<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 1-8465
STERLING SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1873956
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Crescent Court, Suite 1200
Dallas, Texas 75201
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (214) 981-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $0.10 Par Value New York Stock Exchange
Rights to Purchase Series A Junior Participating New York Stock Exchange
Preferred Stock, $0.10 Par Value
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90
days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
As of December 31, 1998, 83,034,067 shares of the Registrant's Common Stock
were outstanding.
The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant was $2,177,475,677, based on the $27 1/16 closing
sales price of the Registrant's Common Stock on the New York Stock Exchange on
December 31, 1998.
- --------------------------------------------------------------------------------
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
STERLING SOFTWARE, INC.
FORM 10-K/A
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 as set forth in the pages attached hereto:
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The name, age and position of each executive officer of Sterling Software,
Inc. (the "Company") is set forth under the heading "Executive Officers" in Part
I of the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.
Board of Directors
The Company's Certificate of Incorporation provides for a board of
directors (the "Board") divided into three classes, as nearly equal in number as
possible, with the term of office of one class expiring each year at the
Company's Annual Meeting of Stockholders. Each class of directors is elected for
a term of three years except in the case of elections to fill vacancies or newly
created directorships.
The current Class C directors of the Company, whose terms will expire at
the Annual Meeting of Stockholders in 1999, are as follows:
Sam Wyly, age 64. Mr. Wyly has served as Chairman of the Board since co-
founding the Company in 1981. He also serves as Chairman of the Executive and
1996 Stock Option Committees of the Board. Companies founded by Mr. Wyly were
among the forerunners of the computer software and electronic commerce
industries and the internet. In 1963, he founded University Computing Company,
which became one of the largest computer service and software companies. His
data transmission company, Datran, Inc., was one of the pioneering
telecommunications ventures that broke up the telephone monopoly. Sterling
Commerce, Inc. (a provider of electronic commerce software and network
services), 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 Chairman of the Executive Committee of the Board of Directors of
Sterling Commerce, Inc., Chairman of Michaels Stores, Inc., a specialty
retailer, Chairman of Scottish Annuity & Life Holdings, Ltd., a variable life
insurance and reinsurance company, and founding partner of the General Partner
of Maverick Capital, Ltd., an investment fund management company. Mr. Wyly is
the father of Evan Wyly, also a director of the Company.
Sterling L. Williams, age 55. 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, Inc. since December 1995. From December 1995 to
October 1996, Mr. Williams also served as Chief Executive Officer of Sterling
Commerce, Inc. Mr. Williams is a member of the Executive Committee and the 1996
Stock Option Committee of the Board.
Donald R. Miller, Jr., age 44. Mr. Miller has served as a director of the
Company since September 1993. He has served as Vice President-Market Development
of Michaels Stores, Inc. since November 1990 and also currently serves as a
director of Michaels Stores, Inc. Mr. Miller is the son-in-law of Charles J.
Wyly, Jr., Vice Chairman of the Company.
The current Class A directors of the Company, whose terms will expire at
the Company's Annual Meeting of Stockholders in 2000, are as follows:
Robert J. Donachie, age 70. 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 formerly served as President of the
Institute of Management Accountants, a worldwide professional organization
devoted to the development of accounting and control practices and promotion of
ethical standards, and he remains a lifetime member of its Board of Directors.
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 56. Mr. Steelman has served as a director of the
Company since February 1997. He is a Senior Principal with Monitor Company, a
leading international management consulting firm. Headquartered in
<PAGE>
Cambridge, Massachusetts, Monitor Company has operations on six continents and
employs over 800 professionals. Mr. Steelman also currently serves as a director
of Aristocrat Leisure Ltd., a software and machine manufacturing firm based in
Sydney, Australia, 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 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 and the 1996 Special Stock Option Committee
of the Board.
Evan A. Wyly, age 37. Mr. Wyly has served as a director of the Company
since July 1992. He has been a Managing Partner of Maverick Capital, Ltd. since
1991. In 1988, Mr. Wyly founded Premier Partners Incorporated, a private
investment firm, and served as its President prior to joining Maverick Capital,
Ltd. Mr. Wyly also currently serves as a director of Sterling Commerce, Inc. and
as a director of Michaels Stores, Inc.
