SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 2)
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 Section 240.14a-12
COMPUTER ASSOCIATES INTERNATIONAL, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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[COMPUTER ASSOCIATES LOGO]
COMPUTER ASSOCIATES INTERNATIONAL, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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To the Stockholders of Computer Associates International, Inc.:
The 2002 Annual Meeting of Stockholders of Computer Associates
International, Inc. (the "Company") will be held on Wednesday, August 28, 2002,
at 10:00 a.m. Eastern Daylight Time at the Wyndham Wind Watch Hotel, located at
1717 Motor Parkway, Islandia, New York, for the following purposes:
(1) To elect eleven directors to serve for the ensuing year and until
their successors are elected.
(2) To approve the Company's 2002 Incentive Plan, which is intended to
replace future awards under the Company's 1994 Annual Incentive
Compensation Plan and the Company's 2001 Stock Option Plan.
(3) To approve the Company's 2002 Compensation Plan for Non-Employee
Directors, which is intended to replace future awards under the
Company's 1993 Stock Option Plan for Non-Employee Directors and the
Company's 1996 Deferred Stock Plan for Non-Employee Directors.
(4) To ratify the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending March 31, 2003.
(5) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board has fixed the close of business on July 3, 2002 as the record
date for determination of those stockholders who will be entitled to notice of
and to vote at the meeting and any adjournment thereof. You may examine a list
of the stockholders of record as of the close of business on July 3, 2002 for
any purpose germane to the meeting during the 10-day period preceding the date
of the meeting at the offices of the Company, located at One Computer Associates
Plaza, Islandia, NY 11749.
If you plan to attend the meeting, please keep the enclosed admission
ticket and bring it to the annual meeting. An admission ticket is required
for entry into the annual meeting. A map showing the location of the meeting
is also included.
If you hold your shares through a broker or other nominee and fail to bring
your admission ticket, proof of ownership will be accepted by the Company only
if you bring either a copy of the voting instruction card provided by your
broker or nominee, or a copy of a brokerage statement showing your share
ownership in the Company as of July 3, 2002.
Whether or not you expect to attend, STOCKHOLDERS ARE REQUESTED TO VOTE
THEIR SHARES ELECTRONICALLY BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD,
OR SIGN, DATE, AND RETURN THE ENCLOSED FORM OF PROXY IN THE ENVELOPE
PROVIDED. No postage is required if mailed in the United States.
By Order of the Board of Directors
Michael A. McElroy
Senior Vice President and Secretary
Islandia, New York
July [ ], 2002
2
COMPUTER ASSOCIATES INTERNATIONAL, INC.
ONE COMPUTER ASSOCIATES PLAZA
ISLANDIA, NY 11749
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PROXY STATEMENT
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GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement is furnished to the holders of the Common Stock, par
value $.10 per share ("Common Stock"), of Computer Associates International,
Inc. (the "Company") in connection with the solicitation of proxies by the Board
of Directors of the Company for use at the 2002 Annual Meeting of Stockholders
to be held on Wednesday, August 28, 2002, at 10:00 a.m. Eastern Daylight Time,
and at any adjournment thereof. The purposes of the meeting and the matters
expected to be acted upon are set forth in the preceding Notice of Annual
Meeting of Stockholders. At present, the Board of Directors knows of no other
business which will come before the meeting.
The Notice of Annual Meeting, Proxy Statement, and form of proxy will be
first mailed to stockholders on or about July [ ], 2002. The Company will bear
the cost of this solicitation of proxies. In addition to the use of the mails,
proxies may be solicited by personal interview, telephone, telegram, facsimile,
advertisements in periodicals and postings on the Company's website, www.ca.com,
by the directors, officers, and employees of the Company for which they will not
receive any compensation. Arrangements will also be made with brokerage houses
and other custodians, nominees, and fiduciaries for the forwarding of
solicitation material to the beneficial owners of shares of Common Stock held by
such persons, and the Company may reimburse such custodians, nominees, and
fiduciaries for reasonable out-of-pocket expenses incurred.
Ranger Governance, Ltd. ("Ranger") announced in June 2002 that it
planned to solicit proxies from Company stockholders to elect a slate of
five nominees to the Company's Board of Directors. On July 24, 2002, Ranger
and its principal, Sam Wyly, agreed to withdraw its slate of five nominees
and to support the Company's nominees for election to the Board of Directors.
The Company and Ranger entered into an Agreement under which the Company
undertook to add subsequent to the 2002 Annual Meeting one independent
director selected by the Company's existing Board of Directors. The Company
also entered into an amendment to Mr. Wyly's 1999 Change of Control Severance
Agreement under which Mr. Wyly agreed to extend his non-compete agreement
with the Company through July 2007. Ranger and Mr. Wyly also agreed to five
year standstill provisions under which each agreed among other things not to
be involved in a proxy contest with the Company. The Company agreed to pay
$10 million to Mr. Wyly for his non-compete extension and standstill under
the amendment to his agreement.
REVOCABILITY AND VOTING OF PROXY
A form of proxy for use at the meeting and a postage paid return
envelope for the proxy are enclosed. Stockholders may revoke the authority
granted by their execution of proxies at any time before their effective
exercise by filing with the Secretary of the Company a written revocation or
duly executed proxy bearing a later date (including a proxy by telephone) or
by voting in person at the meeting. Shares of Common Stock represented by
executed and unrevoked proxies will be voted in accordance with the
instructions shown on the proxy. If no instructions are given, the proxies
will be voted (1) FOR the election of the Board's nominees for election as
directors; (2) FOR the approval of the Company's 2002 Incentive Plan (the
"2002 Incentive Plan"); (3) FOR the approval of the Company's 2002
Compensation Plan for Non-Employee Directors (the "2002 Non-Employee
Directors Plan"); and (4) FOR ratification of the appointment of KPMG LLP as
the Company's independent auditors for the fiscal year ending March 31, 2003.
With respect to the election of directors, proxies cannot be granted with
respect to votes for more than eleven persons, which is the number nominated
for election.
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on July 3, 2002 are
entitled to notice of and to vote at the meeting or any adjournment thereof. On
July 3, 2002, the Company had outstanding 578,101,483 shares of Common Stock.
Each outstanding share of Common Stock is entitled to one vote.
Votes cast at the meeting will be tabulated by persons appointed as
inspectors of election for the meeting. The inspectors of election will treat
shares of Common Stock represented by a properly signed and returned proxy as
present at the meeting for purposes of determining a quorum, without regard to
whether the proxy is marked as casting a vote or abstaining on any or all of the
matters. Likewise, the
2
inspectors of election will treat shares of Common Stock held in street name as
to which brokers do not have discretionary voting authority and as to which they
have not received voting instructions from their customers (so-called "broker
non-votes") as present for purposes of determining a quorum.
The eleven nominees for election to the Board of Directors receiving the
greatest number of affirmative votes cast by holders of Common Stock will be
elected as directors. Accordingly, abstentions or broker non-votes as to the
election of directors will have no effect on the election of directors.
The affirmative vote of the holders of a majority of the shares of
Common Stock represented at the meeting in person or by proxy and entitled to
vote will be required to approve each of the 2002 Incentive Plan and the 2002
Non-Employee Directors Plan and the ratification of the appointment of the
independent auditors. In determining whether the 2002 Incentive Plan, the
2002 Non-Employee Directors Plan or the ratification of the appointment of
the independent auditors has received the requisite number of affirmative
votes, (i) abstentions will be treated as shares entitled to vote, and
therefore will have the effect of a vote against the proposal, and (ii)
broker non-votes, if any, will be treated as shares that are not entitled to
vote. Under New York Stock Exchange ("NYSE") rules, brokers will not have
discretion to vote shares held in street name without instructions from the
beneficial owner of the shares with respect to the 2002 Incentive Plan or the
2002 Non-Employee Directors Plan, but will have such discretion with respect
to voting on the election of directors and the ratification of the
appointment of the independent auditors.
ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended March 31, 2002
will be mailed with this Proxy Statement.
Stockholders are referred to the Annual Report for financial and other
information about the activities of the Company. The Annual Report is not a part
of this Proxy Statement.
STOCK OWNERSHIP BY CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to the beneficial
ownership of the Common Stock as of July 3, 2002 by the persons, other than
members of the Board of Directors and management of the Company, known to the
Company, as of July 3, 2002, to own beneficially 5% or more of the outstanding
Common Stock:
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
------------------------------------ ------------------ ----------
Walter H. Haefner/ 115,313,380(1) 19.9%
Careal Holding AG
Utoquai 49
8022 Zurich, Switzerland
FMR Corp. 37,772,581(2) 6.5%
82 Devonshire Street
Boston, MA 02109
3
Private Capital Management, L.P. 33,890,981(3) 5.9%
8889 Pelican Bay Boulevard, Suite 500
Naples, FL 34108-7512
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(1) According to a Schedule 13D/A filed on December 28, 2001, Walter H.
Haefner, through Careal Holding AG, a company wholly-owned by Mr.
Haefner, has sole voting power and sole dispositive power over these
shares.
(2) According to a Schedule 13G/A filed on May 10, 2002 by FMR Corp. ("FMR"),
FMR and certain controlling persons of FMR, have reported sole power to
dispose or direct the disposition of 37,772,581 shares through the
following wholly-owned subsidiaries: (i) Fidelity Management & Research
Company is the beneficial owner of 36,084,892 shares (including 841,002
shares of Common Stock resulting from the assumed conversion of
$20,470,000 principal amount of the Company's 5% Convertible Senior
Notes), as a result of acting as investment advisor to various investment
companies registered under the Investment Company Act of 1940, (ii)
Fidelity Management Trust Company is the beneficial owner of 1,686,260
shares as a result of serving as investment manager under certain
institutional accounts, and (iii) Strategic Advisers, Inc., an investment
adviser registered under the Investment Advisers Act of 1940 that
provides investment advisory services to individuals, beneficially owns
1,429 shares of Common Stock. FMR and certain controlling persons of FMR
report having the sole power to vote or direct voting of 1,342,589
shares.
(3) According to a PX14A6G Notice of Exempt Solicitation filed with the SEC
by PCM on June 28, 2002, PCM has beneficial ownership of these shares but
voting and dispositive powers over such shares are not addressed in such
filing.
BOARD AND MANAGEMENT OWNERSHIP
The following table sets forth certain information as to the beneficial
ownership of the Common Stock as of July 3, 2002 for (i) each director and
nominee, including Sanjay Kumar, the Company's President and Chief Executive
Officer, and Russell M. Artzt, the Company's Executive Vice President; (ii) the
three other officers named in the Summary Compensation Table (in addition to
Messrs. Kumar and Artzt); and (iii) all current directors and executive officers
as a group (21 persons). Information with respect to beneficial ownership is
based upon information furnished to the Company by the persons identified.
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------------ ------------------ --------
Directors and Nominees:
Russell M. Artzt (1) 2,292,967 *
Kenneth Cron ---- ----
Alfonse M. D'Amato (2) 63,500 *
Willem F.P. de Vogel (3) 71,052 *
Richard A. Grasso (4) 67,250 *
Shirley Strum Kenny 14,000 *
4
Sanjay Kumar (5) 1,746,860 *
Robert E. La Blanc --- ----
Jay W. Lorsch --- ----
Roel Pieper (6) 33,500 *
Lewis S. Ranieri 70,600 *
Walter P. Schuetze 2,500 *
Alex Serge Vieux --- ----
Charles B. Wang(7) 28,440,064 4.8%
Thomas H. Wyman --- ----
Non-Directors:
Gary Quinn (8) 287,599 *
Stephen Richards (9) 472,479 *
Ira H. Zar (10) 911,571 *
All Directors and Executive Officers
as a Group (21 persons) (11) 34,755,921 5.8%
* Represents less than 1% of the outstanding Common Stock.
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(1) Includes 1,056,372 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options and 22,789 shares credited to
the Company's tax-qualified profit sharing 401(k) plan.
(2) Includes 13,500 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options.
(3) Includes 54,000 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options and 3,000 shares held by Mr.
de Vogel's spouse.
(4) Includes 47,250 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options.
(5) Includes 601,518 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options and 35,803 shares credited to
the Company's tax-qualified profit sharing 401(k) plan. Also includes (i)
2,025 shares held in accounts for minor children for which Mr. Kumar
serves as the custodian, (ii) 82,292 shares owned by the Limo-Almi
Foundation, a non-profit foundation of which Mr. Kumar serves as the
trustee, (iii) 55,867 shares held in a trust for the benefit of
descendants of Mr. Kumar of which Mr. Kumar's wife is a co-trustee, and
accordingly shares voting and dispositive power, and (iv) 968,998 shares
in an account that may be used as collateral for certain lines of credit
available to Mr. Kumar. Mr. Kumar disclaims beneficial ownership of the
shares referenced in clauses (i), (ii) and (iii) of the second sentence
of this note (5).
(6) Includes 13,500 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options.
(7) Includes 6,383,567 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options and 2,496 shares credited to
the Company's tax-qualified profit sharing 401(k) plan. Also includes (i)
309,454 shares held directly and as trustee for a minor by Mr.
5
Wang's spouse, an employee of a subsidiary of the Company, 3,026,271
shares that may be acquired within 60 days of July 3, 2002 through the
exercise of stock options held by Mr. Wang's spouse and 2,053 shares
credited to the account of Mr. Wang's spouse in the Company's
tax-qualified profit sharing 401(k) plan, (ii) 2,227,565 shares owned by
the Charles B. Wang Foundation, Inc., the Charles B. Wang Foundation and
the Sagamore Hill Supporting Organization, non-profit foundations of
which Mr. Wang serves as a director, (iii) 9,086 shares held as custodian
for Mr. Wang's minor children and (iv) an aggregate of 2,729,054 shares
that are pledged or deposited as collateral for available lines of credit
and/or outstanding loans. Mr. Wang disclaims beneficial ownership of the
shares referenced in clauses (i), (ii) and (iii) of the second sentence
of this note (7).
(8) Includes 282,397 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options and 2,196 shares credited to
the Company's tax-qualified profit sharing 401(k) plan.
(9) Includes 465,850 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options and 3,823 shares credited to
the Company's tax-qualified profit sharing 401(k) plan.
(10) Includes 883,278 shares that may be acquired within 60 days of July 3,
2002 through the exercise of stock options and 3,653 shares credited to
the Company's tax-qualified profit sharing 401(k) plan.
(11) Includes an aggregate of 13,053,742 shares that may be acquired within 60
days of July 3, 2002 through the exercise of stock options and 103,356
shares credited to the Company's tax-qualified profit sharing 401(k)
plan.
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES
On July 16, 2002, the Company announced that it had added four new
independent directors, Kenneth Cron, Robert E. La Blanc, Alex Serge Vieux and
Thomas H. Wyman, which increased the size of the Board from eleven to
fifteen. The Company also announced that Willem F.P. de Vogel, a director
since 1991, Richard A. Grasso, a director since 1994, Shirley Strum Kenny, a
director since 1994, and Roel Pieper, a director since 1999, will retire from
the Board of Directors, effective immediately before the Annual Meeting. The
Company thanks these four directors for their years of valued service and
valuable contributions to the Company. In connection with the Annual Meeting,
the number of directors constituting the Company's Board of Directors will be
reduced to eleven with the retirement of the four directors referred to
above. The Board of Directors has nominated the eleven persons named below
for election as directors at the meeting each to serve as a director until
the next annual meeting and until his or her successor shall have been duly
elected and qualified. Each of the nominees now serves as a director of the
Company and has confirmed to the Company that he expects to be able to
continue to serve as a director of the Company until the end of his term.
However, if at the time of the meeting, any of the nominees named below is
not available to serve as a director (an event which the Board of Directors
does not now have any reason to anticipate), all the proxies granted to vote
in favor of such director will be voted for the election of such other person
or persons, if any, as the Board of Directors may designate.
6
Set forth below are the names and ages of the nominees, the principal
occupation of each, the year in which each was first elected a director of the
Company, the business experience of each for at least the past five years and
certain other information concerning each of the nominees.
DIRECTOR
AGE SINCE
--- --------
Russell M. Artzt........................ Executive Vice President-Alliances and 55 1980
eTrust Solutions since April 2002.
Executive Vice President-Research and
Development from April 1987 until
March 2002 and the Senior
Development Officer of the Company
since 1976.
Kenneth Cron............................ Chief Executive Officer of Vivendi 45 2002
Universal Games, a global leader in the
publishing of online, PC and console-based
interactive entertainment and a division
of Vivendi Universal, S.A., since June
2001. Prior to that, Mr. Cron served as
Chief Executive Officer of the Flipside
Network, a division of Vivendi Universal
Games, from March 2001. He was Chief
Executive Officer of Uproar Inc. from
September 1999 to March 2001 when Uproar
was acquired by Flipside. Mr. Cron worked
at CMP Media where, as the President of
Publishing, he had responsibility for
the company's United States businesses,
including its print publications, trade
shows/conferences and online services,
from 1978 to June 1999 when CMP Media
was acquired by Miller Freeman, Inc.
The Honorable Alfonse M. D'Amato........ Managing Director of Park Strategies 64 1999
LLC, a business consulting firm, since
January 1999. United States Senator
from January 1981 until January 1999.
During his tenure, he served as
Chairman of the Senate Committee on
Banking, Housing and Urban Affairs,
and Chairman of the Commission on
Security and Cooperation in Europe.
7
DIRECTOR
AGE SINCE
--- --------
Sanjay Kumar............................ President and Chief Executive Officer 40 1994
since August 2000. He was President
and Chief Operating Officer from
January 1994 to July 2000, Executive
Vice President-Operations from January
1993 to December 1993, Senior Vice
President-Planning from April 1989 to
December 1992, Vice President-
Planning from November 1988 to
March 1989. He joined the Company
with the acquisition of UCCEL Corp. in
August 1987.
