- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A AMENDMENT NO. 1
<TABLE>
<S> <C> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
</TABLE>
FOR THE TRANSITION PERIOD FROM ___________________ TO ___________________
COMMISSION FILE NO.
1-8465
------------------------
STERLING SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1873956
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
8080 NORTH CENTRAL EXPRESSWAY, SUITE 1100
DALLAS, TEXAS 75206
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (214) 891-8600
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Common Stock, $0.10 Par Value New York Stock Exchange
5 3/4% Convertible Subordinated Debentures
Due February 1, 2003 New York Stock Exchange
</TABLE>
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. / /
As of November 30, 1993, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was $456,430,992 based on the closing sales
price of $27 7/8 on the New York Stock Exchange.
As of November 30, 1993, 18,314,752 shares of the Registrant's common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STERLING SOFTWARE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
FORM 10-K/A ITEM PAGE
- ----------------------------------------------------------------------------------------------------------- -----
<S> <C>
PART I.
Item 1. Business....................................................................................... *
Item 2. Properties..................................................................................... *
Item 3. Legal Proceedings.............................................................................. *
Item 4. Submission of Matters to a Vote of Security Holders............................................ *
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................... *
Item 6. Selected Financial Data........................................................................ *
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................................. *
Item 8. Financial Statements and Supplementary Data.................................................... *
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................................... *
PART III.
Item 10. Directors and Executive Officers of the Registrant............................................. 3
Item 11. Executive Compensation......................................................................... 5
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 10
Item 13. Certain Relationships and Related Transactions................................................. 12
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ *
<FN>
- ------------------------
* Not amended.
</TABLE>
2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Robert J. Donachie(1)........................... 65 Director
Evan A. Wyly.................................... 32 Director
Robert E. Cook(1)............................... 52 Director
Phillip A. Moore................................ 51 Executive Vice President, Technology and Director
Charles J. Wyly, Jr.(2)(3)...................... 60 Vice Chairman of the Board and Director
Michael C. French............................... 50 Director
Sam Wyly(2)(3).................................. 59 Chairman of the Board, Chairman of the Stock Option
Committee, Chairman of the Executive Committee and
Director
Sterling L. Williams(2)(3)...................... 50 President, Chief Executive Officer and Director
Donald R. Miller, Jr............................ 39 Director
<FN>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Executive Committee
(3) Member of the Stock Option Committee
</TABLE>
Sam Wyly co-founded Sterling Software in 1981 and has served as Chairman of
the Board and a director since its formation. In 1963, Mr. Wyly founded
University Computing Company, a computer software and services company, and
served as President or Chairman from 1963 until 1979. Mr. Wyly co-founded Earth
Resources Company, an oil refining and silver and gold mining company, and
served as its Executive Committee Chairman from 1968 to 1980. Mr. Wyly and his
brother, Charles J. Wyly, Jr., bought the 20 restaurant Bonanza Steakhouse chain
in 1967. It grew to approximately 600 restaurants by 1989, during which time he
served as Chairman. Mr. Wyly currently serves as Chairman of Michaels Stores,
Inc., a specialty retail chain, and as President of Maverick Capital, Ltd., an
investment fund management company. Sam Wyly is the father of Evan A. Wyly, a
director of Sterling Software.
Charles J. Wyly, Jr. co-founded Sterling Software in 1981 and has served as
a director since its formation. Effective November 1984, Mr. Wyly was elected
Vice Chairman of the Board. Mr. Wyly served as an officer and director of
University Computing Company from 1964 to 1975, including President from 1969 to
1973. Mr. Wyly and his brother, Sam Wyly, founded Earth Resources Company and
Charles J. Wyly, Jr. served as 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 the Board of Michaels Stores, Inc. and
as Chairman of Maverick Capital, Ltd. Charles J. Wyly, Jr. is the father-in-law
of Donald R. Miller, Jr., a director of Sterling Software.
Sterling L. Williams co-founded Sterling Software in 1981 and has served as
President, Chief Executive Officer and a director of Sterling Software since its
formation. Mr. Williams also currently serves as a director of Cimage
Corporation, a privately held provider of document management systems, and
INPUT, an information technology market research company.
Robert J. Donachie has served as a director of Sterling Software since May
1983. He has been principally employed as a private business consultant since
March 1981.
Phillip A. Moore co-founded Sterling Software in 1981 and has served as a
director since such time and as Executive Vice President, Technology since July
1993. Prior to July 1993, Mr. Moore served as Senior Vice President, Technology
of Sterling Software.