The current Class B directors of the Company, whose terms will expire at
the Company's Annual Meeting of Stockholders in 2001, are as follows:
Charles J. Wyly, Jr., age 65. 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, 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., as a director
of Scottish Annuity & Life Holdings, Ltd. and as a director of Sterling
Commerce, Inc. Mr. Wyly is a member of the Executive Committee and the 1996
Stock Option Committee of the Board.
Phillip A. Moore, age 56. 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 until September 1997, serving also as Chief
Technology Officer from October 1995 to April 1996. 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 1998 Annual Meeting of Stockholders.
Michael C. French, age 55. Mr. French has served as a director of the
Company since July 1992. He currently serves as Chief Executive Officer,
President and a director of Scottish Annuity & Life Holdings, Ltd. Mr. French is
also a Partner of Maverick Capital, Ltd., an investment fund management company,
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, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's outstanding Common Stock, $.10 par value (the "Common
Stock"), to file initial reports of ownership and reports of changes in
ownership of Common Stock with the Securities and Exchange Commission ("SEC")
and the New York Stock Exchange (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 1998 and written representations from such reporting persons,
the Company believes that all reports required to be filed under Section 16(a)
have been filed by such persons.
<PAGE>
Item 11. Executive 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 1998.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------------- ---------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year (1) Salary (2) Bonus (2) Compensation(3) Options(4) Compensation
- ------------------------------- -------- -------------- --------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams........... 1998 $ 650,000 $250,000 $ 22,539(5) 0 $ 47,550(6)
President, Chief Executive 1997 650,000 250,000 35,868(5) 3,600,000 42,252
Officer and Director 1996 900,000 500,000 48,499(5) 4,500,000 41,297
Sam Wyly....................... 1998 1,000,000(7) 500,000 38,248(5) 0 156,881(8)
Chairman of the 1997 1,000,000(7) 500,000 53,363(5) 3,600,000 182,691
Board and Director 1996 971,000(7) 500,000 100,115(5) 3,000,000 110,177
Charles J. Wyly, Jr............ 1998 500,000(9) 250,000 44,197(5) 0 41,640(10)
Vice Chairman of the 1997 500,000(9) 250,000 29,249(5) 1,800,000 49,669
Board and Director 1996 496,000(9) 250,000 69,730(5) 1,600,000 59,292
Geno P. Tolari................. 1998 485,000 240,000 25,043(5) 0 20,805(12)
Executive Vice President and 1997 435,000 215,000 3,302(5) 1,200,000 9,121
Chief Operating Officer 1996 386,000 149,338 137,050(11) 0 12,748
B. Carole Morton............... 1998 245,000 296,138 0 0 7,392(14)
Senior Vice President and 1997 245,000 151,901 0 250,000 5,457
Group President 1996 220,000 199,200 56,200(13) 0 4,500
</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, Inc., a former wholly owned subsidiary of
the Company. Sterling Commerce, Inc. completed an initial public offering
of 18.4% of its shares in March 1996, and in September 1996 the Company
completed the tax-free spin-off of its remaining 81.6% ownership of
Sterling Commerce, Inc.
(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 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 1998 and 1997, reflects options to purchase Common Stock. For
fiscal 1996, reflects options to purchase both Common Stock and common
stock of Sterling Commerce, Inc. (''Commerce Stock'') as follows: Sterling
L. Williams, 1,500,000 shares of Common Stock and 3,000,000 shares of
Commerce Stock; Sam Wyly, 3,000,000 shares of Commerce Stock; and Charles
J. Wyly, Jr., 1,600,000 shares of Commerce Stock. Options to purchase
Common Stock have been adjusted to reflect the two-for-one stock split
dividend paid on April 3, 1998, consisting of one share of Common Stock for
each share of Common Stock held (the "Split"). Neither the Company nor
Sterling Commerce, Inc. has granted stock appreciation rights.
(5) Consists of reimbursements for the payment of taxes.
(6) Consists of $5,100 in Company contributions to the Savings Plan and $42,450
in respect of premiums on life insurance policies for Mr. Williams'
benefit.
(7) Includes director's fees of $500,000, $500,000 and $475,000 paid to Sam
Wyly in fiscal 1998, 1997 and 1996, 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, Inc.
(footnotes continued on following page)
<PAGE>
(8) Consists of $5,100 in Company contributions to the Savings Plan, $20,358 in
respect of premiums on a life insurance policy for Mr. Wyly's benefit and
$131,423 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).
