the leave commenced.
(iv) Notwithstanding any other provision of the Plan to the contrary, a
Participant's purchase rights with respect to a Purchase Period shall
terminate, and his or her Account balance shall be refunded as soon as
administratively feasible, if the Participant's employment with the
Participating Companies terminates for any reason on or before the Purchase
Date for such Purchase Period.
F. Each outstanding purchase right shall automatically be exercised,
immediately prior to the date any Corporate Transaction is consummated, by
applying the Participant's Account balance to the purchase of whole shares of
Common Stock at a purchase price per share equal to eighty-five percent (85%)
of the lower of (i) the Fair Market Value per share of Common Stock on the
first day of the Purchase Period in which such Corporate Transaction occurs or
(ii) the Fair Market Value per share of Common Stock immediately prior to the
date such Corporate Transaction is consummated. However, the applicable
limitation on the number of shares of Common Stock purchasable per Participant
shall continue to apply to any such purchase. Any portion of the Participant's
Account balance that is not applied to the purchase of shares of Common Stock
because such portion is not sufficient to purchase a whole share of Common
Stock shall be refunded to the Participant as soon as administratively
feasible. The Company shall use reasonable efforts to provide prior written
notice of the occurrence of any Corporate Transaction, and Participants shall,
following the receipt of such notice, have the right to terminate their
outstanding purchase rights prior to the effective date of the Corporate
Transaction.
G. Should the total number of shares of Common Stock which are to be
purchased pursuant to outstanding purchase rights on any particular date
exceed the number of shares then available for issuance under the Plan, the
Plan Administrator shall make a pro-rata allocation of the available shares on
a uniform and nondiscriminatory basis, and the Account balance of each
Participant, to the extent in excess of the aggregate Purchase Price payable
for the Common Stock pro-rated to such individual, shall be refunded as soon
as administratively feasible.
H. The purchase right shall be exercisable only by the Participant and shall
not be assignable or transferable by the Participant.
I. A Participant shall have no stockholder rights with respect to the shares
subject to his or her outstanding purchase right until the shares are
purchased on the Participant's behalf in accordance with the provisions of the
Plan and the Participant has become the owner of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common Stock
pursuant to any purchase right outstanding under this Plan if and to the
extent such rights, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Section 423 of the Code) of the Company or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand
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Dollars ($25,000) worth of stock of the Company and of any Corporate Affiliate
(determined on the basis of the Fair Market Value of such stock on the date or
dates such rights are granted) for each calendar year such rights are at any
time outstanding, subject to the following:
(i) The right to acquire Common Stock under each outstanding purchase
right shall accrue on the Purchase Date in effect for the Purchase Period
for which such right is granted.
(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock under one (1) or more
other purchase rights at a rate equal to Twenty-Five Thousand Dollars
($25,000) worth of Common Stock (determined on the basis of the Fair Market
Value per share on the date or dates of grant) for each calendar year such
rights were at any time outstanding.
B. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Period, then the
Participant's Account balance with respect to such purchase right shall be
refunded as soon as administratively feasible.
C. In the event there is any conflict between the provisions of this Article
and one or more provisions of the Plan or any instrument issued thereunder,
the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on December 3, 1997 and shall become
effective on the Effective Date, provided no purchase rights granted under the
Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Company by majority vote of the shares represented in person or proxy at a
meeting of the stockholders of the Company at which a quorum shall be present
and (ii) the Company shall have complied with all applicable requirements of
the 1933 Act (including the registration of the shares of Common Stock
issuable under the Plan on a Form S-8 registration statement filed with the
Securities and Exchange Commission), all applicable listing requirements of
any stock exchange on which the Common Stock is listed for trading and all
other applicable requirements established by law or regulation. In the event
such stockholder approval is not obtained, or such compliance is not effected,
within six (6) months after the date on which the Plan is adopted by the
Board, the Plan shall terminate and have no further force or effect and the
Participants' Account balances shall be refunded as soon as administratively
feasible.
B. Unless sooner terminated by the Board, the Plan shall terminate upon the
earliest to occur of (i) the last Business Day in December 2007, (ii) the date
on which all shares available for issuance under the Plan shall have been sold
to Participants pursuant to purchase rights exercised under the Plan or (iii)
the date on which all purchase rights are exercised in connection with a
Corporate Transaction. Following such termination, no further purchase rights
shall be granted or exercised, and no further payroll deductions or Additional
Contributions shall be collected, under the Plan.