3
Evan A. Wyly has served as a director of Sterling Software since July 1992.
Mr. Wyly is a Managing Director of Maverick Capital, Ltd. Prior to joining
Maverick Capital, Ltd., Mr. Wyly served as Vice President of Mergers and
Investments of Michaels Stores, Inc. from December 1991 to October 1993. In June
1988, Mr. Wyly founded Premier Partners Incorporated, a private investment firm,
and served as President prior to joining Michaels Stores, Inc. Mr. Wyly also
serves as a director of Michaels Stores, Inc. and Xscribe Corp., a
high-technology information management company.
Michael C. French has served as a director of Sterling Software since July
1992. He has been a partner with the law firm of Jackson & Walker, L.L.P. since
1976. Since September 1992, Mr. French has served as a director of Michaels
Stores, Inc. Mr. French also currently serves as a Managing Director of Maverick
Capital, Ltd.
Donald R. Miller, Jr. has served as a director of Sterling Software since
September 1993. Mr. Miller has served as Vice President -- Market Development of
Michaels Stores, Inc. since November 1990 and as a director of Michaels Stores,
Inc. since September 1992. Prior to November 1990, Mr. Miller served as Director
of Real Estate of Michaels Stores, Inc. Mr. Miller also serves on the Board of
Directors of Xscribe Corp.
Robert E. Cook has served as a director of Sterling Software since July
1993. From 1981 until July 1993, Mr. Cook served as Chairman and a director of
Systems Center, a computer software company listed on the New York Stock
Exchange, and from 1981 until February 1993 he served as Chief Executive Officer
of Systems Center. Mr. Cook currently also serves as a director of Easel,
Incorporated, a provider of application development software, and ROADSHOW
International, Inc., a privately held provider of computer-based routing
solutions for private fleet operations.
The name, age and position of each executive officer of the Company is set
forth under the heading "Executive Officers" in Part I of this report, which
information is incorporated herein by reference.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange.
Such persons are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal 1992, or written representations from certain reporting
persons, the Company believes that all filing requirements applicable to its
directors, officers and persons who own more than 10% of a registered class of
the Company's equity securities have been complied with, except that Werner L.
Frank, an executive officer of the Company, filed one late report covering one
transaction and Robert E. Cook filed one late report covering three transactions
by his wife. Mr. Cook has disclaimed beneficial ownership of all shares of
Common Stock of the Company held by his wife.
4
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers, based on salary and bonus earned during fiscal 1993.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
AWARDS
----------------------
ANNUAL COMPENSATION SECURITIES PAYOUTS
-------------------------------------------- RESTRICTED UNDERLYING -------
NAME AND OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS(S) SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) ($) (#)(3) ($) ($)(2)
- -------------------------- ---- ------------ ------------ ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sterling L. Williams, 1993 600,000 300,000 30,695 -- 300,000 -- 29,423 (4)
President, Chief 1992 550,000 250,000 33,978 -- 500,000 -- 36,271
Executive Officer 1991 500,000 200,000 -- -- --
and Director
Sam Wyly, 1993 710,000(5) 300,000 33,212 -- 300,000 -- 62,581 (7)
Chairman of the Board 1992 650,000(5) 300,000 23,474 -- 667,000 -- 75,198
and Director 1991 600,000(5) 250,000(6) -- -- --
Charles J. Wyly, Jr., 1993 355,000(8) 150,000 1,986 -- 150,000 -- 28,385 (10)
Vice Chairman of the 1992 325,000(8) 150,000 9,543 -- 333,000 -- 26,633
Board and Director 1991 300,000(8) 125,000(9) -- -- --
Werner L. Frank, 1993 310,000 158,873 -- -- 125,000 -- 18,710 (11)
Executive Vice President 1992 285,000 358,342 -- -- 77,000 -- 17,742
1991 260,000 236,452 -- -- --
Warner C. Blow, 1993 290,000 170,000 -- -- 100,000 -- 12,823 (12)
Executive Vice President 1992 270,000 267,684 -- -- 125,000 -- 6,866
1991 250,000 216,423 -- -- --
<FN>
- ------------------------
(1) Reflects bonus earned during the fiscal year. In some instances all or a
portion of the bonus was paid during the next fiscal year.
(2) Disclosure of Other Annual Compensation and All Other Compensation is not
required for fiscal year 1991.