Jay W. Lorsch........................... Louis Kirstein Professor of Human 69 2002
Relations since 1978, and Chairman
of Doctoral Programs, 1995 to 1999,
at the Harvard Business School.
Mr. Lorsch has served as Faculty
Chairman of the Harvard Business
School's Global Corporate Governance
Initiative since 1998. He is an author
of over a dozen books and consultant to
the boards of directors of several
Fortune 500 companies. He is also a
director of the Brunswick Corporation.
Robert E. La Blanc...................... Founder and President of Robert E. La 68 2002
Blanc Associates, Inc., an information
technologies consulting and investment
banking firm, since 1981. He was
previously Vice Chairman of
Continental Telecom Corporation and
previously a general partner at Salomon
Brothers Inc. He is also a director of
Chartered Semiconductor
Manufacturing Ltd., Salient 3
Communications, Inc., Storage
Technology Corporation, The Titan
Corporation, and a family of Prudential
Mutual Funds.
8
DIRECTOR
AGE SINCE
--- --------
Lewis S. Ranieri........................ Founder and prime originator of Hyperion 55 2001
Partners L.P. and Hyperion Partners II L.P.
("Hyperion") and chairman or director of
various Hyperion entities. He is also
Chairman and a member of the Board of
Directors of Hyperion Capital Management,
Inc., a registered investment advisor, and
is Chairman and a director of the following
funds registered under the Investment
Company Act of 1940: The Hyperion Total
Return Fund, Inc., The Hyperion 2002 Term
Trust, Inc., The Hyperion 2005 Investment
Grade Opportunity Term Trust, Inc. and The
Hyperion Stategic Mortgage Income Fund,
Inc. (pending registration). Prior to
forming Hyperion Partners L.P., Mr. Ranieri
had been Vice Chairman of Salomon Brothers
Inc ("Salomon") and worked for Salomon from
July 1968 to December 1987. He also serves
as Chairman, Chief Executive Officer and
President of Ranieri & Co., Inc., a private
investment advisor and management
corporation. He is also a director of
Delphi Financial Group, Inc. and Reckson
Associates Realty Corp.
Walter P. Schuetze...................... Independent consultant since February 69 2002
2000. He was Chief Accountant of the SEC's
Division of Enforcement from November 1997
to February 2000. He was an independent
consultant from April 1995 to November
1997. He was Chief Accountant to the SEC
from January 1992 to March 1995. He was a
charter member of the Financial Accounting
Standards Board, a member of the Financial
Accounting Standards Advisory Council and a
member and chair of the Accounting
Standards Executive Committee of the
American Institute of Certified Public
Accountants.
9
DIRECTOR
AGE SINCE
--- --------
Alex Serge Vieux........................ Founder of DASAR, Inc., an international 45 2002
technology company, where he has been
Chairman and Chief Executive Officer since
1990. He was a co-founder of C.A.T.S. Software
GmbH and Renaissance Software, Inc., firms
focusing on the banking industry. He is also a
director of Check Point Software
Technologies Ltd., Commerce One, Inc.,
Korea Thrunet Co., Ltd. and Madge Networks N.V.
Charles B. Wang......................... Chairman of the Board since April 1980, 57 1976
and Chief Executive Officer of the Company
from 1976 to July 2000.
Thomas H. Wyman......................... President and Chief Executive Officer 72 2002
of CBS Inc. from June 1980, and Chairman
from April 1983, to September 1986. He served
on the Board of Directors of General Motors
Corporation from 1985 to October 1998. He
was Senior Advisor of SBC Warburg Inc.
from 1996 to 1997 and Chairman of S.G.
Warburg & Co. Inc. from 1992 to 1996.
He is a member of the International
Advisory Group of Toshiba Corporation
(Tokyo).
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES LISTED
ABOVE.
The Company, Charles B. Wang, Sanjay Kumar and Russell M. Artzt are
defendants in a number of stockholder class action lawsuits, the first of
which was filed July 23, 1998, alleging that a class consisting of all
persons who purchased Common Stock during the period January 20, 1998 until
July 22, 1998 were harmed by misleading statements, misrepresentations and
omissions regarding the Company's future financial performance. These cases,
which seek monetary damages in an unspecified amount, have been consolidated
into a single action in the United States District Court for the Eastern
District of New York. In February and March 2002, a number of stockholder
lawsuits were filed in the U.S. District Court for the Eastern District of
New York against the Company and Messrs. Wang, Kumar and Ira H. Zar, the
Company's Chief Financial Officer. These lawsuits generally allege, among
other things, that the Company made misleading statements of material fact or
omitted to state material facts necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading in connection with the Company's financial performance. Each of
the named individual plaintiffs seeks to represent a class consisting of
purchasers of Common Stock and call options and sellers of put options on
Common Stock for the period May 28, 1999 through February 25, 2002. These
cases have not yet been consolidated, and class action status has not yet
been certified in this litigation. Although the ultimate outcome and
liability, if any, cannot be determined, the Company believes that the facts
do not support the claims in these lawsuits and that the Company and its
officers and directors have meritorious defenses.
10
In April 2002, a derivative suit against all the directors of the Company
except Kenneth Cron, Robert E. La Blanc, Jay W. Lorsch, Walter P. Schuetze,
Alex Serge Vieux and Thomas H. Wyman was filed in the Chancery Court in
Delaware alleging breach of their fiduciary duties resulting in damages to
the Company of an unspecified amount. This derivative suit is based on
essentially the same underlying allegations as those contained in the
February and March 2002 stockholder lawsuits. Similarly, in June 2002, a
derivative suit against all directors of the Company except Messrs. Cron, La
Blanc, Lorsch, Schuetze, Vieux and Wyman as well as Ernst & Young LLP and
KPMG LLP (the Company's former and current independent auditors,
respectively), was filed in New York State Supreme Court, Suffolk County.
This derivative suit also is based on essentially the same underlying
allegations as those contained in the February and March 2002 stockholder
lawsuits, and in addition alleges that the individual management director
defendants sold Common Stock from June 1999 through February 2002 while in
possession of material non-public information concerning the Company. This
suit alleges breach of fiduciary duties, waste and misappropriation of
corporate assets, and damages to the Company in an unspecified amount, and in
addition seeks the imposition of a constructive trust upon the profits
allegedly realized from the sale of Common Stock.
Since February 2002, the Company has been cooperating with a joint inquiry
by the United States Attorney's Office for the Eastern District of New York and
the staff of the Northeast Regional Office of the SEC concerning certain of the
Company's accounting practices. At this point, the Company cannot predict the
scope or outcome of the inquiry.
DIRECTOR COMPENSATION
Only non-employee directors of the Company receive compensation for their
services as directors of the Company. Under the 1996 Deferred Stock Plan for
Non-Employee Directors (the "1996 Plan"), non-employee directors receive
their entire annual retainer in Common Stock, receipt of which is deferred
until retirement from the Board, death, or disability. At its annual meeting
on August 29, 2001, the Board of Directors established its annual director
fee for the succeeding 12 months at $45,000 in Common Stock based on the fair
market value of the Common Stock on that date. The annual director fee for
2003 will be credited to each director's deferred stock compensation account
under the 2002 Non-Employee Directors Plan, if such plan is approved by the
stockholders at the 2002 Annual Meeting, or, if such plan is not so approved,
under the 1996 Plan, in either case based on the fair market value of the
Common Stock on August 28, 2002. If approved, the 2002 Non-Employee Directors
Plan will replace the 1996 Plan and the 1993 Plan described below.
Under the Company's 1993 Stock Option Plan for Non-Employee Directors (the
"1993 Plan"), non-employee directors are awarded options to acquire up to 6,750
shares of Common Stock per year subject to the Company's attainment of specific
return-on-equity objectives. Pursuant to the 1993 Plan, the exercise price of
such options is equal to the fair market value of the shares covered by such
options on the date of grant. No options were granted under the 1993 Plan in
fiscal year 2002. If the adoption of the 2002 Non-Employee Directors Plan is
approved by the stockholders at the 2002 Annual Meeting, non-employee directors
will each receive on August 28, 2002 a grant of options to acquire up to 6,750
shares of Common Stock, subject to certain adjustments. Unlike the 1993 Plan,
grants of options under the 2002 Non-Employee
11
Directors Plan will not be dependent upon the Company's attainment of specified
return-on-equity or other performance-based objectives.
The 1996 Plan provides that the Board of Directors may credit the deferred
stock compensation account under the 1996 Plan of any non-employee director who
by force of any federal, state, or local law, regulation, or government agency
decision is precluded from accepting options under the 1993 Plan. The 2002
Non-Employee Directors Plan provides for similar treatment with respect to
non-employee directors who are precluded from accepting options under the 2002
Non-Employee Directors Plan.
While Mr. Wang, the Chairman of the Board, is not eligible to receive
compensation as a director, he receives compensation as an employee of the
Company. His base compensation for the fiscal year ended March 31, 2002 was
$700,000. His base compensation for the prior fiscal year was $1,000,000. He
received no bonus, grant of stock options or restricted stock, or award of
long-term compensation in either fiscal year 2002 or fiscal year 2001.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the Company's fiscal year ended March 31, 2002, the Board of
Directors held 12 meetings. In addition to these meetings, the Board of
Directors acted by unanimous written consent on six occasions. Each director
attended more than 75% of the Board meetings and meetings of the Board
committees on which he or she served. The Company has four standing committees:
the Corporate Operations Committee (formerly the Executive Committee), the Audit
Committee, the Compensation and Human Resource Committee (formerly the Stock
Option and Compensation Committee) and the Corporate Governance Committee
(formerly the Nominating Committee). The current members of the committees are
identified in the following table:
-----------------------------------------------------------------------------------------------
COMPENSATION
CORPORATE CORPORATE AND HUMAN
DIRECTOR OPERATIONS AUDIT GOVERNANCE RESOURCE
-----------------------------------------------------------------------------------------------
R. Artzt X
-----------------------------------------------------------------------------------------------
A. D'Amato X X
-----------------------------------------------------------------------------------------------
R. Grasso X X
-----------------------------------------------------------------------------------------------
W. de Vogel X
-----------------------------------------------------------------------------------------------
S. Kenny X X
-----------------------------------------------------------------------------------------------
S. Kumar X
-----------------------------------------------------------------------------------------------
J. Lorsch CHAIR
-----------------------------------------------------------------------------------------------
R. Pieper X
-----------------------------------------------------------------------------------------------
L. Ranieri X CHAIR
-----------------------------------------------------------------------------------------------
W. Schuetze CHAIR
-----------------------------------------------------------------------------------------------
C. Wang CHAIR
-----------------------------------------------------------------------------------------------
The Corporate Operations Committee is authorized to approve capital
expenditures at levels up to the maximum amount of its authority as determined
by the full Board of Directors. During fiscal year 2002, the Corporate
Operations Committee did not meet, but acted by unanimous written consent on one
occasion.
The Audit Committee currently consists of four non-management directors.
Each member of the Audit Committee is independent as defined by the rules of the
NYSE. The Audit Committee operates
12
under a written charter adopted by the Board of Directors. The Audit Committee
is responsible for, among other things, recommending the firm to be chosen as
independent auditors, overseeing and reviewing audit results, and monitoring the
effectiveness of internal audit functions. The Audit Committee met six times
during fiscal year 2002. The Audit Committee has recommended the selection of
KPMG LLP as independent auditors for the fiscal year ending March 31, 2003.
The Corporate Governance Committee of the Board currently consists of four
non-management directors. The Corporate Governance Committee has responsibility
for overseeing the size and composition of the Board, searching for new
directors, reviewing the slate of existing directors and advising the Board on
various other corporate governance matters. During fiscal year 2002, the
Corporate Governance Committee met two times. The Corporate Governance Committee
does not consider nominees for directors recommended by stockholders.
Stockholders who wish to nominate an individual for election as a director must
follow the procedures set forth in this Proxy Statement under the heading
"Advance Notice Procedures."
The Compensation and Human Resource Committee of the Board (the
"Compensation Committee") currently consists of three non-management
directors. The Compensation Committee has the power to prescribe, amend, and
rescind rules relating to the Company's 1987 Non-Statutory Stock Option Plan,
1991 Stock Incentive Plan, 1993 Plan, 1994 Annual Incentive Compensation
Plan, 1995 Key Employee Stock Ownership Plan, 1998 Incentive Award Plan, the
2001 Stock Option Plan (the "2001 Plan") and the 2002 Incentive Plan and the
2002 Non-Employee Directors Plan if they are approved by stockholders
(collectively, the "Plans"), to grant options and other awards under the
Plans and to interpret the Plans. The other duties of the Compensation
Committee include determining and recommending the compensation plans for the
Chairman of the Board (if such person is an employee of the Company) and the
Chief Executive Officer and are described below under "Compensation and Human
Resource Committee Report on Executive Compensation." During fiscal year
2002, the Compensation Committee met three times and acted by unanimous
written consent on three occasions.
A copy of the Company's corporate governance principles, as well as copies
of the charters for the four standing committees, are attached hereto as Exhibit
A.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"), AS AMENDED, THAT MIGHT INCORPORATE
OTHER FILINGS WITH THE SEC, INCLUDING THIS PROXY STATEMENT, THE REPORT OF THE
COMPENSATION AND HUMAN RESOURCE COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS
SET FORTH BELOW, THE AUDIT COMMITTEE REPORT AND THE STOCK PERFORMANCE GRAPH, IN
ACCORDANCE WITH SEC REQUIREMENTS SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
COMPENSATION AND HUMAN RESOURCE COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
GENERAL
Certain decisions as to compensation of the Company's executive officers
are made by the Compensation and Human Resource Committee of the Company's Board
of Directors (the "Compensation Committee"), none of the members of which is an
employee of the Company. At the Company's 2002 fiscal year end, the members of
the Compensation Committee were Lewis S. Ranieri, Richard A. Grasso and Roel
Pieper.
13
COMPENSATION POLICIES
The Compensation Committee's executive compensation policies are designed
to attract and retain executives capable of leading the Company in a rapidly
evolving computer software marketplace and to motivate such executives to
maximize profitability and stockholder value. The Compensation Committee has
designed the Company's executive compensation program with four components to
achieve this objective--base salary; annual incentives; long-term equity
participation; and benefits. The majority of each executive's total compensation
is dependent on the attainment of predefined performance objectives which are
consistent with the maximization of stockholder value. The philosophy and
operation of each component is discussed herein.
BASE SALARY. Base salaries for executive officers are designed to attract
and retain superior, high-performing individuals. As such, the Company believes
its base salaries for executive positions are, and should be, equal to or
greater than those of comparable companies.
ANNUAL INCENTIVES. The executive officers earn a significant portion of
their total annual compensation based on achievement of predetermined individual
and Company performance targets. The Company's 1994 Annual Incentive
Compensation Plan (the "1994 Plan"), which is administered by the Compensation
Committee, establishes a specific percentage of net income after taxes that is
in excess of a threshold based on the Company's target return on average
stockholders' equity. Different percentages of any such excess are allocated to
each executive officer at the commencement of each fiscal year. The Compensation
Committee may, at its discretion, decrease (but never increase) the calculated
annual incentive compensation payable to an executive, and/or direct that a
portion of this incentive be payable in Common Stock, subject to certain holding
restrictions. The Company's 2002 Incentive Plan, set forth in Exhibit B,
subject to the approval by the Company's stockholders at the 2002 Annual
Meeting, is intended to replace future awards under the 1994 Plan and the 2001
Plan.
LONG-TERM EQUITY PARTICIPATION. The Compensation Committee believes
strongly that stock ownership by management and stock-based performance
compensation arrangements are beneficial in aligning management's and
stockholders' interests in the enhancement of stockholders' return. In 2001, the
Company's stockholders approved the 2001 Plan, to replace the 1991 Stock
Incentive Plan. During fiscal year 2002, the Company did not grant any stock
based awards under any of its compensation plans to any of its executive
officers. The Company's 2002 Incentive Plan, subject to the approval by the
Company's stockholders at the 2002 Annual Meeting, is intended to replace future
awards under the 1994 Plan and the 2001 Plan.
BENEFITS. The benefits available to executive officers are the same as
those afforded to all full-time employees. In general, they are the standard
protection against financial catastrophe that can result from personal or family
illness, disability, or death. Executive officers are also eligible to
participate in the voluntary personal contribution, as well as the Company
matching and discretionary, provisions of the Computer Associates Savings
Harvest Plan (the "CASH Plan"), to the extent permitted under the CASH Plan, the
applicable Employment Retirement Income Security Act of 1974 regulations, as
amended ("ERISA"), and the Internal Revenue Code of 1986, as amended (the
"Code").
Effective April 1, 1994, the Company established an unfunded "Restoration
Plan" primarily for the purpose of providing deferred compensation for a select
group of management or highly compensated employees, within the meaning of
Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. This Restoration Plan is
solely for the purpose of benefiting participants in the CASH Plan who are
precluded from receiving a full allocation of Employer Contributions under the
CASH Plan because of the limitation on the compensation taken into account under
such CASH Plan imposed by Section 401(a)(17) of the Code as amended by the
Omnibus Budget Reconciliation Act of 1993.
14
The Company also established effective January 1, 1993, an unfunded "Excess
Benefit Plan" as said term is defined in Sections 3(36) and 4(b)(5) of ERISA,
solely for the purpose of benefiting participants in the CASH Plan who are
unable to receive a full allocation of Employer Contributions under the CASH
Plan limitations imposed by Section 415 of the Code.