X. AMENDMENT OF THE PLAN
A. The Plan may be amended from time to time by the Board or any duly
authorized committee thereof, or by the Administrative Committee, and all
purchase rights outstanding at the effective date of any such amendment will
be subject to such amendment. In the event any law, or any rule or regulation
issued or promulgated by the Internal Revenue Service, the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., any
stock exchange upon which the Common Stock is listed for trading, or any other
governmental or quasi-governmental agency having jurisdiction over the
Company, the Common Stock or the Plan, requires the Plan to be amended, or in
the event any of the rules under Section 16 of the 1934 Act are amended or
supplemented (e.g., by addition of alternative rules), in either event to
require or permit the Company to add, remove or lessen any restrictions on or
with respect to purchase rights under the Plan, the Administrative Committee
and the Board each reserves the right to amend the Plan to the extent of any
such
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requirement, amendment or supplement, and all purchase rights then outstanding
will be subject to such amendment.
B. The Plan may be terminated at any time by action of the Board; provided,
however, that the termination of the Plan shall not adversely affect the terms
of any outstanding purchase rights.
C. Notwithstanding the foregoing, the Board may not, without the approval of
the Company's stockholders, increase the number of shares of Common Stock
issuable under the Plan, except to the extent permitted under Section III.B.
D. With respect to any Participating Corporation which employs Eligible
Employees who reside outside of the United States, and notwithstanding
anything herein to the contrary, the Administrative Committee may in its sole
discretion amend the terms of the Plan, or any purchase right granted under
the Plan, in order to comply with the requirements of local law, and may,
where appropriate, establish one or more sub-plans to reflect such amended
provisions applicable to such Eligible Employees.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Company.
B. Nothing in the Plan shall confer upon any Participant any right to
continue in the employ of the Company or any Corporate Affiliate for any
period of specific duration, or interfere with or otherwise restrict in any
way the rights of the Company (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such Participant's employment at any time for any reason,
with or without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. ACCOUNT shall mean the account established by the Plan Administrator to
record a Participant's payroll deductions, credited Interest and Additional
Contributions (if any) as of any given date.
B. ADDITIONAL CONTRIBUTION shall mean a Participant's contribution (other
than by payroll deductions) for a Purchase Period in an amount that does not
exceed $2,000 and which is made before the tenth (10th) Business Day
immediately preceding the Purchase Date for the Purchase Period.
C. ADMINISTRATIVE COMMITTEE shall mean a committee consisting of one or more
persons appointed by the Board from time to time to act as the administrative
committee of the Plan.
D. BOARD shall mean the Company's Board of Directors or the Executive
Committee thereof.
E. BUSINESS DAY shall mean a day on which the New York Stock Exchange is
open for trading.
F. CODE shall mean the Internal Revenue Code of 1986, as amended.
G. COMMON STOCK shall mean the Company's common stock, par value $0.10 per
share.
H. COMPANY shall mean Sterling Software, Inc., a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of Sterling Software, Inc. which shall by appropriate action adopt the
Plan.
I. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation of
the Company (as determined in accordance with Section 424 of the Code),
whether now existing or subsequently established.
J. CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Company is a party:
(i) a merger, consolidation or reorganization of the Company into or with
another corporation or legal person as a result of which securities
possessing less than fifty percent (50%) of the total combined voting power
of the then-outstanding voting securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders
of the voting securities of the Company immediately prior to such
transaction, or
(ii) a sale or other transfer of all or substantially all of the assets
of the Company to another corporation or other legal person as a result of
which securities possessing less than fifty percent (50%) of the total
combined voting power of the then-outstanding voting securities of such
corporation or person immediately after such sale or transfer are held in
the aggregate by the holders of the voting securities of the Company
immediately prior to such sale or transfer.
K. EFFECTIVE DATE shall mean February 1, 1998.
L. ELIGIBLE COMPENSATION means the following items of remuneration paid to a
Participant by one or more Participating Companies during each Purchase
Period: base salary, overtime pay, commissions and cash incentive
compensation, computed before giving effect to the Participant's salary
reduction elections under Section 125 or Section 401(k) of the Code or the
Participant's deferral elections under any nonqualified deferred compensation
plan of the Company or any Corporate Affiliate.
M. ELIGIBLE EMPLOYEE shall mean an Employee who is employed by a
Participating Company on a basis under which he or she is regularly expected
to render at least twenty (20) hours of service per week for more
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than five (5) months per calendar year for earnings considered wages.
Notwithstanding the foregoing, a person who is an independent contractor
performing services for a Participating Company shall not be eligible to
participate in the Plan.
N. EMPLOYEE shall mean an individual who is a common law employee of the
Company or any Corporate Affiliate.
O. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be
the closing selling price per share of Common Stock on the date in question on
the stock exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date for
which such quotation exists.
P. INTEREST shall mean an additional amount of compensation calculated at
the annual rate of interest of six month Treasury bills as quoted in The Wall
Street Journal published on the last Business Day of the month immediately
preceding the applicable Purchase Period during which such compensation is
credited, prorated for periods of less than one year.