(9) Includes director's fees of $250,000, $250,000 and $237,500 paid to Charles
J. Wyly, Jr. in fiscal 1998, 1997 and 1996, 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, Inc.
(10) Consists of $5,100 in Company contributions to the Savings Plan and $36,540
in respect of premiums on a life insurance policy for Mr. Wyly's benefit.
(11) Includes a $64,732 reimbursement for the payment of taxes and $41,417 in
the form of incentive travel.
(12) Consists of $7,924 in Company contributions to the Savings Plan and $12,881
in respect of premiums on a life insurance policy for Mr. Tolari's benefit.
(13) Includes a $24,333 reimbursement for relocation expenses and $22,920 in the
form of incentive travel.
(14) Consists of $4,800 in Company contributions to the Savings Plan and $2,592
in respect of premiums on a life insurance policy for Ms. Morton's benefit.
Option Grants in Fiscal 1998
No options to purchase Common Stock were granted to the Named Executive
Officers during fiscal 1998. The Company has not granted stock appreciation
rights.
Option Exercises in Fiscal 1998 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 1998 and
the number and value of such options held at September 30, 1998, the last day of
fiscal 1998. The Company does not have any outstanding stock appreciation
rights.
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
On Value Options at Options at
Exercise Realized September 30, 1998 September 30, 1998(1)
-------- -------- ------------------ ---------------------
Name
---- Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams 0 $ 0 3,600,000 0 $49,250,000 $ 0
Sam Wyly 0 0 3,600,000 0 49,250,000 0
Charles J. Wyly, Jr. 0 0 1,800,000 0 24,625,000 0
Geno P. Tolari 275,000 3,687,644 25,000 900,000 353,125 12,300,000
B. Carole Morton 0 0 62,500 187,500 857,813 2,573,438
</TABLE>
- --------------------
(1) The closing price of the Common Stock as reported by the NYSE on September
30, 1998 was $27.75. In accordance with SEC regulations, value is
calculated based on the difference between the option exercise price and
$27.75, multiplied by the number of shares of Common Stock underlying the
options.
Director Compensation
Each of Messrs. Donachie, French, Miller, Moore and Steelman 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 1998. For fiscal 1999, each of these
directors will receive an annual directors' fee of $36,000 plus $2,500 for each
meeting of the Board and each meeting of any committee of the Board that he
attends. During fiscal 1998, 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 1999, the annual retainers
to be received by Messrs. Sam Wyly and Charles J. Wyly, Jr. will remain at the
same level as for fiscal 1998. Messrs. Williams and Evan Wyly did not receive
directors' fees for their services as directors in fiscal 1998.
See Item 13. "Certain Relationships and Related Transactions" for a
discussion of certain agreements between the Company and certain directors of
the Company.
<PAGE>
Change-in-Control, Severance and Employment 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 cash compensation 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 Internal Revenue Code of 1986, as amended (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.; four, 400% and 48, in the case of Mr. Tolari, and two,
200% and 24 in the case of Ms. Morton.
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 was $650,000. 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 may 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
compensation due through the unexpired portion of the five-year consulting
agreement.
The Company has entered into an agreement (a "Severance Agreement") with
Mr. Tolari, Ms. Morton 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, following 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 Mr. Tolari and two and 24 for
Ms. Morton. 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 to the above-described agreements, the Company has agreed to
reimburse each of the Named Executive Officers for certain legal, financial and
other professional services.
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, 1999, Geno P.
Tolari had accrued approximately 28 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
<PAGE>
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.
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.
Years of Service
------------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
$600,000 $180,000 $240,000 $300,000 $300,000 $300,000
700,000 210,000 280,000 350,000 350,000 350,000
800,000 240,000 320,000 400,000 400,000 400,000
900,000 270,000 360,000 450,000 450,000 450,000
Executive and Stock Option Committee Interlocks and Insider Participation
During fiscal 1998, the members of the Executive Committee were primarily
responsible for determining executive compensation, and the members of the
Special Option Committee 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. (who served as a member of the 1996
Special Stock Option Committee until September 1998). 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, Inc., members of the executive committees, the
stock option committees and the boards of directors of the Company, Sterling
Commerce, Inc. and Michaels Stores, Inc. and members of the board of directors
of Scottish Annuity & Life Holdings, Ltd. Sam Wyly and Charles J. Wyly, Jr. are
also members of the compensation committee of the Michaels Stores, Inc. board of
directors. Sterling L. Williams is an executive officer of the Company and a
member of the executive and stock option committees of both the Company and
Sterling Commerce, Inc. 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, Inc. and Michaels Stores, Inc. and Sterling
Williams has participated in decisions related to compensation of executive
officers of each of the Company and Sterling Commerce, Inc. Donald R. Miller,
Jr., a director who served as a member of the 1996 Special Stock Option
Committee of the Company until September 1998, is also an officer and a director
of Michaels Stores, Inc. Evan A. Wyly, a director of the Company who also served
as an officer of the Company until November 1998, is also a director of Michaels
Stores, Inc. and Sterling Commerce, Inc. See Item 13. "Certain Relationships
and Related Transactions."