The Company's medical, dental and disability plans as well as the CASH Plan
provide all employees with the protection necessary to devote their full
attention to achievement of the Company's objectives.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee determined the components of Mr. Kumar's fiscal
year 2002 compensation as follows:
BASE SALARY. Mr. Kumar's base salary was $1,000,000 in fiscal year 2002
compared to $900,000 in fiscal year 2001 after having been named
Chief Executive Officer in August 2000.
ANNUAL INCENTIVES. As disclosed in the Company's proxy statement for 2001,
Mr. Kumar elected not to receive any annual incentive compensation for fiscal
year 2002.
LONG-TERM EQUITY PARTICIPATION. Neither Mr. Kumar nor any of the Company's
other executive officers received any stock-based awards during fiscal year
2002.
BENEFITS. Mr. Kumar received aggregate matching and discretionary
contributions to the Company's benefit plans of $17,362 (including contributions
under the Restoration Plan and the Excess Benefit Plan) and a $12,000
non-reimbursed travel allowance in fiscal year 2002. He was also provided
benefits under the Company's medical, dental, and disability plans consistent
with those provided to other full-time employees.
DEDUCTIBILITY
Beginning in 1994, Section 162(m) of the Code limits deductibility of
compensation in excess of $1 million paid to the Company's chief executive
officer and to each of the other four highest-paid executive officers unless
this compensation qualifies as "performance-based." In 1994, the Compensation
Committee adopted, and the stockholders approved, terms under which annual
incentive compensation and long-term equity participation awards should
qualify as performance-based. Additionally, based on the applicable tax
regulations, any taxable compensation derived from the exercise of stock
options, the issuance or vesting of restricted stock, or the award of any
other equity-based compensation, as applicable under the Company's 2001 Plan,
any prior Plans and, if approved by the stockholders at the 2002 Annual
Meeting, the 2002 Incentive Plan should qualify as performance-based. The
Compensation Committee is not precluded, however, from making compensation
payments under different terms even if they would not qualify for tax
deductibility under Section 162(m).
SUBMITTED BY THE COMPENSATION
AND HUMAN RESOURCE COMMITTEE
Lewis S. Ranieri, Chair
Richard A. Grasso
Roel Pieper
15
AUDIT COMMITTEE REPORT
The Audit Committee monitors the Company's financial reporting process and
internal control system on behalf of the Board. In addition, the Committee
recommends to the Board, subject to stockholder ratification, the selection of
the Company's independent auditors. The Audit Committee is a standing committee
of the Board of Directors and operates under a written charter adopted by the
Board of Directors. Each member of the Audit Committee is independent as defined
by the rules of the NYSE.
The Audit Committee has reviewed and discussed with the management of the
Company the audited financial statements as of and for the fiscal year ended
March 31, 2002. In addition, the Audit Committee has discussed with the
independent auditors, the matters required to be discussed by SAS 61. The Audit
Committee has received from the independent auditors the written disclosures and
the letter required by the Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and has discussed with its
independent auditors their independence.
The Audit Committee discussed with the Company's independent auditors the
overall scope and plans for their audits. The Audit Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examinations, the evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting. The
Audit Committee also meets with members of the Company's internal audit
department as part of its regular meetings.
Based upon the Audit Committee's discussions with management and the
independent auditors referred to above and the Audit Committee's review of the
representations of management and the report of the independent auditors to the
Audit Committee, the Audit Committee recommended to the Board of Directors that
the audited financial statements be included in the Company's Annual Report on
Form 10-K for the year ended March 31, 2002.
SUBMITTED BY THE AUDIT COMMITTEE
Walter P. Schuetze, Chair
Alfonse M. D'Amato
Willem F.P. de Vogel
Shirley Strum Kenny
16
COMPENSATION AND OTHER INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth the cash and non-cash compensation earned
for the fiscal years ended March 31, 2002, 2001 and 2000, by the President and
Chief Executive Officer and each of the four next most highly compensated
executive officers of the Company for the fiscal year ended March 31, 2002.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION RESTRICTED STOCK OPTION
NAME AND FISCAL ------------------- ----------------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS ($)(2) AWARDS(#)(3) COMPENSATION(4)
------------------ ---- ------ ----- ------------- ------------ ---------------
Sanjay Kumar 2002 $1,000,000 --- --- --- $29,362
PRESIDENT, 2001 $900,000 --- --- --- $31,000
CHIEF EXECUTIVE OFFICER 2000 $900,000 $3,156,000(1) $4,735,000 750,000 $33,875
Russell M. Artzt 2002 $750,000 --- --- --- $29,362
EXECUTIVE VICE 2001 $750,000 --- --- --- $31,000
PRESIDENT 2000 $750,000 $ 861,000(1) $1,291,000 250,000 $33,875
Gary Quinn 2002 $450,000 $889,209 --- --- $29,362
EXECUTIVE VICE 2001 $250,000 $700,000 --- 400,000 $29,642
PRESIDENT 2000 $200,000 $400,000 --- 75,000 $29,433
Stephen Richards 2002 $450,000 $880,600 --- --- $29,362
EXECUTIVE VICE 2001 $300,000 $900,000 --- 450,000 $30,885
PRESIDENT 2000 $200,000 $617,400 --- 150,000 $29,500
Ira H. Zar 2002 $500,000 $500,000 --- --- $29,362
EXECUTIVE VICE 2001 $500,000 $800,000 --- 900,000 $30,892
PRESIDENT-FINANCE, 2000 $350,000 $950,000 --- 500,000 $33,808
CHIEF FINANCIAL OFFICER
----------
(1) Consists of incentive compensation for Messrs. Kumar and Artzt for
fiscal year 2000 earned pursuant to the 1994 Plan.
(2) Reflects the value on the date of grant of restricted stock awarded
under the 1994 Plan for Messrs. Kumar and Artzt for fiscal year
2000. All such shares were vested upon grant and are entitled to
dividends.
17
(3) No options were granted to the executive officers of the Company
during fiscal year 2002. All options granted to such executive
officers of the Company in prior years were granted under the 1991
Plan and vest over a five-year period following the date of grant
as follows: 10% on the first anniversary; 15% on the second
anniversary; 20% on the third anniversary; 25% on the fourth
anniversary; and 30% on the fifth anniversary.
(4) Consists of Company contributions to the Company's benefit plans and
a non-reimbursed travel allowance of $12,000 for each of the named
executive officers for fiscal years 2002, 2001 and 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE AT MARCH 31, 2002(2) AT MARCH 31, 2002(3)
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------------ ----------- ----------- ------------- ----------- -------------
S. Kumar 750,000 $10,977,750 451,518 562,500 $ 675,094 ---
R.M. Artzt 237,035 $ 6,051,651 1,006,372 187,500 $ 5,134,529 ---
G. Quinn --- --- 188,407 491,490 --- ---
S. Richards --- --- 348,423 711,452 --- ---
I.H. Zar 5,128 $ 102,616 624,757 1,308,139 $ 811,960 ---
----------
(1) Options exercised were granted in prior years with exercise prices
equal to the fair market value at the time of grant. With respect to
Mr. Kumar and Mr. Zar, shares acquired upon exercise of the options
have not been sold by the executive, except that in the case of Mr.
Kumar, a portion of such shares were surrendered to the Company in
connection with tax obligations incurred upon exercise. Value
realized was calculated based on the market value of shares
purchased at the exercise date less the aggregated option exercise
price.
(2) All options referred to in the table were granted pursuant to the
1991 Plan and vest over a five-year period as follows: 10% on the
first anniversary; 15% on the second anniversary; 20% on the third
anniversary; 25% on the fourth anniversary; and 30% on the fifth
anniversary.
(3) Valuation based on the March 28, 2002 (the last trading day of the
fiscal year) closing price of $21.89 of the underlying shares, less
the exercise prices of the options.
18
The following table summarizes share and exercise price information about
the Company's equity compensation plans as of March 31, 2002. All of the
Company's equity compensation plans were approved by the Company's stockholders.
There are, therefore, no equity compensation plans that were not approved by
stockholders listed in the following table.
EQUITY COMPENSATION PLAN INFORMATION
WEIGHTED-
NUMBER OF AVERAGE EXERCISE NUMBER OF SECURITIES
SECURITIES TO BE PRICE OF REMAINING AVAILABLE FOR
ISSUED UPON EXERCISE OUTSTANDING FUTURE ISSUANCE UNDER EQUITY
OF OUTSTANDING OPTIONS, COMPENSATION PLANS
OPTIONS, WARRANTS WARRANTS AND (EXCLUDING SECURITIES
PLAN CATEGORY AND RIGHTS RIGHTS REFLECTED IN THE FIRST COLUMN)
------------- -------------------- ---------------- ------------------------------
Equity compensation plans 48,052,549(1) $28.83 34,754,171(2)
approved by security holders
Equity compensation plans not N/A N/A N/A
approved by security holders
-------------------- ---------------- ------------------------------
Total 48,052,549(1) $28.83 34,754,171(2)
----------
(1) Includes 2,676,329 options assumed in connection with various
acquisitions. Such options have a weighted-average exercise price of
$28.23 per share and the plans relating to such options were approved by
the security holders of the respective companies.
(2) Consists of 114,750 shares available for issuance under the 1993 Plan,
47,250 shares available for issuance under the 1996 Plan, 2,935,066
shares available for issuance under the Company's 1998 Incentive Award
Plan, 28,656,172 shares available for issuance under the Company's Year
2000 Employee Stock Purchase Plan and 3,000,000 shares available for
issuance under the 2001 Plan.
PROPOSAL 2-- APPROVAL OF THE COMPUTER ASSOCIATES INTERNATIONAL, INC.
2002 INCENTIVE PLAN
The Company's stockholders will be asked to consider and vote on a proposal
to approve the Company's 2002 Incentive Plan. The 2002 Incentive Plan was
approved by the Compensation Committee on June 21, 2002 and adopted by the
Company's Board of Directors, subject to the approval of stockholders. If the
stockholders approve the 2002 Incentive Plan, it will be effective as of April
1, 2002. The 2002 Incentive Plan, if approved by the stockholders, is intended
to replace future awards under the 1994 Plan and the 2001 Plan. If stockholders
do not approve the 2002 Incentive Plan, the 2002 Incentive Plan will be
rescinded, and all awards granted prior to such time will not have any effect.
The purpose of the 2002 Incentive Plan is to enable the Company to achieve
superior financial performance, as reflected in the performance of its Common
Stock and other key financial indicators, by providing for broad-based awards of
incentives to its employees and consultants in consideration of their services
to the Company, aiding in the recruitment and retention of outstanding employees
and providing
19
employees and consultants an opportunity to acquire and expand equity interests
in the Company, thus aligning the interests of employees and consultants with
those of stockholders. To accomplish these objectives, the 2002 Incentive Plan
provides for the award of Annual Performance Bonuses, Long-Term Performance
Bonuses, Restricted Stock, Nonqualified Stock Options, Incentive Stock Options
and Other Equity-Based Awards (each as defined in the 2002 Incentive Plan)
and reserves for issuance under such awards a maximum of 45,000,000 shares of
Common Stock ("Shares"), subject to adjustment as provided under the terms of
the 2002 Incentive Plan (see "Adjustments" below). In addition, any Shares
that have been approved by Company stockholders for issuance under the 2001
Plan, but which have not been awarded thereunder (or have been awarded, but
will not be issued due to expiration, forfeiture, cancellation, settlement in
cash in lieu of Shares or otherwise) and which are no longer available for
issuance thereunder for any reason (including without limitation, the
termination of the 2001 Plan) will be available for issuance under the 2002
Incentive Plan in addition to the 45,000,000 Shares reserved hereunder. The
2001 Plan authorized the award of up to 7,500,000 Shares, of which 6,371,665
have been awarded (subject to possible expiration, forfeiture, cancellation
or settlement in cash in lieu of Shares). As of July 12, 2002, the market
price of a Share was $13.56. The 2002 Incentive Plan is intended to meet the
requirements of Section 162(m) of the Code.
The following is a summary of the material terms and provisions of the
2002 Incentive Plan and of certain tax effects of participation in the 2002
Incentive Plan. This summary is qualified in its entirety by reference to the
complete text of the 2002 Incentive Plan, which is attached hereto as Exhibit
B. Any capitalized terms that are used but not defined in this summary have
meaning as defined in the 2002 Incentive Plan.
DESCRIPTION OF THE 2002 INCENTIVE PLAN
PLAN ADMINISTRATION. The 2002 Incentive Plan will be administered by the
Compensation Committee, which will have broad discretion and authority under
the 2002 Incentive Plan to (1) interpret the 2002 Incentive Plan; (2)
prescribe, amend and rescind rules and regulations regarding the 2002
Incentive Plan; (3) select Employees and Consultants to receive Awards under
the 2002 Incentive Plan; (4) determine the form of an Award, the number of
Shares subject to an Award, and the terms, conditions, restrictions and/or
limitations, of each Award; (5) determine whether Awards will be granted
singly, in combination or in tandem; (6) establish and administer Performance
Measures in connection with Annual Performance Bonuses, Long-Term Performance
Bonuses, performance-based Restricted Stock or Other Equity-Based Awards and
certify the level of performance attainment for each Performance Measure; (7)
waive or amend any terms, conditions, restrictions or limitations of an Award
(although the 2002 Incentive Plan's prohibition on Stock Option repricing
cannot be waived); (8) make such adjustments to the 2002 Incentive Plan
(including but not limited to adjustment of the number of Shares available
under the 2002 Incentive Plan or any Award) and/or to any Award granted under
the 2002 Incentive Plan, as may be appropriate in accordance with the 2002
Incentive Plan's adjustment provisions (see "Adjustments" below); (9) accelerate
the vesting, exercise or payment of an Award when it would be in the best
interest of the Company; (10) provide for the deferred payment of Awards in
Shares and the extent to which such payment will be credited with dividend
equivalents; (11) determine whether Nonqualified Stock Options may be
transferable to family members, a family trust or a family partnership; (12)
establish subplans in order to implement and administer the 2002 Incentive
Plan in foreign countries; and (13) take any and all other action it deems
necessary or advisable for the proper operation or administration of the 2002
Incentive Plan. The Compensation Committee can delegate any of its duties and
authority under the 2002 Incentive Plan, except for the authority to grant
and administer Awards to either Key Employees, any Employee who is subject to
the reporting requirements of Section 16(a) of the Exchange Act, or to any
Employee to whom the Compensation Committee has delegated any of its
authority under the 2002 Incentive Plan. Also, the Compensation Committee
cannot delegate its duty to establish and certify Performance Measures.
20
ELIGIBILITY. In general, each of the approximately 16,000 Employees of the
Company and its consolidated subsidiaries, except seasonal and temporary
employees, are eligible to receive Annual Performance Bonuses, Long-Term
Performance Bonuses, Nonqualified Stock Options, Incentive Stock Options,
Restricted Stock and Other-Equity-Based Awards under the 2002 Incentive Plan.
Consultants to the Company, of which there are currently approximately 25, will
be eligible only to receive Nonqualified Stock Options and Other Equity-Based
Awards under the 2002 Incentive Plan. To be eligible to receive an Award, a
Consultant must be a natural person who has contracted directly with the Company
to provide bona fide services to the Company that are not in connection with the
offer or sale of securities in a capital-raising transaction and do not directly
or indirectly promote or maintain a market for the Company's securities. The
Compensation Committee in its discretion will determine all questions regarding
eligibility to receive Awards under the 2002 Incentive Plan, and the selection
of Participants from those individuals, who are eligible to receive Awards.
PERFORMANCE BONUSES. The 2002 Incentive Plan provides for the award of Annual
Performance Bonuses that are payable in cash and Long-Term Performance Bonuses
that are payable in shares of Restricted Stock that vest over three years.
Annual Performance Bonuses and/or Long-Term Performance Bonuses under the 2002
Incentive Plan may be awarded to any Employee selected by the Compensation
Committee. Generally, the Compensation Committee has the discretion to fix the
amount, terms and conditions of Performance Bonuses. However, Performance
Bonuses awarded under the 2002 Incentive Plan to Key Employees (defined under
the 2002 Incentive Plan as those Employees who are covered under Section 162(m)
of the Code, and of which there are currently approximately five are subject to
the following terms and conditions:
- PERFORMANCE CYCLES--Annual Performance Bonuses will be awarded in
connection with a 12-month Performance Cycle, which will correspond to
the Company's fiscal year. Long-Term Performance Bonuses will be
awarded in connection with a Performance Cycle of one or more fiscal
years. The Compensation Committee must establish the length of the
Performance Cycle for Long-Term Performance Bonuses within 90 days
after the start of the Performance Cycle. The first Performance Cycle
for both Annual Performance Bonuses and Long-Term Performance Bonuses
that was established by the Compensation Committee under the 2002
Incentive Plan is the Company's fiscal year that will end on March 31,
2003 (the "2003 Performance Cycle").
- PERFORMANCE MEASURES--The amount of any Annual Performance Bonus
and/or Long-Term Performance payable to a Key Employee under the 2002
Incentive Plan will be determined by reference to the degree of
attainment of one or more Performance Measures selected by the
Compensation Committee to measure the level of performance of the
Company during the applicable Performance Cycle. Performance Measures
that the Compensation Committee may select under the 2002 Incentive
Plan include:
- Net Operating Profit After Taxes;
- Net Operating Profit After Taxes, Per Share;
- Return on Invested Capital;
- Total Shareholder Return;
- Relative Total Shareholder Return (as compared against a
peer group of the Company, which, unless otherwise specified
by the Compensation Committee, will be determined in
reference to the Standard & Poor's Systems Software Index,
excluding the Company);
21
- Earnings per Share;
- Net Income;
- Cash Flow;
- Cash Flow Per Share;
- Revenue (or any component thereof);
- Revenue Growth;
- Share Performance; and/or
- Relative Share Performance.