Q. 1933 ACT shall mean the Securities Act of 1933, as amended.
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S. PARTICIPANT shall mean any Eligible Employee of a Participating Company
who is actively participating in the Plan.
T. PARTICIPATING COMPANY shall mean the Company, each Corporate Affiliate
that is a direct or indirect domestic subsidiary of the Company and each other
Corporate Affiliate that is authorized from time to time by the Administrative
Committee to extend the benefits of the Plan to its Eligible Employees. For
purposes of the foregoing, the term "subsidiary" has the meaning set forth in
Section 424(f) of the Code.
U. PLAN shall mean the Company's Employee Stock Purchase Plan, as set forth
in this document.
V. PLAN ADMINISTRATOR shall mean the person or persons appointed by the
Board from time to time as the plan administrator of the Plan.
W. PURCHASE DATE shall mean the last Business Day of each Purchase Period
or, with respect to a Corporate Transaction, the date specified for the
purchase in Section VII.F.
X. PURCHASE PERIOD shall mean a period of six (6) months extending from
January 1 to June 30 and from July 1 to December 31 of each year; provided,
however, that the first Purchase Period shall begin on February 1, 1998, and
shall end on June 30, 1998.
Y. PURCHASE PRICE shall mean the purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date and
shall be equal to eighty-five percent (85%) of the lower of (i) the Fair
Market Value per share of Common Stock on the first day of the Purchase Period
in which the Purchase Date occurs or (ii) the Fair Market Value per share of
Common Stock on that Purchase Date.
Z. SERVICE shall mean the performance of services to the Company or any
Corporate Affiliate by a person in the capacity of an Employee.
AA. SHORTFALL CONTRIBUTIONS shall have the meaning ascribed to such term in
Section VI.E. of the Plan.
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<PAGE>
DETACH HERE
STERLING SOFTWARE, INC.
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting, March 11, 1998
The undersigned hereby appoints Sterling L. Williams and Jeannette P.
Meier, each with power to act without the other and with full power of
substitution and resubstitution, as Proxies to represent and to vote, as
designated on the reverse side, all shares of Common Stock, $.10 par value, of
Sterling Software, Inc. (the "Company") owned by the undersigned, at the Annual
Meeting of Stockholders (the "Meeting") to be held at The Crescent Club, 200
Crescent Court, 17th Floor, Dallas, Texas, on Wednesday, March 11, 1998,
commencing at 10:00 a.m., local time, upon such business as may properly come
before the Meeting or any adjournment thereof, including the matters set forth
on the reverse side.
You are encouraged to specify your choice by marking the appropriate box
(SEE REVERSE SIDE) but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot vote
your shares unless you sign and return this card.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
(SEE REVERSE SIDE)
STERLING SOFTWARE, INC.
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting, March 11, 1998
1. The election as Class B directors of the three nominees listed below;
2. The approval of the amendment of the Company's Certificate of Incorporation
to increase the number of shares of Common Stock authorized for issuance
from 75,000,000 to 125,000,000 shares; and
3. The approval of the Sterling Software, Inc. Employee Stock Purchase Plan.
DETACH HERE
[X] Please mark votes as in this example.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no specification is given, this Proxy will be
voted (i) FOR the election of each of the nominees for director; (ii) FOR the
approval of the amendment of the Company's Certificate of Incorporation; (iii)
FOR the approval of the Sterling Software, Inc. Employee Stock Purchase Plan;
and (iv) at the discretion of the proxy holders with regard to any other matter
that may properly come before the Meeting or any adjournment thereof.
The Board of Directors unanimously recommends that stockholders vote FOR each of
the persons listed below as a nominee to serve as a Class B director of the
Company, FOR the approval of the amendment of the Company's Certificate of
Incorporation, and FOR the approval of the Sterling Software, Inc. Employee
Stock Purchase Plan.
1. Election of Class B Directors
Nominees: Charles J. Wyly, Jr., Phillip A. Moore and Michael C. French
[ ] FOR ALL NOMINEES
[ ] WITHHELD FROM ALL NOMINEES
[ ] ___________________________
For all nominees except as
noted above
2. Approval of the amendment of the Company's Certificate of Incorporation to
increase the number of shares of Common Stock authorized for issuance from
75,000,000 to 125,000,000 shares.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
3. Approval of the Sterling Software, Inc. Employee Stock Purchase Plan.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign name(s) exactly as appearing hereon. When signing as attorney,
executor, administrator or other fiduciary, please give your full title as such.
Joint owners should each sign personally. If a corporation, sign in full
corporate name, by authorized officer. If a partnership, please sign in
partnership name, by authorized person.
SIGNATURE: _____________________ DATE: ____________________
SIGNATURE: _____________________ DATE: ____________________
