<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED FEBRUARY 5, 1999
===============================================================================
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction 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:
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(4) Date Filed:
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<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1999
STERLING SOFTWARE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
March , 1999
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
, , 1999, commencing at 10:00 a.m., local time. All
stockholders of record as of , 1999 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 and (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 125,000,000 shares to
250,000,000 shares.
The Company's Board of Directors believes that increasing the number of
authorized shares of Common Stock is in the best interests of the Company and
its stockholders because it would permit the Company to issue additional
shares of Common Stock, for example, in connection with future stock splits or
acquisitions. Such increase is not being proposed in connection with any
specific transaction.
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 card 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>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1999
STERLING SOFTWARE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
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
, , 1999, 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 C directors for three-year terms expiring
at the Company's Annual Meeting of Stockholders in 2002;
(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 125,000,000 shares to 250,000,000 shares;
and
(3) Such other matters as may properly come before the Meeting or any
adjournment or postponement thereof.
The close of business on , 1999 has been fixed as the record date for
determining stockholders entitled to notice of and to vote at the Meeting or
any adjournment or postponement thereof. For a period of at least 10 days
prior to the Meeting, a complete list of stockholders entitled to vote at the
Meeting shall be open to examination by any stockholder during ordinary
business hours at the offices of the Company at 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 CARD IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES.
By Order of the Board of Directors
Don J. McDermett, Jr.
Secretary
Dallas, Texas
March , 1999
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1999
STERLING SOFTWARE, INC.
300 CRESCENT COURT
SUITE 1200
DALLAS, TEXAS 75201
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
----------------
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is being first mailed on or about March , 1999 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 1999 Annual Meeting of Stockholders (the "Meeting"). The
Meeting will be held at The Crescent Club, 200 Crescent Court, 17th Floor,
Dallas, Texas, on , , 1999, commencing at
10:00 a.m., local time, or at such other time and place to which the Meeting
may be adjourned or postponed.
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 C directors of the Company for three-year terms expiring at
the Company's Annual Meeting of Stockholders in 2002, (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 125,000,000 shares to 250,000,000 shares and (iii) at the
discretion of the proxy holders, with regard to any matter not known to the
Board on the date of mailing this Proxy Statement that may properly come
before the Meeting or any adjournment or postponement thereof. Where a
stockholder has appropriately specified how a proxy is to be voted, it will be
voted accordingly.
A proxy may be revoked at any time by providing written notice of such
revocation to Sterling Software, Inc., Attention: Secretary, at 300 Crescent
Court, Suite 1200, Dallas, Texas 75201, which notice must be received prior to
the Meeting. If notice of revocation is not received prior to the Meeting, a
stockholder may nevertheless revoke a proxy if he or she attends the Meeting
and votes in person.
RECORD DATE AND VOTING SECURITIES
The close of business on , 1999 is the record date (the "Record Date")
for determining the stockholders entitled to vote at the Meeting. As of the
Record Date, the Company had issued and outstanding approximately
shares of Common Stock held by approximately
holders of record. The Common Stock constitutes the only outstanding class of
voting securities of the Company entitled to be voted at the Meeting.
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy relating to any matter,
of the holders of a majority of the outstanding shares of Common Stock is
necessary to constitute a quorum. For purposes of the quorum and the
discussion below regarding the vote necessary to take stockholder action,
stockholders of record who are present at the Meeting in person or by proxy
and who abstain, including brokers holding customers' shares of record who
cause abstentions to be recorded at the Meeting, are considered stockholders
who are present and
<PAGE>
entitled to vote at the Meeting, and thus, shares of Common Stock held by such
stockholders will count toward the attainment of a quorum. If a quorum should
not be present, the Meeting may be adjourned from time to time until a quorum
is obtained. Each share of Common Stock is entitled to one vote with respect
to each proposal to be voted on at the Meeting. Cumulative voting is not
permitted with respect to the election of directors.
The accompanying proxy card is designed to permit each holder of Common
Stock as of the close of business on the Record Date to vote on each of the
matters to be considered at the Meeting. A stockholder is permitted 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.