Within 90 days after the start of a Performance Cycle, the
Compensation Committee will establish, in writing, the Performance
Measure(s) that will apply to the applicable Performance Bonuses for
that Performance Cycle. The Performance Measures selected by the
Compensation Committee will be applied using GAAP accounting, on
either a pre-tax or after tax basis, as determined by the Compensation
Committee at the time the Performance Measures are established. For
the 2003 Performance Cycle, the Compensation Committee has established
Revenue and Net Operating Profit After Taxes as the Performance
Measures for Key Employee Annual Performance Bonuses and Relative
Total Shareholder Return as the Performance Measure for Long-Term
Performance Bonuses.
- TARGET AWARDS AND PAYOUT FORMULAS--Within 90 days after the start of a
Performance Cycle, the Compensation Committee will set a target Annual
Performance Bonus and/or Long-Term Performance Bonus for each Key Employee
Participant and, for each form of Bonus, will establish an objective payout
formula. The payout formula for each form of Bonus will set the minimum
level of performance attainment that must be achieved on the applicable
Performance Measure(s) before any of that Performance Bonus becomes
payable, and the percentage (which can range between 0% and 200%) of the
applicable target Bonus award that will become payable upon attainment of
various levels of performance in excess of the minimum required amount.
- BONUS AMOUNTS--The amount of each designated Participant's Annual
Performance Bonus and/or Long-Term Performance Bonus will be computed by
multiplying such Participant's target Performance Bonus by the applicable
payout percentage for that form of Bonus (determined based on the level of
performance actually attained on the applicable Performance Measures,
applying the objective formulas established by the Compensation Committee
for each form of Bonus).
- COMMITTEE DISCRETION--The Compensation Committee has the discretion, which
it may apply on a case-by-case basis, to reduce (but not increase) the
amount of any Performance Bonus payable to a Key Employee.
- COMPENSATION COMMITTEE CERTIFICATION--No Performance Bonuses to any Key
Employee will be payable in respect of a Performance Cycle until the
Compensation Committee certifies, in writing, the level of attainment of
the applicable Performance Measure(s) for that Performance Bonus.
- MAXIMUM BONUS--The maximum amount of any Annual Performance
Bonus that can be paid to any one Participant under the 2002
Incentive Plan during any fiscal year of the Company is
$10,000,000. The maximum amount of any Long-Term Performance
Bonus that can be paid to any one Participant under the 2002
Incentive Plan during any fiscal year of the Company is
$20,000,000, subject to the 1,000,000 Share "cap" on Restricted
Stock discussed under "Restricted Stock" below. The 2002
Incentive Plan must set "caps" to ensure deductibility of
compensation under Code Section 162(m). Such amounts are not
indicative of actual targets that may be set from time to time.
22
- FORM OF PAYMENT--Annual Performance Bonuses will be paid entirely in cash.
Long-Term Performance Bonuses will be paid in shares of Restricted Stock.
The number of Shares of Restricted Stock that will be paid in connection
with a Long-Term Performance Bonus will be determined by dividing the
actual dollar Bonus amount payable by the closing sales price of a Share as
reported on the NYSE on the last day of the applicable Performance Cycle.
Unless the Compensation Committee determines otherwise at the time of the
award, one-third of the Restricted Stock paid in connection with a
Long-Term Performance Bonus will vest on each of the first three one-year
anniversaries of the end of the applicable Performance Cycle.
RESTRICTED STOCK. Restricted Stock may be awarded under the 2002 Incentive Plan
to any Employee selected by the Compensation Committee. Generally, the
Compensation Committee has the discretion to fix the amount, terms, conditions
and restrictions applicable to Restricted Stock awards, subject to the following
provisions of the 2002 Incentive Plan:
- MAXIMUM AWARD--The maximum number of Shares of Restricted
Stock (including Shares issued in connection with a Long-Term
Performance Bonus and as a stand-alone Restricted Stock Award)
that may be issued to any one Participant during any fiscal year
of the Company may not exceed 1,000,000 Shares.
- PAYMENT--When Restricted Stock becomes payable, the Company
will register stock certificates in the Participant's name, with
appropriate legends listing any applicable restrictions that the
Compensation Committee may, in its discretion, impose. At that
time, the Participant will have all the rights of a stockholder
with respect to the Shares (including the right to vote and
receive dividends), except that the Shares will be subject to
vesting and forfeiture. Stock certificates will be issued and
delivered to Participants (without legends) only after the Shares
have vested and the restrictions, if any, have lapsed.
- VESTING-- Unless the Compensation Committee provides otherwise at the time
of grant, one-third of the Shares of Restricted Stock will vest ratably on
each of the first three one-year anniversaries of the date of grant (or end
of the applicable Performance Cycle if such grant is performance-based).
- ACCELERATION OF VESTING--All Shares of Restricted Stock will immediately
vest upon the death or Disability of the Participant or a Change in
Control.
- KEY EMPLOYEE AWARDS--Restricted Stock awards to Key Employees will be
subject to the following additional terms, conditions and requirements:
- PERFORMANCE CYCLES--Restricted Stock awards under the 2002
Incentive Plan to such Key Employees designated by the
Compensation Committee as eligible to receive such Awards will be
based on Company performance over the same 12-month Performance
Cycle applicable to Annual Performance Bonuses, unless the
Compensation Committee determines, within 90 days after the start
of the Performance Cycle, some other period should apply.
- PERFORMANCE MEASURES--The amount, if any, of performance-based Restricted
Stock payable to such Key Employees under the 2002 Incentive Plan will be
determined by reference to the degree of attainment of one or more
Performance Measures established by the Compensation Committee from the
same list of Performance Measures available in connection with Performance
Bonuses. The Compensation Committee will establish the Performance
Measure(s) applicable to Key Employee Restricted Stock Awards within 90
days after the start of a Performance Cycle. To date, the Compensation
Committee has not granted any performance-based Restricted Stock awards
under the 2002 Incentive Plan.
- TARGET AWARD AND PAYOUT FORMULA--Within 90 days after the
start of a Performance Cycle, the Compensation Committee
will set a target amount of Restricted Stock for
23
each Key Employee who is designated to receive a Restricted
Stock award and will establish an objective payout formula
based on the applicable Performance Measure. The payout
formula will set the minimum level of performance attainment
that must be achieved before any Restricted Stock becomes
payable, and the percentage of the target award that will
become payable upon attainment of various levels of
performance in excess of the minimum required amount. For
this purpose, the maximum payout cannot exceed 200% of the
target award.
- COMMITTEE DISCRETION--The Compensation Committee has the
discretion, which it may apply on a case-by-case basis, to
reduce (but not increase) the amount of any Restricted Stock
payable to a Key Employee.
- COMPENSATION COMMITTEE CERTIFICATION--No Restricted Stock
will be payable to any Key Employee in respect of a
Performance Cycle until the Compensation Committee
certifies, in writing, the level of attainment of the
applicable Performance Measure.
STOCK OPTIONS. Stock Options awarded under the 2002 Incentive Plan may be in the
form of either Nonqualified Stock Options or Incentive Stock Options, or a
combination of the two, at the discretion of the Compensation Committee. Stock
Options granted under the 2002 Incentive Plan are subject to the following terms
and conditions:
- EXERCISE PRICE--In general, the Exercise Price for each Share
subject to a Stock Option will be the Fair Market Value of a
Share on the date of grant. However, all or a portion of any
Stock Option awards to Key Employees (and certain other Employees
and Consultants selected by the Compensation Committee) may
consist of Premium-Priced Stock Options, which will have an
Exercise Price, set by the Compensation Committee at the time of
grant, that exceeds the grant date Fair Market Value of a Share.
- INCENTIVE STOCK OPTIONS--The aggregate Fair Market Value on the date of
grant of the Shares with respect to which Incentive Stock Options first
become exercisable during any calendar year under the terms of the 2002
Incentive Plan for any Participant may not exceed $100,000. For purposes of
this $100,000 limit, the Participant's Incentive Stock Options under the
2002 Incentive Plan and all other Plans maintained by the Company and
subsidiaries are aggregated.
- NO REPRICING--The 2002 Incentive Plan contains a prohibition
against decreasing the Exercise Price of a Stock Option after
grant (other than in connection with permitted Plan adjustments,
see "Adjustments" below), unless stockholder approval of the
repricing is obtained.
- VESTING--Unless the Compensation Committee provides otherwise in
an Award Certificate, one-third of each Stock Option will vest
ratably on each of the first three one-year anniversaries of the
date of grant, although Stock Options will immediately vest upon
the death or Disability of a Participant, or upon a Change in
Control.
- TERM--Stock Options will automatically lapse 10 years after the
date of grant.
- POST-TERMINATION EXERCISE--Stock Options that have not vested as
of the date of a Participant's Termination of Employment or
Termination of Consultancy, for any reason other than death or
Disability, will immediately terminate as of such events; and,
subject to the Special Forfeiture Provision described later in
this summary, any vested Stock Option that has not already been
exercised must be exercised, if at all, within 30 days after such
event (within one year in the case of death, Disability or
Retirement), unless the Compensation Committee provides otherwise
in an Award Certificate.
24
- PAYMENT OF EXERCISE PRICE--Payment of the Exercise Price may be
made in cash, check, wire transfer, or money order or, if
permitted by the Compensation Committee, by (i) tendering to the
Company Shares owned by the Participant for at least six months
having a Fair Market Value equal to the Exercise Price, (ii)
delivering irrevocable instructions to a broker to deliver to the
Company the amount of sale or loan proceeds with respect to
Shares having a Fair Market Value equal to the Exercise Price, or
(iii) any combination of the above methods.
- TRANSFER RESTRICTION--Incentive Stock Options may not be
transferred by a Participant other than by will or the laws of
descent and distribution and may be exercised only by a
Participant, unless the Participant is deceased. In general,
similar transfer restrictions apply to Nonqualified Stock
Options, except that, in the case of Nonqualified Stock Options,
the Compensation Committee has the discretion to permit a
Participant to transfer a Nonqualified Stock Option to a family
member, a trust for the benefit of a family member and to certain
family partnerships. Any Nonqualified Stock Option so transferred
will be subject to the same terms and conditions of the original
grant and may be exercised by the transferee only to the extent
the Stock Option would have been exercisable by the Participant
had no transfer occurred.
OTHER EQUITY-BASED AWARDS. The Compensation Committee may, from time to time,
grant Awards under the 2002 Incentive Plan (other than Restricted Stock or Stock
Options) that consist of, or are denominated in, Shares. These Awards may
include, among other things Shares, restricted stock options, phantom or
hypothetical Shares, stock appreciation rights and Share units. The Compensation
Committee has broad discretion to determine the terms, conditions, restrictions
and limitations, if any, that will apply to Other Equity-Based Awards granted
under the 2002 Incentive Plan, except that Other Equity-Based Awards awarded to
Key Employees must comply with the requirements of Section 162(m) of the Code.
SPECIAL FORFEITURE PROVISION. The Compensation Committee has discretion to
provide at the time of grant of a Stock Option or Restricted Stock Award that in
the event a Participant enters into certain employment or consulting
arrangements that are competitive with the Company or any subsidiary or
affiliate without first obtaining the Company's written consent, the Participant
will (i) forfeit all rights under any outstanding Stock Option and return to the
Company the amount of any profit realized upon the exercise and/or (ii) forfeit
and return to the Company all Shares of Restricted Stock that remain subject to
the forfeiture provision, as provided in the Award Certificate.
SHARES AVAILABLE FOR ISSUANCE. The maximum number of Shares that may be issued
to Participants under the 2002 Incentive Plan is 45,000,000, subject to
adjustment as provided under the terms of the 2002 Incentive Plan (see
"Adjustments" below). In addition, any Shares that have been approved by
Company stockholders for issuance under the 2001 Plan, but which have not
been awarded thereunder (or have been awarded, but will not be issued due to
expiration, forfeiture, cancellation, settlement in cash in lieu of Shares or
otherwise) and which are no longer available for issuance thereunder for any
reason (including without limitation, the termination of the 2001 Plan) will
be available for issuance under this Plan in addition to the 45,000,000
Shares reserved under the 2002 Incentive Plan. The 2001 Plan authorized the
award of up to 7,500,000 Shares, of which 6,371,665 have been awarded
(subject to possible expiration, forfeiture, cancellation or settlement in
cash in lieu of Shares). Shares issuable under the 2002 Incentive Plan may
consist of authorized but unissued Shares or Shares held in the Company's
treasury. In determining the number of Shares that remain available under the
2002 Incentive Plan, only Awards payable in Shares will be counted. If an
Award is terminated by expiration, forfeiture, cancellation or otherwise
without issuance of Shares, or is settled in cash in lieu of Shares, the
Shares underlying such Award will be available for future Awards under the
2002 Incentive Plan. Also, if Shares are tendered or withheld in payment of
all or part of the Exercise Price of a Stock Option, or in satisfaction of
tax withholding obligations, such Shares will be available for future Awards
under the 2002 Incentive Plan. The
25
following aggregate and individual limitations on the number of Shares issuable
with respect to specific forms of Awards, which the 2002 Incentive Plan is
required under the tax law to set (in some cases to ensure deductibility) are
not indicative of the Awards that may actually be made from time to time, which
Awards cannot exceed such limitations:
- RESTRICTED STOCK AND OTHER EQUITY-BASED AWARDS--No more than 5,000,000
Shares may be issued in the form of Restricted Stock (including Shares
issued in connection with Long-Term Performance Bonuses or as stand-alone
Restricted Stock Awards) and Other Equity-Based Awards, of which no more
than 1,000,000 Shares may be issued in the form of Restricted Stock and
Other Equity-Based Awards to any one Participant during any fiscal year of
the Company.
- STOCK OPTIONS--No more than 20,000,000 Shares may be issued under grants of
Incentive Stock Options during the term of the 2002 Incentive Plan. No more
than 2,000,000 Shares may be granted in the form of Stock Options (in
whatever form) to any one Participant during any fiscal year of the
Company.
- ANNUAL PARTICIPANT LIMITATION--No more than an aggregate of 3,000,000
Shares may be awarded in any form to any one Participant during any fiscal
year of the Company.
ADJUSTMENTS. The maximum number or kind of Shares available for issuance under
the 2002 Incentive Plan, the individual and aggregate maximum that may be issued
under each form of Award, the number of Shares underlying outstanding Awards and
the Exercise Price applicable to outstanding Stock Options may be adjusted by
the Compensation Committee, in its discretion, if the Compensation Committee
determines that, because of any stock split, reverse stock split, dividend or
other distribution (whether in the form of cash, Shares, other securities or
other property), extraordinary cash dividend, recapitalization, merger,
consolidation, split-up, spin-off, reorganization, combination, repurchase or
exchange of Shares or other securities, the exercisability of stock purchase
rights received under the Rights Agreement, the issuance of warrants or other
rights to purchase Shares or other securities, or other similar corporate
transaction or event, such adjustment is required in order to prevent dilution
or enlargement of the benefits or potential benefits intended to be made
available under the 2002 Incentive Plan.
AMENDMENT AND TERMINATION. The 2002 Incentive Plan may be amended or terminated
by the Company's Board of Directors at any time without stockholder approval,
except that any amendment that either increases the aggregate number of Shares
that may be issued under the 2002 Incentive Plan, decreases the Exercise Price
at which Stock Options may be granted or materially modifies the eligibility
requirements for participation in the 2002 Incentive Plan requires stockholder
approval before it can be effective. No amendment of the 2002 Incentive Plan
will adversely affect any right of any Participant with respect to any
outstanding Award without the Participant's written consent. If not earlier
terminated by the Company's Board of Directors, the 2002 Incentive Plan will
automatically terminate on the 10-year anniversary of the Company's 2002 Annual
Meeting. No Awards may be granted under the 2002 Incentive Plan after it is
terminated, but any previously granted Awards will remain in effect until they
expire.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
The following is a brief summary of the principal United States Federal
income tax consequences of Awards and transactions under the 2002 Incentive
Plan, based on advice received from counsel to the Company regarding current
United States Federal income tax laws. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
tax consequences.
ANNUAL PERFORMANCE BONUSES. A Participant will recognize compensation income on
receipt of an Annual Performance Bonus paid in cash in the year of such payment.
26
LONG-TERM PERFORMANCE BONUSES; RESTRICTED STOCK. To the extent a Long-Term
Performance Bonus is paid in Restricted Stock, or to the extent an Award of
Restricted Stock becomes payable, a Participant will not recognize any income at
the time such Restricted Stock is paid. In the year in which Shares of
Restricted Stock are no longer subject to a substantial risk of forfeiture
(i.e., in the year that the Shares vest), the Participant will recognize
ordinary income in an amount equal to the excess of the fair market value of the
Shares on the date of vesting over the amount, if any, the Participant paid for
the Shares. A Participant may, however, elect within 30 days after receiving
Restricted Stock to recognize ordinary income in the year of receipt instead of
the year of vesting. If such an election is made, the amount of income
recognized by the Participant will be equal to the excess of the fair market
value of the Shares on the date of receipt over the amount, if any, the
Participant paid for the Shares. Payroll taxes are required to be withheld from
the Participant on the amount of ordinary income recognized by the Participant.
The Company will be entitled to a deduction at the same time and in the same
amount as the Participant recognizes income.
NONQUALIFIED STOCK OPTIONS. A Participant will not recognize any income at the
time a Nonqualified Stock Option is granted, nor will the Company be entitled to
a deduction at that time. When a Nonqualified Stock Option is exercised, the
Participant will recognize ordinary income in an amount equal to the excess of
the fair market value of the Shares to which the option exercise pertains on the
date of exercise over the Exercise Price. Payroll taxes are required to be
withheld from the Participant on the amount of ordinary income recognized by the
Participant. The Company will be entitled to a tax deduction with respect to a
Nonqualified Stock Option at the same time and in the same amount as the
Participant recognizes income. The Participant's tax basis in any Shares
acquired by exercise of a Nonqualified Stock Option will be equal to the
Exercise Price paid plus the amount of ordinary income recognized.