(3) Options to acquire shares of Common Stock.
(4) Consists of $23 in Company contributions to the Company's Savings and
Security Plan and $29,400 in premiums on a universal life insurance policy
for Mr. Williams' benefit.
(5) Includes fees of $355,000, $325,000 and $300,000 paid to Sam Wyly in 1993,
1992 and 1991, respectively, for his service as Chairman of the Board of
Directors of the Company.
(6) Consulting fees paid as incentive compensation in 1991.
(7) Consists of $5,423 in Company contributions to the Company's Savings and
Security Plan and $57,158 in premiums on a universal life insurance policy
for Sam Wyly's benefit.
(8) Includes fees of $177,500, $162,500 and $150,000 paid to Charles J. Wyly,
Jr. in 1993, 1992 and 1991, respectively, for his service as Vice Chairman
of the Board of Directors of the Company.
(9) Consulting fees paid as incentive compensation in 1991.
(10) Consists of $6,965 in Company contributions to the Company's Savings and
Security Plan and $21,420 in premiums on a universal life insurance policy
for Charles J. Wyly, Jr.'s benefit.
(11) Consists of $5,580 in Company contributions to the Company's Savings and
Security Plan and $13,130 in premiums on a universal life insurance policy
for Mr. Frank's benefit.
</TABLE>
5
<TABLE>
<S> <C>
(12) Consists of $6,655 in Company contributions to the Company's Savings and
Security Plan and $6,168 in premiums on a whole life insurance policy for
Mr. Blow's benefit.
</TABLE>
OPTION GRANTS DURING 1993 FISCAL YEAR
The following table provides information related to options granted to the
named executive officers during fiscal 1993.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ------------------------------------------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM (1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE ------------------------
NAME GRANTED (#)(2) FISCAL YEAR (3) ($/SH)(4) EXPIRATION DATE 5% ($) 10% ($)
- -------------------------------- ---------------- --------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams............ 300,000(5)(8) 10.3 $ 19.125 July 1, 1998 1,585,165 3,502,801
Sam Wyly........................ 300,000(6)(8) 10.3 $ 19.125 July 1, 1998 1,585,165 3,502,801
Charles J. Wyly, Jr. ........... 150,000(6)(8) 5.1 $ 19.125 July 1, 1998 792,583 1,751,401
Werner L. Frank................. 125,000(7) 4.3 $ 19.125 July 1, 1998 660,486 1,459,500
Warner C. Blow.................. 100,000(7) 3.4 $ 19.125 July 1, 1998 528,388 1,167,600
<FN>
- ------------------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of employment,
nontransferability or vesting over periods of up to four years.
(2) Options to acquire shares of Common Stock.
(3) Includes options granted under the stock option plans of Systems Center from
the beginning of the Company's fiscal year through June 30, 1993.
(4) The option exercise price may be paid in shares of Common Stock owned by the
executive officer, in cash, or in any other form of valid consideration or a
combination of any of the foregoing, as determined by the Stock Option
Committee in its discretion.
(5) Options are exercisable in their entirety from and after the date of grant.
The exercise price was equal to the fair market value of the Common Stock on
the date of grant.
(6) Options become exercisable in their entirety July 1, 1994. Prior to such
time the options are not exercisable. The exercise price was equal to the
fair market value of the Common Stock on the date of grant.
(7) Options become exercisable with respect to 25% of the shares covered thereby
on each of July 1, 1994, 1995, 1996 and 1997. In the event of a Change of
Control (as hereinafter defined) of the Company, however, any unexercisable
portion of the options will become immediately exercisable. See "Employment
and Change of Control Agreements." The exercise price was equal to the fair
market value of the Common Stock on the date of grant.
(8) Options were granted under the Company's 1992 Non-Statutory Stock Option
Plan.
</TABLE>
6
OPTION EXERCISES DURING 1993 FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options and warrants
exercised by the named executive officers during the 1993 fiscal year and the
number and value of options and warrants held at fiscal year end. The Company
does not have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S OPTIONS/SAR'S
AT FY-END(#) AT FY-END($)(2)
SHARES ACQUIRED VALUE ---------------------------- ------------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- --------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sterling L. Williams....... 100,000(3) 1,481,250 811,000(4) -- 5,032,700(4) --
Sam Wyly................... -- -- (5) 53,728(6) 300,000 953,672(6) 1,462,500
Charles J. Wyly, Jr........ -- -- (7) 98,320(8) 150,000 1,745,180(8) 731,250
Werner L. Frank............ -- -- 117,250(9) 182,750 1,869,438(9) 999,188
Warner C. Blow............. -- -- 81,250 193,750 1,098,438 1,120,313
<FN>
- ------------------------
(1) Value is calculated based on the difference between the option or warrant
exercise price and the closing market price of the Common Stock on the date
of exercise multiplied by the number of shares to which the exercise
relates.