Brokers holding shares of record for customers generally are not entitled to
vote on certain matters unless they receive voting instructions from their
customers. As used herein, "uninstructed shares" means shares held by a broker
who has not received instructions from its customers on such matters, if the
broker has so notified the Company on a proxy form in accordance with industry
practice or has otherwise advised the Company that it lacks voting authority.
As used herein, "broker non-votes" means the votes that could have been cast
on the matter in question by brokers with respect to uninstructed shares if
the brokers had received their customers' instructions. Although there are no
controlling precedents under Delaware law regarding the treatment of broker
non-votes in certain circumstances, the Company intends to treat broker non-
votes in the manner described in the next two paragraphs.
Under the Company's Bylaws, directors are elected by a plurality of the
outstanding shares of Common Stock, and thus, the three nominees for election
as Class C directors who receive the most votes cast will be elected.
Instructions withholding authority and broker non-votes will not be taken into
account in determining the outcome of the election of directors.
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. Because this matter requires the affirmative vote of holders of
an absolute majority of all shares outstanding (rather than the affirmative
vote of holders of a majority of shares present at the Meeting), abstentions
and broker non-votes have the effect of negative votes.
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 a participant, or allocated to a participant under the Savings Plan, 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 as to how a participant voted will not be disclosed to the
Company.
2
<PAGE>
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 Sam Wyly, Sterling L. Williams and Donald R. Miller, Jr. 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 2002 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.
The nominees for election at the Meeting as Class C directors 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.
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 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
3
<PAGE>
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 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, who are not standing for re-
election at the Meeting and 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.
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 six times
4
<PAGE>
during the fiscal year ended September 30, 1998. During fiscal 1998, each
member of the Board participated in at least 75% of all Board and applicable
committee meetings held during the period for which he was a director except
Mr. Miller, who participated in two-thirds of such meetings.
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 1998 are set forth
below.
Executive Committee. The Executive Committee is empowered to act on any
matter except those matters specifically reserved to the full Board by
applicable law. The Executive Committee was responsible for determining
executive compensation for fiscal 1998, except for decisions relating to
grants of stock options under the Company's Amended and Restated 1996 Stock
Option Plan (the "Option Plan"). Sam Wyly (Chairman), Charles J. Wyly, Jr. and
Sterling L. Williams are the current members of the Executive Committee. The
Executive Committee met or acted by written consent 11 times during fiscal
1998.
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 three times
during fiscal 1998.
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 Alan W. Steelman are the current members of the 1996
Special Stock Option Committee. The 1996 Stock Option Committee met or acted
by written consent 10 times during fiscal 1998. The 1996 Special Stock Option
Committee met or acted by written consent two times during fiscal 1998.
Other. The Company does not have a nominating or compensation committee. The
functions customarily attributable to a nominating committee are performed by
the Board as a whole, and the functions customarily attributable to a
compensation committee generally are performed by the Executive Committee and
the Option Committees.
Director Compensation
Each 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 "Certain Transactions" for a discussion of certain agreements between
the Company and certain 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 125,000,000 shares to 250,000,000 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 February 15, 1999, after giving effect to approximately
million shares of Common Stock reserved for issuance under the Company's stock
option plans and million shares of Common Stock reserved for issuance
under the Company's Employee Stock Purchase Plan, the Company had
approximately million shares of Common Stock available for issuance.
The availability of additional authorized but unissued shares of Common Stock
would provide the Company with greater flexibility by allowing additional
shares to be issued without the expense and delay of a stockholders meeting,
unless stockholder approval is otherwise required.