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
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, 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.
Shares of
Common Stock
Owned Beneficially (1)
-----------------------------
Percent of
Name Number Class
---- ---------- ----------
Sam Wyly.............................. 4,403,306 (2) 5.1%
Sterling L. Williams.................. 3,608,411 (3) 4.2%
Charles J. Wyly, Jr................... 3,201,928 (4) 3.8%
Robert J. Donachie.................... 75,700 (5) *
Michael C. French..................... 56,600 (6) *
Donald R. Miller, Jr.................. 55,000 (7) *
Phillip A. Moore...................... 208,071 (8) *
B. Carole Morton...................... 181,602 (9) *
Alan W. Steelman...................... 25,077 (10) *
Evan A. Wyly.......................... 259,198 (11) *
Geno P. Tolari........................ 311,015 (12) *
All current directors and executive
officers as a group (17 persons)..... 12,628,622 (13) 13.6%
Alpha Assurances Vie Mutuelle and
related entities, AXA-UAP and
The Equitable Companies
Incorporated......................... 7,919,250 (14) 9.6%
Trimark Financial Corporation......... 7,636,400 (15) 9.3%
Wellington Management Company, LLP.... 6,578,526 (16) 7.8%
- --------------------
* Less than 1%.
(1) The number of shares shown includes outstanding shares owned by the person
or entity indicated on December 31, 1998 and shares underlying options
owned by such person on December 31, 1998 that were exercisable within 60
days of such date. Persons holding shares of Common Stock pursuant to the
Savings Plan generally have sole voting power, but not investment power,
with respect to such shares.
(2) Includes 3,600,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan, options to purchase
150,000 of which are currently held of record by the marital trust of Sam
Wyly's spouse. Also includes 521,458 shares of Common Stock owned by
family trusts of which Sam Wyly is trustee and 277,224 shares of Common
Stock held of record by a limited partnership of which Sam Wyly is a
general partner. Also includes 4,624 shares of Common Stock held pursuant
to the Savings Plan.
(3) Includes 3,600,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 411 shares of Common
Stock held pursuant to the Savings Plan.
(4) Includes 1,800,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan. Also includes 883,398
shares of Common Stock owned by family trusts of which Charles J. Wyly,
Jr. is trustee and 513,148 shares of Common Stock held of record by a
limited partnership of which Charles J. Wyly, Jr. is a general partner.
Also includes 5,382 shares of Common Stock held pursuant to the Savings
Plan.
(5) Includes 50,000 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 4,500 shares held in a
retirement account directed by Mr. Donachie.
(6) Consists of 55,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 1,600 shares held in
a retirement account directed by Mr. French.
(7) Consists of 50,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 5,000 shares held by
a family partnership of which Donald R. Miller, Jr. is a general partner.
(8) Includes 150,000 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan, 10,273 shares of Common Stock
held pursuant to the Savings Plan and 300 shares owned by Mr. Moore's son.
(9) Includes 112,500 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 11,261 shares of Common Stock
held pursuant to the Savings Plan.
(10) Consists of 25,000 shares of Common Stock that may be acquired upon
exercise of options granted under the Option Plan and 77 shares held in an
individual retirement account for the benefit of Mr. Steelman's son.
(11) Consists of 318 shares of Common Stock held pursuant to the Savings Plan.
Also includes 158,880 shares of Common Stock held by a family limited
partnership of which Evan Wyly is a general partner and 100,000 shares of
Common Stock that may be acquired upon exercise of options granted under
the Option Plan and held of record by such partnership.
(footnotes continued on following page)
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(12) Includes 300,000 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 9,709 shares of Common Stock
held pursuant to the Savings Plan.