(2) The closing price for the Company's Common Stock as reported by the New York
Stock Exchange on September 30, 1993 was $24.00. Value is calculated on the
basis of the difference between the option or warrant exercise price and
$24.00 multiplied by the number of shares of Common Stock underlying the
option or warrant.
(3) Shares were acquired upon exercise of warrants.
(4) Includes warrants to purchase an aggregate of 11,000 shares of Common Stock.
(5) On December 4, 1992, Sam Wyly transferred to two trusts options to purchase
an aggregate of 667,000 shares of Common Stock. The exercise price of each
of the options transferred was $18.875 per share and the closing sale price
of the Common Stock on the date of transfer was $21.50. Sam Wyly disclaims
beneficial ownership of the shares of Common Stock subject to the options
held by the trusts.
(6) Includes warrants to purchase an aggregate of 53,728 shares of Common Stock
held by trusts of which Sam Wyly is trustee.
(7) On December 4, 1992, Charles J. Wyly, Jr. transferred to a trust options to
purchase 333,000 shares of Common Stock. The exercise price of each of the
options transferred was $18.875 per share and the closing sale price of the
Common Stock on the date of transfer was $21.50. Charles J. Wyly, Jr.
disclaims beneficial ownership of the shares of Common Stock subject to the
options held by the trust.
(8) Includes warrants to purchase an aggregate of 98,320 shares of Common Stock
held by trusts of which Charles J. Wyly, Jr. is trustee.
(9) Includes warrants to purchase an aggregate of 98,000 shares of Common Stock.
</TABLE>
COMPENSATION OF DIRECTORS
Messrs. Cook, Donachie, French, Miller and Evan Wyly are entitled to receive
an annual fee of $25,000 plus $2,500 for each meeting of the Board of Directors
and authorized committee of the Board of Directors that they attend.
Additionally, Sam Wyly and Charles J. Wyly, Jr. receive annual directors' fees
of $385,000 and $192,500 in their capacities as Chairman and Vice Chairman of
the Board, respectively. Messrs. Williams and Moore do not receive separate
compensation for their service as directors.
7
During fiscal 1993 Mr. French provided advisory services to the Company, for
which he was paid fees aggregating $254,537. Commencing January 1, 1994 Mr.
French will provide advisory services to the Company for which he will be
compensated at a rate of $15,000 per month. Since January 1, 1993, Jackson &
Walker, L.L.P., the law firm of which Mr. French is a partner, has not charged
the Company for any time spent by Mr. French on any Company matters.
On July 2, 1993, the Company entered into a one year Consultation Agreement
with REC Enterprises, Inc., a Delaware corporation of which Robert E. Cook is
President ("REC"), pursuant to which REC will receive a fee of $240,000. During
fiscal 1993, Evan Wyly received $48,000 from the Company pursuant to a
consulting arrangement, which consulting arrangement was terminated January 1,
1994.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
On July 7, 1987, the Company entered into agreements with Sam Wyly, Charles
J. Wyly, Jr. and Sterling L. Williams, executive officers of the Company (such
agreement with Sterling L. Williams being sometimes referred to herein as the
"1987 Agreement"), which agreements provide for employment of such persons by
the Company upon the occurrence of a change of control. Pursuant to such
agreements, a change of control is deemed to occur (i) when any person, other
than Sam Wyly or Charles J. Wyly, Jr., or an affiliate of either of them,
becomes the beneficial owner of securities of the Company representing 20% or
more of the combined voting power of the Company's outstanding securities, (ii)
if, during any three consecutive years, individuals who constitute the Board of
Directors at the beginning of such period cease to constitute a majority of the
Board of Directors or (iii) upon the occurrence of any event that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act (such events are herein referred to as a
"Change of Control"). The 1987 Agreement expires five years after the date of
the Change of Control and requires the Company to pay to such officer, if his
employment is terminated within such five-year period, a sum equal to five times
such officer's salary, bonus and benefits during the twelve-month period
immediately preceding termination. The agreements between the Company and Sam
Wyly and the Company and Charles J. Wyly, Jr. each expire seven years after the
date of the Change of Control and each require the Company to pay such officer,
if his employment is terminated within such seven-year period, a sum equal to
seven times such officer's salary, bonus and benefits during the twelve-month
period immediately preceding termination, provided that such termination
payments made pursuant thereto shall not exceed $6.5 million for Sam Wyly and
$3.25 million for Charles J. Wyly, Jr.