Upon a sale of the Shares received by a Participant upon the exercise of a
Nonqualified Stock Option, any gain or loss will generally be treated as
long-term or short-term capital gain or loss, depending on the how long the
Participant held such Shares prior to sale. The Participant's holding period for
Shares acquired pursuant to the exercise of a Nonqualified Stock Option begins
on the date of exercise.
INCENTIVE STOCK OPTIONS ("ISOs"). A Participant will not recognize any income at
the time an ISO is granted. Nor will a Participant recognize any income at the
time an ISO is exercised. However, the excess of the fair market value of the
Shares on the date of exercise over the Exercise Price paid will be a preference
item that could create an alternate minimum tax liability. If a Participant
disposes of the Shares acquired on exercise of an ISO after the later of two
years after the date of grant of the ISO or one year after the date of exercise
of the ISO (the "holding period"), the gain (i.e., the excess of the proceeds
received on sale over the Exercise Price paid), if any, will be long-term
capital gain eligible for favorable tax rates. If the Participant disposes of
the Shares prior to the end of the holding period, the disposition is a
"disqualifying disposition," and the Participant will recognize ordinary income
in the year of the disqualifying disposition equal to the excess of the lesser
of (i) the fair market value of the Shares on the date of exercise or (ii) the
amount received for the Shares, over the Exercise Price paid. The balance of the
gain or loss, if any, will be long-term or short-term capital gain or loss
depending on how long the Shares were held by the Participant prior to
disposition.
The Company is not entitled to a deduction as a result of the grant or
exercise of an ISO. If a Participant recognizes ordinary income as a result
of a disqualifying disposition, the Company will be entitled to a deduction
at the same time and in the same amount as the Participant recognizes
ordinary income.
CODE SECTION 162(m). With certain exceptions, Section 162(m) of the Code limits
the Company's deduction for compensation in excess of $1,000,000 paid to covered
employees (referred to in the 2002
27
Incentive Plan as "Key Employees"). However, compensation paid to such Key
Employees will not be subject to such deduction limitation if it is considered
"qualified performance-based compensation" (within the meaning of Section 162(m)
of the Code). If stockholder approval of the 2002 Incentive Plan is obtained,
the Company believes that all Annual Performance Bonuses, Long-Term Performance
Bonuses, Restricted Stock and Stock Options awarded to Key Employees under the
2002 Incentive Plan will meet the requirements of "qualified performance-based
compensation" and, therefore, will be deductible by the Company for Federal
income tax purposes.
NEW PLAN BENEFITS
As of the date of this Proxy Statement, no Awards have been made under the
2002 Incentive Plan. On June 21, 2002, however, the Compensation Committee
determined that Key Employees would be eligible to receive Annual Performance
Bonuses and Long-Term Performance Bonuses with respect to the Company's
fiscal year ending on March 31, 2003 (the "2003 Performance Cycle") and
established in writing the Performance Measures, target Performance Bonuses
and formulas for computing the percentage of the target Performance Bonuses
that would be payable to each such Key Employee for the 2003 Performance
Cycle upon attainment of various levels of applicable Performance Measures
for each form of Performance Bonus. The actual amount of any 2003 Annual
Performance Bonus and Long-Term Performance Bonus are not presently
determinable as such amounts are dependent on level of attainment of the
applicable Performance Measures as of the end of the 2003 Performance Cycle
and the ability of the Compensation Committee, in its discretion, to reduce
the amount of such Bonuses.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE 2002
INCENTIVE PLAN
PROPOSAL 3-- APPROVAL OF THE COMPUTER ASSOCIATES INTERNATIONAL, INC.
2002 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
The Company's stockholders will be asked to consider and vote on a
proposal to approve the Company's 2002 Compensation Plan for Non-Employee
Directors (the "2002 Non-Employee Directors Plan" or "Plan"). The 2002
Non-Employee Directors Plan is intended to replace the Company's 1993 Plan
and 1996 Plan, both of which have been terminated by the Board, subject to
the stockholders' approval of the Plan. The 2002 Non-Employee Directors Plan
reserves for issuance under the Plan 650,000 Shares.
The 2002 Non-Employee Directors Plan was adopted by the Board of Directors,
subject to the approval of stockholders. If the stockholders approve the Plan,
it will be effective as of July 1, 2002. If stockholders do not approve the
Plan, the Plan will be rescinded, and the 1993 Plan and 1996 Plan will remain
in effect.
The purpose of the 2002 Non-Employee Directors Plan is to attract and
retain the services of knowledgeable independent directors of the Company and
to provide an incentive for such directors to increase their proprietary
interests in the Company's long-term success and progress. To accomplish these
objectives, the Plan provides for the deferred payment of Director Fees in
Shares and the automatic grant of Stock Options on an annual basis.
The following is a summary of the material terms and provisions of the 2002
Non-Employee Directors Plan and of certain tax effects of participation in the
Plan. This summary is qualified in its entirety by reference to the complete
text of the Plan, which is attached hereto as Exhibit C.
28
Any capitalized terms that are used but not defined in this summary
have meaning as defined in the Plan.
DESCRIPTION OF THE 2002 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
PLAN ADMINISTRATION. The 2002 Non-Employee Directors Plan will be administered
by the Compensation Committee, which will have discretion and authority under
the Plan to (1) interpret the Plan; (2) prescribe, amend and rescind rules and
regulations regarding the Plan; (3) make such adjustments to the Plan (including
but not limited to adjustment of the number of Shares available under the Plan,
or that underlie any Stock Deferral or Stock Option under the Plan, in the event
of certain corporate events) as may be appropriate in accordance with the Plan's
adjustment provisions, see "Adjustments" below; and (4) take any and all other
action it deems necessary or advisable for the proper operation or
administration of the Plan.
ELIGIBILITY. Each member of the Board (whether elected or appointed) who is not
also an employee of the Company or any of its consolidated subsidiaries is
eligible to receive annual Director Fees and automatic annual grants of Stock
Options under the 2002 Non-Employee Directors Plan. No Director Fees will be
payable under the 2002 Non-Employee Directors Plan in respect of any Director
Service Year (defined under the Plan as the period between the Company's
Annual Meetings) in which the Director either (i) is a party to a separately
compensated consulting arrangement with the Company, (ii) fails to attend at
least 80% of the Board or committee meetings or (iii) maintains a paid
directorship or paid advisory position with any organization in which another
Director of the Company is an executive officer. For purposes of determining
eligibility under the Plan, an individual who is elected to the Board at the
Company's Annual Meeting for a given year, shall be deemed to be an Eligible
Director for that year. Currently there are eight Directors who would be
eligible for Director Fees and Stock Option grants under the Plan.
DIRECTOR FEES. Under the 2002 Non-Employee Directors Plan, the annual Director
Fees for the succeeding 12-month period shall be established by a majority vote
of the Board at its annual meeting. Eligible Directors will be paid their
Director Fees exclusively under the Plan, subject to the following terms and
conditions:
- FORM OF PAYMENT. Director Fees shall be payable exclusively in Shares.
- AUTOMATIC DEFERRAL. All Director Fees that are payable to an Eligible
Director shall automatically be credited as a Stock Deferral to an
unfunded and unsecured Deferred Stock Compensation Account established
under the Plan in the name of the Eligible Director. The amount of the
Stock Deferral will be determined based on the amount of the Director
Fees so deferred and the Fair Market Value of a Share on the day of
each year's Annual Meeting, beginning with the 2002 Annual Meeting.
- DIVIDEND CREDITS. An Eligible Director's Deferred Stock Compensation
Account will be credited with additional Stock Deferrals reflecting
dividends or other distributions payable to Company stockholders
generally.
- PAYMENT OF STOCK DEFERRALS. Generally, amounts credited to an Eligible
Director's Deferred Stock Compensation Account will be settled in
Shares in one lump sum payment on the January 2 (or if January 2, is
not a business day, on the next succeeding business day) of the
calendar year following the Director Service Year in which the
Eligible Director ceases to be a member of the Board for any reason
(the "Payment Commencement Date"). Eligible Directors may, however,
elect to receive payment of their Deferred Stock Compensation Accounts
in up to 10 annual installments, commencing on the Payment
Commencement Date. If an Eligible Director dies before complete
payment of amounts credited to his or her
29
Deferred Stock Compensation Account, any remaining Share payments will
be made to the Director's designated beneficiary.
- HARDSHIP WITHDRAWALS. At the discretion of the Board, the Board may
permit early withdrawals of amounts credited to an Eligible Director's
Deferred Stock Compensation Account if the Director or his or her
representative provides evidence satisfactory to the Board that such
early withdrawal is needed to meet an unforeseen financial hardship.
STOCK OPTIONS. If the 2002 Non-Employee Directors Plan is approved by
stockholders, on the day of each Annual Meeting, beginning with the 2002 Annual
Meeting, each Eligible Director will receive an automatic grant of Stock Options
to purchase 6,750 Shares, subject to adjustments described below. Stock
Options granted under the Plan are subject to the following terms and
conditions, although the Compensation Committee can determine, in its
discretion, that additional terms and conditions will apply to a particular
Stock Option:
- EXERCISE PRICE--The Exercise Price for each Share subject to a Stock
Option will be the grant date Fair Market Value of a Share, which is
defined under the Plan as the closing sales price of a Share as
reported on the New York Stock Exchange (or any other reporting system
selected by the Compensation Committee, in its sole discretion) on the
date of grant or, if no sale of Shares is reported on such date, on
the next preceding day on which there were sales of Shares reported.
- NO REPRICING--The Plan contains a prohibition against decreasing the
Exercise Price of a Stock Option after grant (other than in connection
with permitted Plan adjustments, see "Adjustments" below), unless
stockholder approval of the repricing is obtained.
- VESTING--Stock Options granted under the Plan shall fully vest and
become exercisable on the day before the date of the next succeeding
Annual Meeting after the date of grant, although Stock Options will
immediately vest upon the death or Disability of an optionee, or upon
a Change in Control, as defined in the Plan.
- TERM--Stock Options will automatically lapse 10 years after the date
of grant.
- FORFEITURE OF OPTIONS--Stock Options that have not vested as of the
date an optionee ceases to be a Director, for any reason other than
death, Disability or Change in Control, will immediately terminate as
of such events; and, all Stock Options (whether vested or unvested)
will immediately terminate if the optionee is removed from the Board
for cause.
- POST-MEMBERSHIP EXERCISE--Stock Options that have not lapsed or been
forfeited must be exercised, if at all, within 12 months after the
optionee ceases, for any reason, to be a member of the Board.
- PAYMENT OF EXERCISE PRICE--Payment of the Exercise Price may be made
in cash, check, wire transfer, or money order, or by (i) tendering to
the Company Shares owned by the optionee for at least six months
having a Fair Market Value on the date of delivery equal to the
Exercise Price, (ii) delivering irrevocable instructions to a broker
to deliver to the Company a portion of sale or loan proceeds with
respect to Shares equal to the Exercise Price, or (iii) any
combination of the above methods.
- TRANSFER RESTRICTION--Generally, Stock Options granted under the Plan
may not be transferred by an optionee other than by will or the laws
of descent and distribution and may be exercised only by the optionee,
unless the Participant is deceased. An Option Agreement may, however,
provide that, subject to the written consent of the Compensation
Committee, an optionee may transfer a Stock Option to a family member,
a trust for the benefit of a family member and to certain family
partnerships. Any Stock Option so transferred will be subject to the
same terms and conditions of the original grant and may be exercised
by the
30
transferee only to the extent the Stock Option would have been
exercisable by the optionee had no transfer occurred.
OFFSET AWARDS. The 2002 Non-Employee Directors Plan provides for annual Offset
Awards for any Eligible Director who is limited or precluded by applicable
federal, state or local regulations from receiving Stock Options under 2002
Non-Employee Directors Plan. Assuming that an affected Eligible Director meets
the eligibility requirements (described above) for entitlement to Director Fees
under the Plan, the Offset Award will consist of a Stock Deferral to such
Eligible Director's Deferred Stock Compensation Account in respect of a number
of Shares with a Fair Market Value equal to the economic value to the foregone
Stock Options (computed using a Black-Scholes or similar methodology, as
determined by the Compensation Committee, excluding any affected Directors).
SHARES AVAILABLE FOR ISSUANCE. The maximum number of Shares that may be issued
under the 2002 Non-Employee Directors Plan is 650,000, subject to adjustment as
provided under the terms of the Plan, see "Adjustments" below.
Shares issuable under the 2002 Non-Employee Directors Plan may consist of
authorized but unissued Shares or Shares held in the Company's treasury. In
determining the number of Shares that remain available under the Plan, any
Shares underlying Stock Options that terminate by expiration, forfeiture,
cancellation or otherwise without issuance of Shares, or are settled in cash in
lieu of Shares, will be available for future awards under the Plan. Also, if
Shares are tendered or withheld in payment of all or part of the Exercise Price
of a Stock Option, such Shares will be available for future awards under the
Plan.
ADJUSTMENTS. The maximum number or kind of Shares available for issuance under
the 2002 Non-Employee Directors Plan, or in the number or kind of Shares payable
in connection with Director Fees or subject to an existing Stock Deferral or an
outstanding Stock Option, and the Exercise Price applicable to outstanding Stock
Options may be adjusted by the Compensation Committee, in its discretion, if the
Compensation Committee determines that, because of any stock split, reverse
stock split, dividend or other distribution (whether in the form of cash,
Shares, other securities or other property), extraordinary cash dividend,
recapitalization, merger, consolidation, split-up, spin-off, reorganization,
combination, repurchase or exchange of Shares or other securities, the
exercisability of stock purchase rights received under the Rights Agreement, the
issuance of warrants or other rights to purchase Shares or other securities, or
other similar corporate transaction or event, such adjustment is required in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
AMENDMENT AND TERMINATION. The 2002 Non-Employee Directors Plan may be amended
or terminated by the Company's Board of Directors at any time without
stockholder approval, except that any amendment that either increases the
aggregate number of Shares that may be issued under the Plan, decreases the
Exercise Price at which Stock Options may be granted or materially modifies the
eligibility requirements for participation in the Plan requires stockholder
approval before it can be effective. No amendment of the Plan will adversely
affect any right of any Eligible Director with respect to (i) any Stock Deferral
theretofore credited to such Eligible Director's Deferred Stock Compensation
Account or (ii) any outstanding Stock Option, without such Eligible Director's
written consent. If not earlier terminated by the Company's Board of Directors,
the Plan will automatically terminate on the 10-year anniversary of the 2002
Annual Meeting. No Director Fees may be paid, Stock Deferrals credited or Stock
Options granted under the Plan after it is terminated, but any previously
credited Stock Deferrals or previously granted Stock Options will remain in
effect until they are paid in full or expire.
31
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
The following is a brief summary of the principal United States Federal
income tax consequences of Director Fees, Stock Deferrals and Stock Options
under the Plan, based on advice received from counsel to the Company
regarding current United States Federal income tax laws. This summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign tax consequences.
DIRECTOR FEES AND STOCK DEFERRALS. An Eligible Director will not recognize any
income at the time Director Fees are credited as Stock Deferrals to such
Eligible Director's Deferred Stock Compensation Account or at the time
additional Stock Deferrals are credited to such Account in connection with
dividend or distribution payments. When the Eligible Director is ultimately
issued Shares in payment of amounts credited to his of her Deferred Stock
Compensation Account, the Eligible Director will recognize ordinary income in an
amount equal to the Fair Market Value of the Shares on the date of issuance. The
Company will be entitled to a tax deduction at the same time and in the same
amount as the Eligible Director recognizes income. The Director's tax basis in
any Shares acquired as payment of amounts credited to his or her Deferred Stock
Compensation Account will be equal to the amount of ordinary income recognized.
Upon a sale of the Shares received by an Eligible Director as payment
of his or her Deferred Stock Compensation Account, any gain or loss will
generally be treated as long-term or short-term capital gain or loss,
depending on the how long the Director held such Shares prior to sale. The
Director's holding period for Shares so acquired begins on the date the
Shares are issued to the Director.
STOCK OPTIONS. All Stock Options granted under the 2002 Non-Employee Directors
Plan will be nonqualified stock options. An optionee will not recognize any
income at the time a Stock Option is granted, nor will the Company be entitled
to a deduction at that time. When a Stock Option is exercised, the optionee will
recognize ordinary income in an amount equal to the excess of the Fair Market
Value of the Shares to which the option exercise pertains on the date of
exercise over the Exercise Price. The Company will be entitled to a tax
deduction with respect to a Stock Option at the same time and in the same amount
as the optionee recognizes income. The optionee's tax basis in any Shares
acquired by exercise of a Stock Option will be equal to the Exercise Price paid
plus the amount of ordinary income recognized.
Upon a sale of the Shares received by an optionee upon the exercise of
a Stock Option, any gain or loss will generally be treated as long-term or
short-term capital gain or loss, depending on the how long the optionee held
such Shares prior to sale. The optionee's holding period for Shares acquired
pursuant to the exercise of a Stock Option begins on the date of exercise.
NEW PLAN BENEFITS
As of the date of this Proxy Statement, no awards have been made under
the 2002 Non-Employee Directors Plan. The number of Shares to be credited to
Deferred Stock Compensation Accounts of directors as Director Fees for the
forthcoming year and the exercise price of the Stock Options to be awarded
each director are presently not determinable as they are dependent on the
Fair Market Value of the Common Stock on the date of the 2002 Annual Meeting.