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 additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock of the Company currently
authorized. Although the Board will authorize the issuance of additional
Common Stock based on its judgment as to the best interests of the Company and
its stockholders, the issuance of Common Stock could have a dilutive effect on
earnings per share, book value per share and the equity and voting power of
existing holders of Common Stock. Holders of Common Stock are not now, and
will not be entitled to preemptive rights to purchase shares of any authorized
capital stock of the Company. In addition, the issuance of additional shares
of Common Stock could, in certain instances, render more difficult or
discourage a merger, tender offer or proxy contest and thus potentially have
an "anti-takeover" effect, especially if Common Stock were issued in response
to a potential takeover. Such an issuance could deter the types of
transactions that may be proposed or could discourage or limit the
stockholders' participation in certain types of transactions that might be
proposed (such as a tender offer), whether or not such transactions were
favored by the majority of the stockholders and whether or not such
transactions involved a premium over current market prices, and could enhance
the ability of officers and directors to retain their positions.
In addition to the proposed amendment increasing the Company's number of
authorized shares of Common Stock, certain existing provisions of the
Company's Certificate of Incorporation and Bylaws could delay, hinder or
prevent a merger, tender offer or proxy contest involving control of the
Company. Such provisions include (i) a provision requiring advance notice for
stockholder proposals and director nominations, (ii) a provision requiring all
action taken by stockholders to be taken at a meeting, (iii) a provision
requiring the affirmative vote of at least 75% of the Company's voting stock
for the amendment of certain provisions of the Company's Certificate of
Incorporation, (iv) a provision classifying the Board into three separate
classes of directors. For additional discussion of the classification of the
Board, see "Proposal I--Election of Directors." The Company has also adopted a
so-called "rights plan" that, although designed to cause potential acquirors
to negotiate with the Board, could have the effect of impeding a third party's
attempt to acquire control of the Company.
6
<PAGE>
The Board believes that a vote for the proposal to approve the amendment of
the Certificate of Incorporation as described above 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 of
Name Number Class
---- ---------- ----------
<S> <C> <C>
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%
</TABLE>
- --------
* 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.
(footnotes continued on following page)
7
<PAGE>
(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.
(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 Securities and
Exchange Commission (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 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")) 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.
8
<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 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 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.
(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).
(footnotes continued on following page)
9
<PAGE>
(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.
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.
10
<PAGE>
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 February 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 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
11
<PAGE>
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>
$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
</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 Option Committees are charged with the
responsibility for carrying out this executive compensation philosophy in
individual compensation decisions.
During fiscal 1998, the members of the Executive Committee had primary
responsibility for determining executive cash compensation levels. The
Executive Committee, as part of its review and consideration of executive cash
compensation, took into account, among other things, the following goals:
. providing incentives and rewards to attract and 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.
The members of the Option Committees have primary responsibility for
determining awards of stock options as part of executive compensation. The
Option Committees, as part of their annual review and consideration of awards
of stock options, take 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,
position with the Company, the number of unexercised options held by the
recipient and other factors. The
12
<PAGE>
Option Committees have not established formulas or assigned specific weights
to any of these factors when making their determinations. Based on the Option
Committees' assessment of these factors, option grants were made in fiscal
1998 to certain executive officers to reflect the promotions of those officers
but no stock options were awarded in fiscal 1998 to any of the Named Executive
Officers. The Option Committees retain the authority to grant stock options to
these and other executives of the Company in future years.
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 1998. In fiscal 1998,
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 1998. Because there was no
pre-established formula for determining Mr. Williams' bonus for fiscal 1998,
the Executive Committee exercised its judgment in awarding Mr. Williams'
fiscal 1998 bonus of $250,000. The Company's fiscal 1998 results reflected
record revenue and profit performance. Revenue increased 26% in fiscal 1998
over fiscal 1997, and earnings per share from continuing operations increased
38% in fiscal 1998 over fiscal 1997 (before one-time charges and associated
tax benefits). In addition, with the quarter ended September 30, 1998, the
Company marked its 40th consecutive quarter (i.e., 10 years) of revenue and
earnings per share growth. Further, the Executive Committee took into account
the fact that the Company's market capitalization increased by approximately
$900 million during fiscal 1998. Based on these factors, the Executive
Committee concluded that Mr. Williams' outstanding leadership of the Company
merited his bonus award.
Compensation of Other Executive Officers. Compensation of the Company's
other executive officers is comprised of base salary, annual cash incentive
compensation, long-term incentive compensation in the form of 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 1998, the Executive
Committee and the Option Committees took into consideration the same types of
factors (such as revenue, earnings per share and market capitalization growth)
as were considered with respect to the Chief Executive Officer.