Effective January 1, 1993, the Company entered into an employment agreement
with Sterling L. Williams (the "Employment Agreement"), which provides for an
annual base salary of $600,000 and certain personal benefits plus such bonuses
or other benefits and annual increases on which the Company and Mr. Williams may
agree. Effective October 1, 1993, Mr. Williams' base salary was increased to
$650,000. Upon termination of Mr. Williams' employment by (i) the Company or
(ii) Mr. Williams as a result of a reduction of his compensation or of the
nature or scope of his authority and duties, the Employment Agreement will
automatically be converted into a five-year consulting agreement. In such event,
Mr. Williams shall be entitled to continue receiving compensation and certain
benefits at the levels specified in the Employment 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 of Control, at Mr.
Williams' option, the terms of the 1987 Agreement will govern the termination.
In the event of a Change of Control following conversion of the Employment
Agreement into a consulting agreement, Mr. Williams will have the option of
terminating the consulting agreement and, thereafter, will be entitled to
receive in one lump sum the aggregate amount of all compensation due through the
unexpired portion of the five-year consulting agreement.
On October 1, 1989, the Company entered into agreements with Werner L. Frank
and Warner C. Blow, executive officers of the Company (the "1989 Agreements"),
which agreements provide for employment of such persons by the Company upon a
Change of Control of the Company. Each of these
8
agreements expires three years after the date of the Change of Control and
requires the Company to pay each such officer, if his employment is terminated
within such three-year period, a sum equal to 300% of such officer's salary,
bonus and benefits during the twelve-month period immediately preceding
termination.
Effective January 1, 1993, the Company entered into employment agreements
with Werner L. Frank and Warner C. Blow, which agreements provide for the
continued compensation of Mr. Frank and Mr. Blow in the event that the Company
terminates their employment. The agreement between the Company and Mr. Frank
will expire on January 1, 1996, unless notice of termination is given by the
Company prior to such date, in which event the agreement will expire three years
after the date on which such notice is given. The agreement between the Company
and Mr. Blow will expire three years after the date on which notice of
termination is given to Mr. Blow by the Company. Each of these agreements
requires the Company to continue to pay each such officer, upon his termination
from employment by the Company, for 36 months, the salary, bonus and certain
benefits in effect prior to such officer's termination from employment. In the
event of termination of employment following a Change of Control, at such
officer's option, the terms of the 1989 Agreements will govern termination.
EXECUTIVE AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1993, the members of the Executive Committee were primarily
responsible for determining executive compensation, and the members of the Stock
Option Committee made decisions related to stock option grants to executive
officers. The following executive officers, who also are members of the
Executive and Stock Option Committees, participated in deliberations concerning
executive officer compensation: Sam Wyly, Charles J. Wyly, Jr. and Sterling L.
Williams.
Sam Wyly and Charles J. Wyly, Jr. are executive officers and members of the
Executive Committees, Stock Option Committees and Boards of Directors of both
the Company and Michaels Stores, Inc. Additionally, Sam Wyly and Charles J.
Wyly, Jr. are members of the compensation committee of the Michaels Stores, Inc.
Board of Directors. Accordingly, Sam Wyly and Charles J. Wyly, Jr. have
participated in decisions related to compensation of executive officers of each
of the Company and Michaels Stores, Inc.
During fiscal 1993, Sam Wyly was indebted to the Company for non-interest
bearing advances of $169,027, which were repaid to the Company on December 23,
1993. As of December 31, 1993, Sterling L. Williams was indebted to the Company
for $897,483, which represented the then outstanding balance of and accrued
interest on a promissory note executed effective January 1, 1992, and advances
payable to the Company. The promissory note bears interest at an annual rate of
4.69% and is payable in varying installments through its final maturity date at
December 31, 2000. The largest amounts of indebtedness outstanding since the
beginning of the Company's last fiscal year for Sam Wyly and Mr. Williams were
$169,027 and $897,483, respectively.