Eligible Directors would each have been credited with a Stock Deferral to
their Deferred Stock Compensation Accounts in respect of 1,385 Shares had the
Plan been in effect for the Company's fiscal year ended March 31, 2002. This
amount reflects Director Fees of $45,000 (payable in Shares) and a per Share
Fair Market Value on August 29, 2001 (the day of the 2001 Annual Meeting) of
$32.48. Eligible Directors would also each have received an automatic annual
Stock Option grant to purchase 6,750 Shares at an Exercise Price of $32.48.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE 2002
COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
32
PROPOSAL 4 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Although the By-Laws of the Company do not require the submission of
the selection of independent auditors to the stockholders for approval, the
Board of Directors considers it desirable that its appointment of independent
auditors be ratified by the stockholders. KPMG LLP was the independent
auditor for the Company for the 2002, 2001 and 2000 fiscal years and has been
appointed to serve in that capacity for the 2003 fiscal year.
A representative of KPMG LLP will be present at the meeting, will have an
opportunity to make a statement if he or she desires to do so, and will be
available to respond to appropriate questions from stockholders.
In the event that the stockholders fail to ratify the appointment of KPMG
LLP, the Board of Directors will reconsider its selection of the firm as the
Company's independent auditors for the year ending March 31, 2003.
AUDIT FEES
The aggregate fees billed for professional services rendered by KPMG LLP
for the audit of the Company's annual financial statements for the fiscal year
ended March 31, 2002, including statutory audits, and for review of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for fiscal year 2002 were approximately $1,874,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed for financial information systems and
implementation services provided by KPMG LLP for the fiscal year ended March 31,
2002.
ALL OTHER FEES
The aggregate fees billed for services rendered by KPMG LLP, other than
those described above, for the fiscal year ended March 31, 2002 were
approximately $1,114,000.
The Audit Committee has considered whether the provision of the services,
other than those in connection with the audit, is compatible with maintaining
the independence of KPMG LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
33
STOCK PERFORMANCE GRAPH
The following graph compares cumulative total return of the Common Stock
(using the closing price on the NYSE at March 28, 2002, the last trading day of
the Company's 2002 fiscal year, of $21.89) with the Standard & Poor's Systems
Software Index* and the Standard & Poor's 500 Index during the fiscal years 1998
through 2002 assuming the investment of $100 on March 31, 1997 and the
reinvestment of dividends. The Company now uses the S&P Systems Software Index
as the published industry index instead of the S&P Computer Software Services
Index, which was previously used but is no longer published.
[GRAPH]
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
(Among Computer Associates International, Inc., S&P Systems
Software Index, and S&P 500 Index)
TOTAL RETURN DATA
3/31/97 3/31/98 3/31/99 3/31/00 3/31/01 3/31/02
------- ------- ------- ------- ------- -------
Computer Associates
International, Inc. 100 223 138 229 106 85
S&P Systems Software Index 100 183 305 473 223 231
S&P 500 Index 100 148 175 207 162 162
* The Standard & Poor's Systems Software Index is composed of the following
companies:
Adobe Systems, Inc Novell, Inc.
BMC Software, Inc. Oracle Corporation
Computer Associates International, Inc. Veritas Software Corporation
Microsoft Corporation
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own beneficially more than 10% of a
registered class of the Company's equity securities (a "10% stockholder"), to
file with the SEC and the NYSE initial reports of ownership and reports of
changes in beneficial ownership of Common Stock and other equity securities
of the Company ("Section 16(a) Reports"). Executive officers, directors and
10% stockholders 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 copies of Section 16(a) Reports received
by it, or written representations from each reporting person for the fiscal year
ended March 31, 2002, the Company believes that except as described below, each
of its executive officers, directors and 10% stockholders complied with all
applicable filing requirements.
34
The Company has determined that the deferred stock compensation accounts
maintained for each of the Company's directors who is a participant in the 1996
Plan are "derivative securities" that are reportable by the non-employee
directors under Section 16(a) of the Exchange Act. Each participating director
properly reported on his or her Form 5 for fiscal year 2002 both deferrals and
dividend credits under the 1996 Plan that occurred in fiscal 2002. The following
directors did not report transactions under the 1996 Plan for the years
indicated (in each case there were three transactions per year):
Shirley Strum Kenny 1997-2001; Roel Pieper 2000-2001; Alfonse M. D'Amato
2000-2001; Willem F.P. deVogel 1997-2001; Richard Grasso 1997-2001.
CERTAIN TRANSACTIONS
During the fiscal year ended March 31, 2002, the Company retained the law
firm of Wang & Wang, in which Charles B. Wang's brother, Francis S. L. Wang, is
a member, to perform legal services for the Company. Wang & Wang, which
represented the Company in connection with a number of matters involving
protection of intellectual property rights, joint ventures and litigation,
rendered services in fiscal year 2002 in the amount of $829,741.
Charles B. Wang and Sanjay Kumar are the owners of the New York Islanders,
a National Hockey League club, and Messrs. Wang, Kumar and Artzt are owners of
the New York Dragons, an arena football team. In fiscal 2002, the Company paid
the two organizations a total of $422,066 for the rental of a corporate suite
and the purchase of advertising. The Company expects to purchase similar
services from the Islanders and Dragons in fiscal 2003. These expenditures are
consistent with the Company's overall marketing plan and with amounts charged to
comparable third parties.
The Company paid Walter P. Schuetze $100,584 in fees and travel related
expenses in fiscal 2002 for financial related consulting services. Mr. Schuetze
ceased to be a consultant for the Company when he joined the Board of Directors.
In the opinion of management, the aforementioned services were fair and
reasonable and as favorable to the Company as those which could have been
obtained from other third parties.
ADVANCE NOTICE PROCEDURES
Under the Company's By-Laws, nominations for a director at the Company's
annual meeting may be made only by or at the direction of the Board of Directors
or by a stockholder entitled to vote who has delivered notice to the principal
executive offices of the Company (containing certain information specified in
the By-Laws) (i) not less than 60 days nor more than 90 days prior to the
anniversary date of the preceding year's annual meeting, or (ii) if the meeting
date is changed by more than 30 days from such anniversary date, not later than
the close of business on the tenth day following the date notice of such meeting
is mailed or made public, whichever is earlier. Accordingly, the deadline for
nominating directors at the 2003 Annual Meeting will be June 29, 2003 (unless
the date of the meeting is changed by more than 30 days).
The By-Laws also provide that no business may be brought before an annual
meeting except as specified in the notice of the meeting or as otherwise
brought before the meeting by or at the direction of the Board of Directors
or by a stockholder entitled to vote at such meeting who has delivered notice
to the principal executive offices of the Company (containing certain
information specified in the By-Laws) (i) not less than 60 days nor more than
90 days prior to the anniversary date of the preceding year's annual meeting,
or (ii) if the meeting date is changed by more than thirty days from such
anniversary date, not later than the close of business on the tenth day
following the date notice
35
of such meeting is mailed or made public, whichever is earlier. Accordingly, the
deadline for stockholder notification of business to be brought before the 2003
Annual Meeting will be June 29, 2003 (unless the date of the meeting is changed
by more than 30 days).
A copy of the full text of the By-Laws provisions discussed above may be
obtained by writing to the Secretary of the Company at the Company's World
Headquarters, One Computer Associates Plaza, Islandia, NY 11749.
STOCKHOLDER PROPOSALS
The submission deadline for stockholder proposals for consideration for
inclusion in proxy materials for the 2003 Annual Meeting is March [ ], 2003. All
such proposals must be received by the Secretary of the Company at the Company's
World Headquarters.
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at the
Annual Meeting. However, if any other business properly comes before the
meeting, it is the intention of the persons named in the enclosed proxy to vote
the shares represented thereby on such matters in accordance with their best
judgment.
The prompt return of your proxy will be appreciated. Therefore, whether or
not you expect to attend the meeting, please either vote by telephone or sign
and date your proxy and return it in the enclosed postage paid envelope.
HOUSEHOLDING
If you and other residents with the same last name at your mailing address
own shares of Common Stock in street name, your broker or bank may have sent you
a notice that your household will receive
36
only one annual report and proxy statement for each company in which you hold
stock through that broker or bank. This practice of sending only one copy of
proxy materials is known as "householding". If you receive a householding
communication, your broker will send one copy of the Company's 2002 Proxy
Statement and Annual Report for fiscal year 2002 to your address unless contrary
instructions were given by any stockholder at that address. If you received more
than one copy of the proxy materials this year and you wish to reduce the number
of reports you receive in the future and save the Company the cost of printing
and mailing these reports, please contact your broker.
You may revoke your consent to householding at any time by sending your
name, the name of your brokerage firm, and your account number to the Investor
Relations department, One Computer Associates Plaza, Islandia, NY 11749. The
revocation of your consent to householding will be effective 30 days following
its receipt. In any event, if your household received a single set of proxy
materials for this year, but you would prefer to receive your own copy, we will
send a copy to you if you address your written request to Computer Associates
International, Inc., Investor Relations, One Computer Associates Plaza,
Islandia, NY 11749 or contact Investor Relations at 631-342-6000.
By Order of the Board of Directors
Michael A. McElroy
Senior Vice President and Secretary
Dated: July [ ], 2002
Islandia, New York
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K WILL BE SENT WITHOUT CHARGE
TO ANY STOCKHOLDER REQUESTING IT IN WRITING. SUCH REQUESTS SHOULD BE ADDRESSED
TO:
COMPUTER ASSOCIATES INTERNATIONAL, INC.
ATTN.: INVESTOR RELATIONS DEPARTMENT
ONE COMPUTER ASSOCIATES PLAZA, ISLANDIA, NEW YORK 11749
THE ANNUAL REPORT ON FORM 10-K MAY ALSO BE OBTAINED VIA THE INTERNET
(WWW.CA.COM/INVEST).
37
EXHIBIT A
CORPORATE GOVERNANCE PRINCIPLES
PURPOSE AND NATURE OF PRINCIPLES
These principles have been adopted by a Board resolution on May 14, 2002
and revised on July 11, 2002 as a definitive statement of how the Board will
conduct its affairs in the governance of Computer Associates. These principles
are consistent with the Company's by-laws. They will be reviewed and modified by
the Board as needed upon the recommendation of its Corporate Governance
Committee.
BOARD'S GOALS AND RESPONSIBILITIES
The Board's purpose is to build long-term value for Computer Associates'
stockholders and to assure the vitality of the company for its owners, employees
and the many other individuals and organizations who depend on the Company.
Because of the company's great dependence on its highly talented employees, the
Board recognizes a special responsibility to assure the health of these human
assets.
To achieve these goals the Board will monitor both the performance of the
Company (in relation to its goals, strategy and competitors) and the performance
of the CEO, and offer him or her constructive advice and feedback. The Board is
also responsible for assuring that the Company's management and employees
operate in a legal and ethically responsible manner. When it is appropriate or
necessary, it is the Board's responsibility to remove the CEO and to select his
or her successor.
BOARD MEETINGS
The Board holds 5 regular meetings each year in January, May, July, August
and October. The August meeting is the annual meeting, held immediately after
the annual meeting of stockholders. Each Board meeting may begin with a dinner
the evening before the formal Board meeting, giving the directors a chance to
interact informally. Committee meetings will be held either before or after the
Board meeting. Generally, meetings will end in the early afternoon.
In addition to the regular Board meetings, the Board may hold special
meetings by telephone or in person at the request of the Chairman, CEO,
Secretary or any two directors. The Committees of the Board will also, from time
to time, have special meetings by telephone or in person at the request of the
Chairperson of the Committee.
The agenda for each Board meeting will be formulated by the Chairman and
CEO and will be distributed to directors in advance. In addition to the specific
items to be discussed at each Board meeting, a portion of each regular meeting
will be devoted to the topics indicated in the annual calendar.
ANNUAL CALENDAR
May Chief Executive Officer evaluation discussion and feedback; Board
effectiveness self-evaluation
July Review of operations
A-1
August Annual meeting; Board organization and mid-year review of Company
performance
October Human resources and succession planning review
January Strategy review and approval; Approval of major budget objectives
BOARD SIZE AND COMPOSITION
The normal size of the Board is 12 directors, no more than three of whom
shall be members of management. The Board may resolve to enlarge or reduce its
size. Non-management directors must meet the NYSE definition of independence.
The independent directors shall be selected and nominated for election by the
stockholders so that the Board as a whole has the mix of experience and skills
that will enable the directors to carry out the aforementioned responsibilities
in the most effective manner possible. It is the responsibility of the Corporate
Governance Committee to review the company's current situation and the
membership of the Board and make recommendations for any changes in the Board's
mix of members (see below).
Expectation of Directors
It is expected that all Computer Associates directors will demonstrate the
following qualities:
- Regular attendance at Board meetings
- Independence and integrity
- An understanding of Computer Associates' businesses
- Attentive, objective and unstructured participation in Board and
committee discussions
- Understanding of information distributed in advance of Board meetings
- Availability to the CEO and other members of senior management for
advice and counsel
BOARD LEADERSHIP
The Board must have leadership for the independent directors. When both the
Chairman and CEO are members of management, whether currently or previously, the
independent directors shall elect annually, from among themselves, a lead
independent director. The duties of the lead independent director shall be to
chair discussions among the independent directors, to facilitate their
communication with each other and management, and to be the spokesperson on
behalf of the independent directors in matters dealing with the press and public
when called upon. The existence of this position is not intended in any way to
inhibit discussions among the directors or between any of them and the Chief
Executive Officer.
BOARD COMMITTEES
- Corporate Operations Committee
- Audit Committee
- Corporate Governance Committee
- Compensation and Human Resource Committee
The chair and members of each committee shall be determined by the
Corporate Governance Committee after discussion with the Chairman and CEO.
Normally these assignments are rotated every three years. The respective
Charters of these committees, which outline each committee's specific
responsibilities, are attached at the end of these principles.
A-2
BOARD ACTIVITIES
ROLE IN STRATEGY. Normally it is management's job to formalize, propose and
implement strategic choices and the Board's role to approve strategic direction
and evaluate strategic results. However, as a practical matter, the Board and
management will be better able to carry out their respective strategic
responsibilities if there is an ongoing dialogue among the CEO, other members of
top management and other Board members. To facilitate such discussions, members
of senior management who are not directors may be invited to participate in
Board meetings when strategic issues are to be discussed. While the January
meeting will be designated for such discussions, such discussions may occur at
other meetings as needed.
The Board may, in the course of its work:
- Approve the annual budget
- Approve material capital expenditures
- Approve changes in the Company's capital structure
- Approve entry into a new line of business
- Approve material acquisitions and divestitures
Such actions represent concrete decisions changing the strategic direction of
the Company.
ROLE IN MANAGEMENT DEVELOPMENT AND SUCCESSION. In addition to its duties
related to compensation, the Compensation and Human Resource Committee will
consult on an ongoing basis with the CEO to keep abreast of management
succession issues and management development activities. The committee will keep
the Board apprised of these discussions. At the October meeting, the CEO and the
committee will review these matters in detail with the full Board. This should
include a review of the performance and advancement potential of senior
executives, succession plans for each, and especially for the CEO.
CEO EVALUATION. The Board will provide the CEO with an annual performance
review for the prior year at the May meeting. The following steps will be
utilized to carry out this review:
- The CEO will develop a self-evaluation at the end of the fiscal year
and provide this to the Board, either orally or in writing.
- With this information at hand, each independent director will provide
his or her assessment of the CEO's performance in writing to the
Corporate Governance Committee. These assessments should include the
director's appraisal of:
- The Company's performance and the CEO's contribution to
it, both compared to competitors and the company's own
strategic goals
- Achievement of personal goals set by the CEO for the year,
as part of his/her self-evaluation
- Other aspects of the CEO's performance which seem relevant
The Corporate Governance Committee will synthesize this feedback and report
this summary to the independent directors in executive session at the May
meeting. After agreement by the directors to the evaluation, the chairs of the
Board's committees will meet with the CEO to discuss the Board's assessment. The
CEO may then take the opportunity to discuss his reaction to the evaluation with
the independent directors.
A-3
In addition to the CEO evaluation, the independent members of the Board
shall develop a self-evaluation assessment of the Board's performance as a whole
at the end of each fiscal year. The Board shall review this assessment at the
May meeting.
EXECUTIVE SESSION OF THE BOARD. From time to time the independent directors
may wish to have discussions without management directors present. Such sessions
are a normal part of the Board's activities and will be chaired by the lead
director.
BOARD INFORMATION. The agenda for each meeting, along with the information
needed for discussion, will be sent to the directors in sufficient time prior to
the meeting so the directors may review it. Directors may request that items be
added to the agenda and may also ask for additional information relevant to any
matter before the Board.
DIRECTOR COMPENSATION
Each independent director shall receive annual compensation to be paid in
the form of a combination of stock and stock options. Compensation will be paid
in this manner in order to align director incentives with shareholder interests.
The annual stock award for each independent director is paid in common
stock and credited to the director's deferred stock compensation account.
Deferred shares would be paid upon retirement from the Board. Each independent
director also is awarded an option to acquire shares of common stock per year.
Any change in director compensation, either in form or amount, will be
recommended by the Corporate Governance Committee based on a review of the
Board's activities and the compensation paid to directors of similar companies.
Each independent director is expected to serve on at least two committees
of the Board.
Compensation for the independent directors may be changed from time to time
in order to attract and retain qualified independent directors provided that
such change is competitive with the company's peer group and is consistent with
corporate governance objectives. The entire Board must approve any change in
director compensation.
Employee directors are not eligible for any director compensation.