In addition, the Company had a cash compensation plan for fiscal 1998 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. Because 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 take advantage of such exceptions to
the extent feasible and in the best interests of the Company.
13
<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. Alan W. Steelman
Sterling L. Williams Sterling L. Williams Donald R. Miller, Jr.
</TABLE>
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 "Certain Transactions."
14
<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, 1998 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, 1993 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, Inc. for each share of the Company's Common Stock then outstanding,
and the two-for-one stock split dividend paid on April 3, 1998.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
9/93 9/94 9/95 9/96 9/97 9/98
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sterling Software, Inc............................ 100 129 190 318 392 607
S & P 500 Index................................... 100 104 135 162 227 248
S & P Computers (Software and Services) Index..... 100 119 173 251 413 569
</TABLE>
15
<PAGE>
CERTAIN 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 Company
licensed from Sterling Commerce certain RemoteWare products 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.
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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 of
Common Stock 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 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.
INDEPENDENT AUDITORS
The Board has selected Ernst & Young LLP as independent auditors to examine
the Company's accounts for fiscal 1999. Representatives of Ernst & Young LLP
are expected to be present at the Meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for stockholder
action at subsequent annual meetings of the Company consistent with Rule 14a-8
promulgated under the Exchange Act, which in certain circumstances may require
the inclusion of qualifying proposals in the Company's Proxy Statement. For
such proposals to be considered for inclusion in the Proxy Statement and proxy
relating to the Company's 2000 Annual Meeting of Stockholders, all applicable
requirements of Rule 14a-8 must be satisfied and such proposals must be
received by the Company no later than , 1999. Such proposals
should be directed to Sterling Software, Inc., Attention: Secretary, at 300
Crescent Court, Suite 1200, Dallas, Texas 75201. In order for a stockholder
proposal not intended to be subject to Rule 14a-8 (and thus not subject to
inclusion in the Company's Proxy Statement) to be considered "timely" within
the meaning of Rule 14a-4(c), such proposal must be received by the Company on
or prior to , 1999 in order to be considered at the Company's 2000 Annual
Meeting of Stockholders.
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 or postponement thereof,
it is the intention of the persons named in the accompanying proxy card to
vote in accordance with their best judgment in the interests of the Company.
MISCELLANEOUS
All costs incurred in the solicitation of proxies will be borne by the
Company. In addition to the solicitation by mail, officers and employees of
the Company may solicit proxies by mail, facsimile, 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, facsimile, 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.
17
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The Company's Annual Report on Form 10-K with respect to the fiscal year
ended September 30, 1998, 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
Don J. McDermett, Jr.
Secretary
Dallas, Texas
March , 1999
18
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1999
DETACH HERE
STERLING SOFTWARE, INC.
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting of Stockholders, ____________, 1999
The undersigned hereby appoints Sterling L. Williams and Don J. McDermett,
Jr., 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 ________________, ___________,
1999, commencing at 10:00 a.m., local time, upon such business as may properly
come before the Meeting or any adjournment or postponement thereof, including
the matters set forth on the reverse side.
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
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(SEE REVERSE SIDE)
STERLING SOFTWARE, INC.
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting of Stockholders, _____________, 1999
1. The election as Class C directors of the three nominees listed below; and
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
125,000,000 to 250,000,000 shares
DETACH HERE
[X] Please mark votes as in this example.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no 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; and
(iii) at the discretion of the proxy holders with regard to any other matter
that may properly come before the Meeting or any adjournment or postponement
thereof.
The Board of Directors unanimously recommends that stockholders vote FOR each of
----
the persons listed below as a nominee to serve as a Class C director of the
Company and FOR the approval of the amendment of the Company's Certificate of
---
Incorporation.
1. Election of Class C Directors
Nominees: Sam Wyly, Sterling L. Williams and Donald R. Miller, Jr.
[ ] 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
125,000,000 to 250,000,000 shares.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
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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: _____________________
3