(13) Includes 213,050 shares of Common Stock that may be acquired upon exercise
of options granted under the Option Plan and 18,568 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.
(14) Based on an amended Schedule 13G filed February 17, 1998 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 1,497,722 shares, shared voting power with respect to 6,257,318
shares, sole dispositive power with respect to 7,818,478 shares and shared
dispositive power with respect to 100,772 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 (as adjusted for the
Split) and the number of shares of Common Stock outstanding on December 31,
1998.
(15) Based on a Schedule 13G filed February 17, 1998 by Trimark Financial
Corporation ("Trimark"). Trimark has sole voting and dispositive power
with respect to 7,636,400 shares. The address of Trimark is One First
Canadian Place, Suite 5600, P. O. Box 487, Toronto, Ontario, Canada M5X
1E5. The information regarding beneficial ownership of Common Stock by
Trimark is included in reliance on a report filed with the SEC by such
party, 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 Trimark in such
report (as adjusted for the Split) and the number of shares of Common Stock
outstanding on December 31, 1998.
(16) Based on a Schedule 13G filed on February 10, 1998 by Wellington Management
Company, LLP ("Wellington"). Wellington has shared voting power with
respect to 3,248,440 shares and shared dispositive power with respect to
6,578,526 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 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 (as adjusted for the
Split) and the number of shares of Common Stock outstanding on December 31,
1998.
Item 13. Certain Relationships and Related Transactions.
In anticipation of Sterling Commerce, Inc.'s ("Sterling Commerce") 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 "International Distributor Agreement"). Amounts payable to and
receivable from Sterling Commerce arise from time to time under the Intercompany
Agreements.
Effective as of June 30, 1997, the Company and Sterling Commerce entered
into an agreement terminating the International Distributor Agreement.
Contemporaneously with such termination, Sterling Commerce purchased certain
assets formerly used by the Company in connection with the distribution of
Sterling Commerce's products under the International Distributor Agreement. In
fiscal 1998, the Company paid Sterling Commerce approximately $1,593,000 with
respect to certain post-closing adjustments under such termination agreement.
A subsidiary of the Company is also a party to an aircraft sharing
agreement with Sterling Commerce. In fiscal 1998, Sterling Commerce paid
$221,000 to that subsidiary for aircraft services under that agreement.
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 amounts due over the
remaining terms of the agreements guaranteed by the Company is approximately
$28,300,000. 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 obtain the Company's
release from its obligations under the related guaranties. The Company did not
make any payments with respect to such guarantees during fiscal 1998.
From time to time in the ordinary course of business, the Company and
Sterling Commerce have used (internally or as part of product offerings) each
other's software products. One of the Intercompany Agreements was a license
agreement covering certain software products then in use, or to be used by, the
respective companies. During fiscal 1998, the Company and Sterling Commerce
entered into a license agreement pursuant to which the
<PAGE>
Company licensed from Sterling Commerce certain RemoteWare products that
Sterling Commerce was authorized to license under a reseller agreement for total
license and maintenance fees of $2,300,000. Also during fiscal 1998, the Company
and Sterling Commerce entered into a license agreement pursuant to which
Sterling Commerce licensed certain of the Company's VISION:Flashpoint products
for re-sale to customers of Sterling Commerce. Sterling Commerce paid total
license and maintenance fees of $2,200,000 for these products. The terms of each
of the foregoing license agreements were the result of arms-length negotiations
between the parties.
Since the beginning of fiscal 1998, the Company has made payments totaling
$266,800 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. At
the time that such services were provided, Laurie and David Matthews, the
daughter and son-in-law of Sam Wyly, jointly held approximately 40% of the
outstanding capital stock of Intelecon. David Matthews was also an officer and a
director of Intelecon at the time that such services were provided.
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 1998 for his assistance in significant
acquisitions and other Company-related matters. Mr. French 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, has provided legal services to the Company.
Such firm does not charge the Company for any time spent by Mr. French on
Company-related matters.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-K/A, Amendment No. 1 to its Annual
Report on Form 10-K, to be signed on its behalf by the undersigned, thereunto
duly authorized.
STERLING SOFTWARE, INC.
Date: January 27, 1999 By /s/ Sterling L. Williams
-----------------------------------------------
Sterling L. Williams
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: January 27, 1999 /s/ R. Logan Wray
-----------------------------------------------
R. Logan Wray
Senior Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