DIRECTOR TERMS AND RETIREMENT
Directors are elected for one-year terms. Independent directors normally
serve until the annual meeting after their 75th birthday and for a maximum of
eight years. The Board upon a majority vote may re-nominate a director to serve
longer than eight years or after attainment of age 75 if they believe
circumstances warrant this. If directors change their principal occupation, they
must so inform the Corporate Governance Committee, which then has the
responsibility to determine if this change will negatively impact the director's
time commitment or independence. If such a determination is made, the director
will be asked to resign or will not be re-nominated.
A-4
COMMITTEE CHARTERS
AUDIT COMMITTEE CHARTER
The Board of Directors (the "Board") of Computer Associates International,
Inc. (the "Company") has established an Audit Committee (the "Committee")
with authority, responsibility, and specific duties as described below.
COMPOSITION. The Committee and its members shall meet the requirements of
the New York Stock Exchange (the "NYSE"). The Committee comprises three or more
directors as determined by the Board, each of whom shall be independent
non-executive directors, free from any relationship that would interfere with
the exercise of his or her independent judgment. The Board shall appoint one of
the members Committee chairperson. Such appointment will be for a one-year term
and will be ratified by the full Board. Each Committee member must be, or must
become within a reasonable period of time after appointment, "financially
literate," which qualification shall be determined by the Board. In addition, at
least one Committee member shall have accounting or related financial management
expertise.
AUTHORITY. The Committee may at its own initiative or at the request of the
Board investigate any activity of the Company. All employees are directed to
cooperate as requested by members of the Committee. The Committee is empowered
to retain persons having special competence as necessary to assist the Committee
in fulfilling its responsibility.
RESPONSIBILITY. The Committee is to serve as a focal point for
communication between non-Committee directors, the independent auditors, the
Company's internal audit department, and the Company's management as their
duties relate to financial accounting, reporting, and controls. The Committee is
to assist the Board in fulfilling its fiduciary responsibilities as to
accounting policies and reporting practices of the Company and all subsidiaries,
and the sufficiency of auditing relative thereto. The Committee is the Board's
principal agent in assuring the independence of the Company's independent
auditors, the integrity of financial management, and the adequacy of financial
disclosures to stockholders. However, the opportunity for the independent
auditors to meet with individual directors or the entire Board of Directors, as
needed, is not to be restricted.
The Company's independent auditors are ultimately accountable to the
Committee and the Board. The Committee and the Board have the ultimate
authority and responsibility to select, evaluate, and where appropriate,
replace the Company's independent auditors (or to nominate the independent
auditor to be proposed for any shareholder approval in the Company's proxy
statement).
MEETINGS. The Committee is to meet at least three times per fiscal year,
and as many additional times as the Committee deems necessary.
ATTENDANCE. A majority of the members of the Committee must be present at
all Committee meetings and every effort should be made to hold meetings with all
members present. As necessary or desirable, the chairperson may request that
members of management, the manager of internal audit, and representatives of the
independent auditors be present at meetings of the Committee.
MINUTES. Minutes of each Committee meeting are to be prepared summarizing
the matters discussed.
SPECIFIC DUTIES.
The Committee is to:
A-5
1. Inform the independent auditors and management that the independent
auditors and the members of the Committee may communicate with each other
at any time.
2. Review with the Company's management, independent auditors, and manager of
internal audit, the Company's policies and procedures to reasonably assure
the adequacy of internal accounting and financial reporting controls.
3. Have familiarity with the accounting and reporting principles and practices
applied by the Company in preparing its financial statements and make, or
cause to be made, all necessary inquiries of management and the independent
auditors concerning established standards of corporate conduct and
performance and any deviations therefrom.
4. Review the adequacy and scope of the annual internal audit plan with the
manager of internal audit as well as the independent auditors.
5. Review, prior to the annual audit, the scope and general extent of the
independent auditor's audit examinations. The auditor's fees are to be
arranged with management and annually summarized for Committee review and
approval.
6. Review with management the extent of nonaudit services planned to be
provided by the independent auditors in relation to the objectivity needed
in the audit.
7. Review with management and the independent auditors, upon completion of
their audit, financial results at year end prior to filing or distribution.
8. Evaluate the cooperation received by the independent auditors during their
audit examination, including their access to all requested records, data
and information, and also inquire of the independent auditors whether there
have been any disagreements with management, which if not satisfactorily
resolved would have caused the independent auditors to issue a non-standard
report on the Company's financial statements. Elicit the comments of
management regarding the responsiveness of the independent auditors to the
Company's needs.
9. Discuss with the independent auditors and management the quality of the
Company's financial and accounting personnel and any relevant
recommendations the independent auditors may have.
10. Discuss any significant changes to the Company's accounting principles and
any items required to be communicated to the independent auditors in
accordance with SAS 61, as amended.
11. Review and reassess the adequacy of this Charter at least annually and
submit this Charter to the Board of Directors for approval and have this
Charter published at least every three years in accordance with SEC
regulations.
12. Ensure that the independent auditors submit on a periodic basis to the
Committee a formal written statement delineating all relationships between
the independent auditors and the Company, actively engage in a dialogue
with the independent auditors with respect to any disclosed relationships
or services that may impact the objectivity and independence of the
independent auditors, and recommend that the Board take appropriate action
in response to the independent auditors' report to satisfy itself of the
auditors' independence.
13. Recommend to the Board the retention or replacement of the independent
auditors.
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14. Apprise the Board, as necessary, through minutes and special presentations
of significant developments in the course of performing the above duties.
15. Annually prepare a report to shareholders as required by the SEC for
inclusion in the Company's annual proxy statement.
16. Recommend to the Board any appropriate extensions or changes in the duties
of the Committee.
CORPORATE OPERATIONS COMMITTEE CHARTER
MEMBERSHIP. The Committee will be made up of the Chief Executive Officer
and at least two other directors, one of whom will be an independent director.
RESPONSIBILITY. The Committee is authorized to approve capital
expenditures at levels up to the maximum amount of the Committee's authority
as determined by the Board from time to time. Any decisions made by the
Committee will be reported to the full Board and ratified at its next meeting.
CORPORATE GOVERNANCE COMMITTEE CHARTER
MEMBERSHIP. The Committee will be composed of at least three independent
directors, one of whom will serve as chair.
MEETINGS. The Committee will meet at least three times a year.
RESPONSIBILITY.
- The Committee is responsible for overseeing the composition and size of the
Board. This includes:
- Reviewing the skills and competencies the Board needs, and
comparing this to the existing membership
- Searching for new directors as needed who have the requisite
skills and recommending candidates to the full Board for
nomination
- Reviewing the slate of directors who are to be re-nominated to
assure that they are meeting the Board's expectations of them
- Reviewing directors who have a change in their primary careers
- Coordinate and summarize the CEO evaluation process
- Annually review committee chairs and membership and recommend any changes
to the full Board
- As necessary, review the role of Lead Director and recommend any change
- At least bi-annually review the actual functioning of the Board based on
the views of its members and recommend any changes in these principles and
the Board's practices
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- The chair and members of each committee shall be decided by the Corporate
Governance Committee after discussion with the Chairman and CEO. Normally
these assignments are rotated every three years.
In all these matters the Committee will consult with the CEO, and other
Board members, to assure that its decisions are consistent with the sound
relationship between the Board and management and among the directors.
COMPENSATION AND HUMAN RESOURCE COMMITTEE CHARTER
MEMBERSHIP. The Committee will be composed of at least three independent
directors, one of whom will act as its chairman.
MEETINGS. The Committee will meet as needed, but no fewer than three times
a year.
RESPONSIBILITY.
- The Committee is responsible for determining and recommending to the full
Board for its approval the compensation plan for the Chairman of the Board,
if such person is an employee of the Company, and the CEO. This includes
awards in cash, restricted stock and stock options. The CEO will also
consult with the Committee regarding the compensation for members of senior
management whose compensation will be determined by the CEO consistent with
the guidelines set by the Committee.
- Based on this plan the Committee will determine and recommend to the full
Board for approval the annual compensation of the Chairman of the Board and
the CEO.
- The Committee is responsible for providing oversight over the possible
dilution to other shareholders because of options granted to management.
- The Committee is responsible for preparing and approving the annual
statement of compensation practices and policies that is required by the
S.E.C. to appear in the annual Proxy Statement.
- The Committee will review, at least annually, and more frequently if
needed, the capabilities and morale of the company's key employees as well
as plans to develop this talent. A key part of this review will be to
assure that successions are being developed for all key management
positions, including that of the CEO.
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EXHIBIT B
COMPUTER ASSOCIATES INTERNATIONAL, INC.
2002 INCENTIVE PLAN
Effective April 1, 2002
TABLE OF CONTENTS
Page
----
ARTICLE I ESTABLISHMENT AND PURPOSE.........................................................1
1.1 Purpose..........................................................................1
1.2 Effective Date; Shareholder Approval.............................................1
ARTICLE II DEFINITIONS......................................................................1
2.1 "Annual Performance Bonus".......................................................1
2.2 "Award"..........................................................................1
(a) "Annual Performance Bonuses"................................................1
(b) "Long-Term Performance Bonuses".............................................2
(c) "Restricted Stock"..........................................................2
(d) "Stock Options".............................................................2
(e) "Other Equity-Based Awards".................................................2
2.3 "Award Certificate"..............................................................2
2.4 "Board"..........................................................................2
2.5 "Change in Control"..............................................................2
2.6 "Code"...........................................................................3
2.7 "Committee"......................................................................3
2.8 "Common Stock"...................................................................3
2.9 "Company"........................................................................3
2.10 "Consultant".....................................................................3
2.11 "Disabled" or "Disability".......................................................4
2.12 "Employee".......................................................................4
2.13 "Exercise Price".................................................................4
2.14 "Fair Market Value"..............................................................4
2.15 "Fair Market Value Stock Option".................................................4
2.16 "GAAP"...........................................................................4
2.17 "Incentive Stock Option".........................................................4
2.18 "Key Employee"...................................................................5
2.19 "Long-Term Performance Bonus"....................................................5
2.20 "Nonqualified Stock Option"......................................................5
2.21 "Participant"....................................................................5
2.22 "Performance Cycle"..............................................................5
2.23 "Performance Measure"............................................................5
2.24 "Plan"...........................................................................6
2.25 "Premium-Priced Stock Option"....................................................6
2.26 "Prior Plans"....................................................................6
2.27 "Related Company"................................................................6
2.28 "Reporting Person"...............................................................6
2.29 "Restricted Stock"...............................................................6
2.30 "Retirement".....................................................................6
2.31 "Rights Agreement"...............................................................6
2.32 "Shares".........................................................................7
2.33 "Stock Option"...................................................................7
2.34 "Termination of Consultancy".....................................................7
2.35 "Termination of Employment"......................................................7
ARTICLE III ADMINISTRATION..................................................................7
3.1 The Committee....................................................................7
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3.2 Authority of the Committee.......................................................7
3.3 Effect of Determinations.........................................................8
3.4 Delegation of Authority..........................................................8
3.5 No Liability.....................................................................8
ARTICLE IV AWARDS...........................................................................8
4.1 Eligibility......................................................................8
4.2 Participation....................................................................8
4.3 Form of Awards...................................................................8
4.4 Annual Performance Bonuses.......................................................9
(a) Performance Cycles..........................................................9
(b) Bonus Participants..........................................................9
(c) Performance Measures; Targets; Payout Formula...............................9
(d) Payment of Bonuses; Certification..........................................10
(e) Awards to Non-Key Employees................................................10
(f) Form of Payment............................................................10
(g) Amount of Bonus............................................................10
4.5 Long-Term Performance Bonuses...................................................10
(a) Performance Cycles.........................................................10
(b) Bonus Participants.........................................................10
(c) Performance Measures; Targets; Payout Formula..............................10
(d) Payment of Bonuses; Certification..........................................11
(e) Awards to Non-Key Employees................................................11
(f) Form of Payment............................................................11
(g) Amount of Bonus............................................................11
4.6 Restricted Stock................................................................11
(a) Performance Cycles.........................................................11
(b) Performance Measures; Targets and Payout Formulas..........................12
(c) Committee Certification....................................................12
(d) Awards to Non-Key Employees................................................12
(e) Payment of Restricted Stock................................................13
(i) Vesting and Forfeiture..............................................13
(ii) Acceleration of Vesting.............................................13
(iii) Legend..............................................................13
(f) Amount of Restricted Stock.................................................13
4.7 Stock Options...................................................................13
(a) Amount of Shares...........................................................13
(b) Exercise Price.............................................................14
(c) Term and Timing of Exercise................................................14
(d) Payment of Exercise Price..................................................15
(e) Incentive Stock Options....................................................15
(i) Eligibility.........................................................15
(ii) Timing of Grant.....................................................15
(iii) Amount of Award.....................................................15
(iv) Timing of Exercise..................................................16
(v) Transfer Restrictions...............................................16
(f) No Repricing...............................................................16
4.8 Other Equity-Based Awards.......................................................16
(a) Awards to Key Employees....................................................16
4.9 Code Section 162(m).............................................................16
ARTICLE V SHARES SUBJECT TO THE PLAN; ADJUSTMENTS..........................................17
5.1 Shares Available................................................................17
5.2 Counting Rules..................................................................17
5.3 Adjustments.....................................................................17
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5.4 Consolidation, Merger or Sale of Assets.........................................18
5.5 Fractional Shares...............................................................18
ARTICLE VI AMENDMENT AND TERMINATION.......................................................19
6.1 Amendment.......................................................................19
6.2 Termination.....................................................................19
ARTICLE VII GENERAL PROVISIONS.............................................................19
7.1 Nontransferability of Awards....................................................19
7.2 Withholding of Taxes............................................................20
(a) Stock Options..............................................................20
(b) Restricted Stock...........................................................20
7.3 Special Forfeiture Provision....................................................20
7.4 Code Section 83(b) Elections....................................................21
7.5 No Implied Rights...............................................................21
7.6 No Obligation to Exercise Options...............................................21
7.7 No Rights as Stockholders.......................................................21
7.8 Indemnification of Committee....................................................21
7.9 No Required Segregation of Assets...............................................21
7.10 Nature of Payments..............................................................22
7.11 Securities Exchange Act Compliance..............................................22
7.12 Governing Law; Severability.....................................................22
B-iii
COMPUTER ASSOCIATES INTERNATIONAL, INC.
2002 INCENTIVE PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 PURPOSE.
The purpose of this Computer Associates International, Inc. 2002 Incentive
Plan (the "Plan") is to enable Computer Associates International, Inc. (the
"Company") to achieve superior financial performance, as reflected in the
performance of its Common Stock and other key financial or operating indicators
by (i) providing incentives and rewards to certain Employees and Consultants who
are in a position to contribute materially to the success and long-term
objectives of the Company, (ii) aiding in the recruitment and retention of
Employees of outstanding ability and (iii) providing Employees and Consultants
an opportunity to acquire or expand equity interests in the Company, thus
aligning the interests of such Employees and Consultants with those of the
Company's shareholders. Towards these objectives, the Plan provides for the
grant of Annual Performance Bonuses, Stock Options, Restricted Stock and Other
Equity-Based Awards.
1.2 EFFECTIVE DATE; SHAREHOLDER APPROVAL.
The Plan is effective as of April 1, 2002, subject to the approval by a
vote at the Company's 2002 Annual Meeting of Stockholders, or any adjournment of
such meeting, of the holders of at least a majority of the Shares of the
Company, present in person or by proxy and entitled to vote at such meeting. Any
Awards granted under the Plan prior to the approval of the Plan by the Company's
shareholders, as provided herein, shall be contingent on such approval; if such
approval is not obtained, the Plan shall have no effect, and any Awards granted
under the Plan shall be rescinded.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms shall have the following
meanings, unless another definition is clearly indicated by particular usage and
context:
2.1 "ANNUAL PERFORMANCE BONUS" means an Award described in Section 4.4
of the Plan.
2.2 "AWARD" means any form of incentive or performance award granted
under the Plan, whether singly or in combination, to a Participant by the
Committee pursuant to such terms, conditions, restrictions and/or limitations
(if any) as the Committee may establish and set forth in the applicable Award
Certificate. Awards granted under the Plan may consist of:
(a) "ANNUAL PERFORMANCE BONUSES" awarded pursuant to Section
4.4;
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(b) "LONG-TERM PERFORMANCE BONUSES" awarded pursuant to Section
4.5;
(c) "RESTRICTED STOCK" awarded pursuant to Section 4.6.
(d) "STOCK OPTIONS" awarded pursuant to Section 4.7; and
(e) "OTHER EQUITY-BASED AWARDS" awarded pursuant to Section 4.8.
2.3 "AWARD CERTIFICATE" means the document issued, either in writing
or by electronic means, by the Committee to a Participant evidencing the
grant of an Award.
2.4 "BOARD" means the Board of Directors of the Company.
2.5 "CHANGE IN CONTROL" means the happening of any of the following
events:
(a) an acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 25% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the
following: (i) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself directly acquired from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company or
any entity controlled by the Company, or (iv) any acquisition pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this Section 2.5; or
(b) a change in the composition of the Board such that the
individuals who, as of the effective date of the Plan, constitute the Board
(such Board shall be hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute a majority of the Board; PROVIDED,
HOWEVER, for purposes of this Section 2.5, that any individual who becomes
a member of the Board subsequent to the effective date of the Plan, whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of a majority of those individuals who are members of
the Board and who were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though such
individual was a member of the Incumbent Board; but, PROVIDED FURTHER, that
any such individual whose initial assumption of office occurs as a result
of any actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board shall not be so considered as a
member of the Incumbent Board; or
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(c) consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, such a Corporate
Transaction pursuant to which (i) all or substantially all of the
individuals and entities who are beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 50% of, respectively, the outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
Corporate Transaction (including, without limitation, a corporation which
as the result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (other than the Company, any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Corporate Transaction) will beneficially own, directly or indirectly, 25%
or more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors, except to the
extent that such ownership existed prior to the Corporate Transaction, and
(iii) individuals who were members of the Incumbent Board will constitute
at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(d) the approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended.