As of January 4, 1994, the Company had invested $15 million in a securities
investment partnership managed by Maverick Capital, Ltd. ("Maverick"), a fund
whose objective is to achieve high total returns through aggressive investments
in debt and/or equity securities in the United States or other world markets.
Maverick is owned by Sam Wyly, Charles J. Wyly. Jr., Evan Wyly and various Wyly
family trusts, including a trust for the benefit of the wife of Donald R.
Miller, Jr. In addition, Michael C. French is a managing director of, and has an
income interest in, Maverick. As of January 1, 1994, Maverick was managing a
total of over $100 million of investment assets. The Company has the right to
withdraw all or part of its investment at the end of any calendar quarter. As of
January 4, 1994, based upon the net asset value of the partnership, the
Company's investment was valued at $16.1 million. The Company believes that the
terms of its agreement with the partnership, which provide for a 1% management
fee to Maverick plus a special allocation of 20% of any net investment gains,
are fair to the Company and are typical of the terms of other, comparable
investment partnerships sponsored by unaffiliated investment managers.
9
In addition, the Company has entered into an agreement as of December 13,
1993, with Maverick pursuant to which Maverick is to provide investment
management services for a portion of the Company's available cash. The Company
has paid a one-time set up fee of $75,000 under the agreement and will pay a
quarterly fee equal to .125% of the average net assets being managed. The
Company believes the fees under this agreement are comparable to those that
would be charged to the Company by unaffiliated third parties for comparable
investment management services.
From time to time the Company leases charter aircraft from a company owned
by Sam Wyly and Charles J. Wyly, Jr., for travel by the Company's senior
management in the course of the Company's business. The Company pays for the use
of such aircraft at competitive market rates. For travel during fiscal 1993,
such payments totalled $270,893. Payments for travel from the beginning of
fiscal 1994 through January 1, 1994 totalled $64,314.
PENSION PLAN TABLE
INFORMATICS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II ("SERP II"). In
connection with its acquisition of Informatics General Corporation in 1985, the
Company has retained the Informatics 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: (1) .00167 times the participant's total months of service
times "earnings" (i.e., the average of salary plus any bonuses under other
profit sharing plans for the three consecutive years of highest compensation) or
(2) 50% of "earnings" less the annuity equivalent of the participant's account
balance under the Sterling Software, Inc. Subsidiary Retirement Plan at the
termination of such plan in December 1989 plus the annuity equivalent of the
assumed Company matching contribution under the Company's Savings and Security
Plan for such year. 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 over the Consumer Price
Index for the next preceding calendar year exceeds 5%. As of December 31, 1993,
Mr. Warner Blow had accrued approximately nineteen years of service under SERP
II. None of the other executive officers named in the Summary Compensation Table
participate under SERP II. Amounts paid under SERP II are taxable as income.
SERP II is not funded and benefits are paid as they become due.
The following table shows the estimated annual benefits payable upon
retirement at age 65 to participants in SERP II for the indicated levels of
average annual compensation and various periods of service, assuming no future
changes in such plan and based upon .00167 times the participant's total months
of service times "earnings":
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------------------------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$200,000........................................ $ 60,000 $ 80,000 $ 100,000 $ 100,000 $ 100,000
225,000........................................ 67,500 90,000 112,500 112,500 112,500
250,000........................................ 75,000 100,000 125,000 125,000 125,000
300,000........................................ 90,000 120,000 150,000 150,000 150,000
350,000........................................ 105,000 140,000 175,000 175,000 175,000
400,000........................................ 120,000 160,000 200,000 200,000 200,000
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of December 31, 1993 regarding
the beneficial ownership of capital stock of the Company by each person known by
the Company to own 5% or more of the outstanding shares of each class of the
Company's capital stock, each director of the Company, the Company's Chief
Executive Officer, each of the Company's four other most highly compensated
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executive officers for fiscal 1993 and the directors and executive officers of
the Company as a group. The persons named in the table have sole voting and
investment power with respect to all shares of capital stock owned by them,
unless otherwise noted.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME OF BENEFICIAL BENEFICIAL OF
OWNER OR GROUP (1) TITLE OF CLASS OWNERSHIP CLASS
- ---------------------------------- -------------------------------- --------------- -----
<S> <C> <C> <C>
Sam Wyly.......................... Common Stock 634,100(2) 3.4%
Series B Junior Preferred Stock 49,997(3) 25.0%
Charles J. Wyly, Jr............... Common Stock 925,444(4) 5.0%
Series B Junior Preferred Stock 124,993(5) 62.5%
Evan Wyly......................... Common Stock 62,754(6) *
Series B Junior Preferred Stock 25,010 12.5 %
The Wyly Group.................... Common Stock 1,259,544(7) 6.8 %
Series B Junior Preferred Stock 200,000 100 %
Sterling L. Williams.............. Common Stock 825,000(8) 4.3%
Phillip A. Moore.................. Common Stock 58,999(9) *
Robert J. Donachie................ Common Stock 11,100(10) *
Michael C. French................. Common Stock 10,400(11) *
Warner C. Blow.................... Common Stock -0- *
Werner L. Frank................... Common Stock 69,991(12) *
Donald R. Miller, Jr. ............ Common Stock -0- *
Robert E. Cook.................... Common Stock 735,501(13) 3.9 %
Lorne House Trust Limited......... Common Stock 1,451,588(14) 7.5 %
The Bulldog Non-Grantor Trust..... Common Stock 994,725(15) 5.2 %
Directors and Executive Officers
as a Group....................... Common Stock 3,160,486(16) 15.8 %
Series B Junior Preferred Stock 200,000 100 %
<FN>
- ------------------------
* Less than 1%.
(1) The address of Sam Wyly, Charles J. Wyly, Jr. and The Wyly Group is 8080
North Central Expressway, Suite 1100, Dallas, Texas 75206. The address of
Lorne House Trust Limited and the Bulldog Non-Grantor Trust is Lorne House,
Castletown, Isle of Man, British Isles.
(2) Includes 141,760 shares directly owned by, and 35,728 shares purchasable
pursuant to Series B Warrants and 18,000 shares purchasable pursuant to
Series F Warrants held by, family trusts of which Sam Wyly is trustee.
Includes an aggregate of 438,612 shares held of record by two limited
partnerships of which Sam Wyly is general partner. Does not include an
aggregate of 1,661,725 shares beneficially owned by three separate
irrevocable trusts established by Sam Wyly. Sam Wyly disclaims beneficial
ownership of the excluded shares.
(3) Directly owned by family trusts of which Sam Wyly is trustee.
(4) Includes 270,550 shares directly owned by, and 89,320 shares purchasable
pursuant to Series B Warrants and 9,000 shares purchasable pursuant to
Series F Warrants held by, family trusts of which Charles J. Wyly, Jr. is
trustee. Includes 556,574 shares held of record by two limited partnerships
of which Charles J. Wyly, Jr. is general partner. Does not include an
aggregate of 789,863 shares beneficially owned by two separate irrevocable
non-grantor trusts established by Charles J. Wyly, Jr. Charles J. Wyly, Jr.
disclaims beneficial ownership of the excluded shares.
(5) Directly owned by family trusts of which Charles J. Wyly, Jr. is trustee.
</TABLE>
11
<TABLE>
<S> <C>
(6) Includes 10,000 shares purchasable pursuant to an option and 17,864 shares
purchasable pursuant to Series B Warrants.
(7) The Wyly Group consists of Sam Wyly, Charles J. Wyly, Jr. and First Dallas
Limited, a limited partnership of which Sam Wyly and Charles J. Wyly, Jr.
are general partners.
(8) Includes 800,000 shares purchasable pursuant to options and 11,000 shares
purchasable pursuant to Series F Warrants.
(9) Includes 150 shares directly held by Mr. Moore's child and 19,250 shares
purchasable pursuant to options.
(10) Includes 10,000 shares purchasable pursuant to options.
(11) Includes 10,000 shares purchasable pursuant to an option and 400 shares held
in a retirement account directed by Michael C. French.
(12) Includes 19,250 shares purchasable pursuant to an option, and 50,000 shares
purchasable pursuant to Series F Warrants.
(13) Includes 311,695 shares purchasable pursuant to options. Does not include
18,661 shares directly owned by, and 44,963 shares purchasable pursuant to
options beneficially owned by, Mr. Cook's wife. Mr. Cook disclaims
beneficial ownership of the excluded shares.
(14) Based on an amendment to Schedule 13D filed with the SEC dated December 7,
1992, includes 468,000 shares directly owned by, and 607,088 shares
purchasable pursuant to Series B Warrants, 336,000 shares purchasable
pursuant to Series E Warrants and 40,500 shares purchasable pursuant to
Series F Warrants beneficially owned by, Lorne House Trust Limited as
trustee of the Bulldog Non-Grantor Trust and the Pitkin Non-Grantor Trust,
irrevocable non-grantor trusts established by Sam Wyly and Charles J. Wyly,
Jr., respectively.
(15) Based on an amendment to Schedule 13D filed with the SEC dated December 7,
1992, includes 350,000 shares directly owned by, and 404,725 shares
purchasable pursuant to Series B Warrants and 240,000 shares purchasable
pursuant to Series E Warrants beneficially owned by, the Bulldog Non-Grantor
Trust.
(16) In addition to the ownership of the directors and executive officers listed
in the table and more fully described in footnotes (2) through (13),
includes the following shares beneficially owned by executive officers not
named in the table: 106,217 shares purchasable pursuant to options and
19,980 shares purchasable pursuant to Series F Warrants.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal 1993, Geno P. Tolari, Executive Vice President of the Company,
was indebted to the Company pursuant to a loan that bore interest at an annual
rate of 1% above the prime rate of interest and was due and payable on July 13,
1995. The largest amount of indebtedness outstanding since the beginning of the
Company's last fiscal year for Mr. Tolari was $138,029. Mr. Tolari repaid such
indebtedness to the Company on January 10, 1994. During fiscal 1993, Michael C.
French was indebted to the Company pursuant to a promissory note executed
effective March 31, 1992, payable to the Company. Such promissory note bore
interest at an annual rate of 7.68% and was due and payable on March 31, 1993.
The largest amount of indebtedness outstanding since the beginning of the
Company's last fiscal year for Mr. French was $74,191. Mr. French repaid such
indebtedness to the Company on September 22, 1993. Sam Wyly and Sterling L.
Williams were also indebted to the Company during fiscal 1993. See "Executive
Compensation -- Executive and Stock Option Committee Interlocks and Insider
Participation."
Jackson & Walker, L.L.P., a law firm of which Michael C. French is a
partner, provides legal services to the Company. Since January 1, 1993, the
Company has not been charged by such firm for any time spent by Mr. French on
any Company matters.
12
As of January 4, 1994, the Company had invested $15 million in a securities
investment partnership managed by Maverick, a fund whose objective is to achieve
high total returns through aggressive investments in debt and/or equity
securities in the United States or other world markets. Maverick is owned by Sam
Wyly, Charles J. Wyly, Jr., Evan A. Wyly and various Wyly family trusts,
including a trust for the benefit of the wife of Donald R. Miller, Jr. In
addition, Michael C. French is a managing director of, and has an income
interest in, Maverick. As of January 1, 1994, Maverick was managing a total of
over $100 million of investment assets. The Company has the right to withdraw
all or part of its investment at the end of any calendar quarter. As of January
4, 1994, based upon the net asset value of the partnership, the Company's
investment was valued at $16.1 million. The Company believes that the terms of
its agreement with the partnership, which provide for a 1% management fee to
Maverick plus a special allocation of 20% of any net investment gains, are fair
to the Company and are typical of the terms of other, comparable investment
partnerships sponsored by unaffiliated investment managers.
In addition, the Company has entered into an agreement as of December 13,
1993, with Maverick pursuant to which Maverick is to provide investment
management services for a portion of the Company's available cash. The Company
has paid a one-time set up fee of $75,000 under the agreement and will pay a
quarterly fee equal to .125% of the average net assets being managed. The
Company believes the fees under this agreement are comparable to those that
would be charged to the Company by unaffiliated third parties for comparable
investment management services.
From time to time the Company leases charter aircraft from a company owned
by Sam Wyly and Charles J. Wyly, Jr. See "Executive Compensation -- Executive
and Stock Option Committee Interlocks and Insider Participation."
In connection with the acquisition of Systems Center by the Company, Robert
E. Cook received a payment of $2 million pursuant to the terms of an agreement
between Mr. Cook and Systems Center dated December 15, 1992 and amended June 14,
1993. The Company leases office space in Reston, Virginia from a partnership of
which Mr. Cook is general partner and in which Mr. Cook has a 53% interest. The
lease agreement was entered into by Systems Center in May 1985 and will expire
in 2001. Rent payments for the Company's fiscal year ended September 30, 1993
totalled $2,893,091. The Company has no further option to extend the lease, but
does have a right of first offer if the building is offered for sale.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
STERLING SOFTWARE, INC.
Date: January 26, 1994 By /s/ GEORGE H. ELLIS
---------------------------------
George H. Ellis
EXECUTIVE VICE PRESIDENT, FINANCE
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
14