2.7 "COMMITTEE" means the Compensation and Human Resource Committee of
the Board formed to act on performance-based compensation for Key Employees,
or any successor committee or subcommittee of the Board which is comprised
solely of two or more outside directors (within the meaning of Section
162(m)(4)(C)(i) of the Code and the applicable regulations).
2.8 "COMMON STOCK" means the Common Stock, $.10 par value per share,
of the Company.
2.9 "COMPANY" means Computer Associates International, Inc.
2.10 "CONSULTANT" means any consultant or adviser if:
(a) the consultant or advisor renders bona fide services to the
Company;
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(b) the services rendered by the consultant or advisor are not
in connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market
for the Company's securities; and
(c) the consultant or adviser is a natural person who has
contracted directly with the Company to render such services.
2.11 "DISABLED" OR "DISABILITY" means permanently and totally disabled
within the meaning of Section 22(e) of the Code.
2.12 "EMPLOYEE" means any individual who performs services as a common
law employee for the Company or a Related Company. "Employee" shall not
include any seasonal or temporary employees.
2.13 "EXERCISE PRICE" means the price per Share, as fixed by the
Committee, at which Shares may be purchased under a Stock Option. In no event
shall the Exercise Price with respect to any Share subject to a Stock Option
be set at a price that is less than the Fair Market Value, as defined in
Section 2.14(a), of a Share as of the date of grant.
2.14 "FAIR MARKET VALUE" means:
(a) The closing sales price of a Share as reported on the New
York Stock Exchange (or any other reporting system selected by the
Committee, in its sole discretion) on the date as of which the
determination is being made or, if no sale of Shares is reported on such
date, on the next preceding day on which there were sales of Shares
reported.
(b) Notwithstanding the foregoing, solely for the purpose of
fixing the Exercise Price of Premium-Priced Stock Options pursuant to
Section 2.25, "Fair Market Value" means the average over the ten trading
day period ending on the day as of which the determination is being made of
the closing sales price of a Share as reported on the composite tape of the
New York Stock Exchange (or any other reporting system selected by the
Committee, in its sole discretion).
2.15 "FAIR MARKET VALUE STOCK OPTION" means a Stock Option the Exercise
Price of which is set by the Committee at a price per Share equal to the Fair
Market Value, as defined in Section 2.14(a), of a Share on the date of grant.
2.16 "GAAP" means generally accepted accounting principles.
2.17 "INCENTIVE STOCK OPTION" means a Stock Option granted under
Section 4.7 of the Plan that meets the requirements of Section 422 of the
Code and any regulations or rules promulgated thereunder and is designated by
the Committee in the Award Certificate to be an Incentive Stock Option.
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2.18 "KEY EMPLOYEE" means an Employee who is a "covered employee" within
the meaning of Section 162(m)(3) of the Code.
2.19 "LONG-TERM PERFORMANCE BONUS" means an Award described in Section
4.5 of the Plan.
2.20 "NONQUALIFIED STOCK OPTION" means any Stock Option granted under
Section 4.7 of the Plan that is not an Incentive Stock Option.
2.21 "PARTICIPANT" means an Employee or Consultant who has been granted
an Award under the Plan.
2.22 "PERFORMANCE CYCLE" means, with respect to any Annual Performance
Bonus, Long-Term Performance Bonuses, performance-based Restricted Stock or
Other Equity-Based Award awarded under the Plan, the Company's fiscal year or
years over which the level of attainment of performance of a Performance
Measure shall be determined. The first Performance Cycle under the Plan shall
commence on April 1, 2002.
2.23 "PERFORMANCE MEASURE" means, with respect to any Annual Performance
Bonus, Long-Term Performance Bonus, performance-based Restricted Stock or
Other Equity-Based Award awarded in connection with a Performance Cycle, the
business criteria selected by the Committee to measure the level of
performance of the Company during such Performance Cycle. The Committee may
select as the Performance Measure for a Performance Cycle any one or
combination of the following Company measures, as interpreted by the
Committee, which (to the extent applicable) shall be determined on a GAAP
basis, either pre-tax or after-tax:
(a) Net Operating Profit After Taxes;
(b) Net Operating Profit After Taxes, Per Share;
(c) Return On Invested Capital;
(d) Total Shareholder Return;
(e) Relative Total Shareholder Return (as compared against a
peer group of the Company, which, unless otherwise specified by the
Committee, shall be the companies comprising the Standard & Poor's Systems
Software Index, excluding the Company);
(f) Earnings Per Share;
(g) Net Income;
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(h) Cash Flow;
(i) Cash Flow Per Share;
(j) Revenue (or any component thereof);
(k) Revenue Growth;
(l) Share Performance; and/or
(m) Relative Share Performance.
2.24 "PLAN" means the Computer Associates International, Inc. 2002
Incentive Plan, as set forth in this document and as may be amended from time
to time.
2.25 "PREMIUM-PRICED STOCK OPTION" means a Stock Option the Exercise
Price of which is set by the Committee at a price per Share that exceeds the
Fair Market Value, as defined in Section 2.14 (b), of a Share on the date of
grant.
2.26 "PRIOR PLANS" means the Computer Associates International, Inc.
2001 Stock Option Plan; the Computer Associates International, Inc. Year 2000
Employee Stock Purchase Plan; and the Computer Associates International, Inc.
1994 Annual Incentive Compensation Plan.
2.27 "RELATED COMPANY" means a consolidated subsidiary of the Company
for purposes of reporting in the Company's consolidated financial statements.
2.28 "REPORTING PERSON" means an Employee who is subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of
1934.
2.29 "RESTRICTED STOCK" means Shares issued under a Long-Term
Performance Bonus under Section 4.5(f) or under a Restricted Stock Award
pursuant to Section 4.6, which are subject to such restrictions as the
Committee, in its discretion, shall impose.
2.30 "RETIREMENT" means retirement (i) at or after age 55 with ten years
of service or (ii) at or after age 65.
2.31 "RIGHTS AGREEMENT" means the Rights Agreement dated June 18, 1991,
as amended from time to time, between the Company and Mellon Investor
Services LLC (as successor rights agent to Manufacturers Hanover Trust
Company).
B-6
2.32 "SHARES" means shares of Common Stock.
2.33 "STOCK OPTION" means a right granted under Section 4.7 of the Plan
to purchase from the Company a stated number of Shares at a specified price.
Stock Options awarded under the Plan shall be in the form of either Incentive
Stock Options or Nonqualified Stock Options.
2.34 "TERMINATION OF CONSULTANCY" means the date of cessation of a
Consultant's service relationship with the Company for any reason, with or
without cause, as determined by the Company.
2.35 "TERMINATION OF EMPLOYMENT" means the date of cessation of an
Employee's employment relationship with the Company and any Related Company
for any reason, with or without cause, as determined by the Company;
provided, however, that for purposes of the Plan, an Employee's employment
relationship shall be treated as continuing intact while the Employee is on
military leave, sick leave or other bona fide leave of absence (such as
temporary employment with the Government) if the period of such leave does
not exceed ninety (90) days, or if longer, so long as the Employee's right to
reemployment with the Company or a Related Company is guaranteed either by
statute or by contract. Where the period of leave exceeds ninety (90) days
and where the Employee's right to reemployment is not guaranteed either by
statute or contract, the employment relationship will be deemed to have
terminated on the ninety-first (91st) day of such leave.
ARTICLE III
ADMINISTRATION
3.1 THE COMMITTEE.
The Plan shall be administered by the Committee.
3.2 AUTHORITY OF THE COMMITTEE.
The Committee shall have authority, in its sole and absolute discretion and
subject to the terms of the Plan, to (1) interpret the Plan; (2) prescribe such
rules and regulations as it deems necessary for the proper operation and
administration of the Plan, and amend or rescind any existing rules or
regulations relating to the Plan; (3) select Employees and Consultants to
receive Awards under the Plan; (4) determine the form of an Award, the number of
Shares subject to an Award, all the terms, conditions, restrictions and/or
limitations, if any, of an Award including, without limitation, the timing or
conditions of exercise or vesting, and the terms of any Award Certificate; (5)
determine whether Awards will be granted singly, in combination or in tandem;
(6) establish and administer Performance Measures in connection with Annual
Performance Bonuses, Long-Term Performance Bonuses, performance-based Restricted
Stock or Other Equity-Based Awards granted to Key Employees under the Plan, and
certify the
B-7
level of performance attainment for such Performance Measures; (7) except as
provided in Section 4.7(f), waive or amend any terms, conditions, restrictions
or limitations of an Award; (8) in accordance with Article V, make such
adjustments to the Plan (including but not limited to adjustment of the number
of shares available under the Plan or any Award) and/or to any Award granted
under the Plan, as may be appropriate; (9) accelerate the vesting, exercise or
payment of an Award when such action or actions would be in the best interest of
the Company; (10) provide for the deferred payment of Awards in Shares and the
extent to which such payment shall be credited with dividend equivalents; (11)
determine whether Nonqualified Stock Options may be transferable to family
members, a family trust or a family partnership; (12) establish such subplans as
the Committee may determine to be necessary in order to implement and administer
the Plan in foreign countries; and (13) take any and all other action it deems
necessary or advisable for the proper operation or administration of the Plan.
3.3 EFFECT OF DETERMINATIONS.
All determinations of the Committee shall be final, binding and conclusive
on all persons having an interest in the Plan.
3.4 DELEGATION OF AUTHORITY.
The Committee, in its discretion, may delegate its authority and duties
under the Plan to such other individual, individuals or committee as it may deem
advisable, under such conditions and subject to such limitations as the
Committee may establish. Notwithstanding the foregoing, only the Committee shall
have authority to grant and administer Awards to Key Employees and other
Reporting Persons, to establish and certify Performance Measures and to grant
Awards to any Employee who is acting as a delegate of the Committee in respect
of the Plan.
3.5 NO LIABILITY.
No member of the Committee, nor any person acting as a delegate of the
Committee in respect of the Plan, shall be liable for any losses incurred by any
person resulting from any action, interpretation or construction made in good
faith with respect to the Plan or any Award granted thereunder.
ARTICLE IV
AWARDS
4.1 ELIGIBILITY.
Except as otherwise provided herein with respect to a specific form of an
Award, all Employees and Consultants shall be eligible to receive Awards granted
under the Plan.
4.2 PARTICIPATION.
The Committee, at its sole discretion, shall select from time to time
Participants from those persons eligible under Section 4.1 above to receive
Awards under the Plan.
4.3 FORM OF AWARDS.
Awards granted under the Plan shall be in the form of Annual Performance
Bonuses, Long-Term Performance Bonuses, Restricted Stock, Stock Options, and
Other Equity-Based Awards. Awards shall be in the form determined by the
Committee, in its discretion, and shall be evidenced by an Award
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Certificate. Awards may be granted singly, in combination or in tandem with
other Awards. The terms and conditions applicable to Annual Performance Bonuses
shall be as set forth in Section 4.4. The terms applicable to Long-Term
Performance Bonuses shall be as set forth in Section 4.5. The terms and
conditions applicable to Restricted Stock shall be as set forth in Section 4.6.
The terms and conditions applicable to Stock Options shall be as set forth in
Section 4.7. The terms and conditions applicable to Other Equity-Based Awards
shall be as set forth in Section 4.8.
4.4 ANNUAL PERFORMANCE BONUSES.
The Committee may grant Annual Performance Bonuses under the Plan only to
such Employees as the Committee may from time to time select, in such amounts
and subject to such terms and conditions as the Committee, in its discretion may
determine. Notwithstanding the foregoing, any Annual Performance Bonus awarded
to a Key Employee shall be subject to the provisions of paragraphs (a) through
(d) below.
(a) PERFORMANCE CYCLES. Annual Performance Bonuses for Key
Employees (and such other Employees that the Committee may designate for
this purpose) shall be awarded in connection with a 12-month Performance
Cycle, which shall be the fiscal year of the Company. The first Performance
Cycle under the Plan shall commence on April 1, 2002.
(b) BONUS PARTICIPANTS. Within ninety (90) days after the
commencement of a Performance Cycle, the Committee shall determine the Key
Employees who shall be eligible to receive an Annual Performance Bonus for
such Performance Cycle.
(c) PERFORMANCE MEASURES; TARGETS; PAYOUT FORMULA.
(i) Within ninety (90) days after the commencement of a
Performance Cycle, the Committee shall fix and establish, in
writing, (A) the Performance Measure(s) that shall apply to such
Performance Cycle; (B) the target amount of Annual Performance
Bonus that shall be payable to each such Key Employee; and (C)
subject to paragraph (g) below, the payout formula for computing
the actual amount of Annual Performance Bonus that shall become
payable with respect to each level of attained performance. Towards
this end, such payout formula shall, based on objective criteria,
set forth for the applicable Performance Measure(s) the minimum
level of performance that must be attained during the Performance
Cycle before any Annual Performance Bonus shall become payable and
the percentage (which percentage may not exceed 200%) of the target
amount of Annual Performance Bonus that shall be payable to each
such Key Employee upon attainment of various levels of performance
that equal or exceed the minimum required level. Unless the
Committee determines that a different Performance Measure shall
apply with respect to a given Performance Cycle, the applicable
Performance Measure shall be Net Operating Profit After Taxes.
(ii) Notwithstanding anything in this paragraph (c) to
the contrary, the Committee may, on a case by case basis and in its
sole discretion, reduce, but not increase, the Annual Performance
Bonus payable to any Key Employee with respect to any given
Performance Cycle, PROVIDED, HOWEVER, that no such reduction shall
result in an increase in the dollar amount of any Annual
Performance Bonus payable to any other Key Employee.
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(d) PAYMENT OF BONUSES; CERTIFICATION. No Annual Performance
Bonus shall be paid to a Key Employee under this Section 4.4 unless and
until the Committee certifies in writing the level of attainment of the
applicable Performance Measure(s) for the applicable Performance Cycle.
(e) AWARDS TO NON-KEY EMPLOYEES. Annual Performance Bonuses
awarded to Participants who are not Key Employees shall be based on such
Performance Measures and payout formulas (which may be the same or
different as those applicable to Key Employees) as the Committee, in its
discretion, may establish for such purposes.
(f) FORM OF PAYMENT. Annual Performance Bonuses shall be paid in
cash.
(g) AMOUNT OF BONUS. The maximum amount that may be paid as an
Annual Performance Bonus to any one Participant during any fiscal year of
the Company shall not exceed $10,000,000.
4.5 LONG-TERM PERFORMANCE BONUSES
The Committee may grant Long-Term Performance Bonuses under the Plan only
to such Employees as the Committee may from time to time select, in such amounts
and subject to such terms and conditions as the Committee, in its discretion may
determine. Notwithstanding the foregoing, any Long-Term Performance Bonus
awarded to a Key Employee shall be subject to the provisions of paragraphs (a)
through (d) below.
(a) PERFORMANCE CYCLES. Long-Term Performance Bonuses for Key
Employees (and such other Employees that the Committee may designate for
this purpose) shall be awarded in connection with a Performance Cycle,
which shall be one or more fiscal years of the Company. The Committee shall
determine the length of a Performance Cycle within ninety (90) days after
the commencement of such Performance Cycle. In the event that the Committee
determines that a Performance Cycle shall be a period greater than one
fiscal year, a new Long-Term Performance Bonus Award may be granted and a
new Performance Cycle may commence prior to the completion of the
Performance Cycle associated with the prior Long-Term Performance Bonus
Award. The first Performance Cycle under the Plan shall commence on April
1, 2002 and shall be one fiscal year.
(b) BONUS PARTICIPANTS. Within ninety (90) days after the
commencement of a Performance Cycle, the Committee shall determine the Key
Employees who shall be eligible to receive a Long-Term Performance Bonus
for such Performance Cycle.
(c) PERFORMANCE MEASURES; TARGETS; PAYOUT FORMULA.
(i) Within ninety (90) days after the commencement of a
Performance Cycle, the Committee shall fix and establish, in
writing, (A) the Performance Measure(s) that shall apply to such
Performance Cycle; (B) the target amount of Long-Term Performance
Bonus that shall be payable to each such Key Employee; and (C)
subject to paragraph (g) below, the payout formula for computing
the actual amount of Long-Term Performance Bonus that shall become
payable with respect to each level of attained
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performance. Towards this end, such payout formula shall, based on
objective criteria, set forth for the applicable Performance
Measure(s) the minimum level of performance that must be attained
during the Performance Cycle before any Long-Term Performance Bonus
shall become payable and the percentage (which percentage may not
exceed 200%) of the target amount of Long-Term Performance Bonus
that shall be payable to each such Key Employee upon attainment of
various levels of performance that equal or exceed the minimum
required level. Unless the Committee determines that a different
Performance Measure shall apply with respect to a given Performance
Cycle, the applicable Performance Measure shall be Relative Total
Shareholder Return.
(ii) Notwithstanding anything in this paragraph (c) to
the contrary, the Committee may, on a case by case basis and in its
sole discretion, reduce, but not increase, the Long-Term
Performance Bonus payable to any Key Employee with respect to any
given Performance Cycle, PROVIDED, HOWEVER, that no such reduction
shall result in an increase in the dollar amount of any Long-Term
Performance Bonus payable to any other Key Employee.
(d) PAYMENT OF BONUSES; CERTIFICATION. No Long-Term Performance
Bonus shall be paid to a Key Employee under this Section 4.5 unless and
until the Committee certifies in writing the level of attainment of the
applicable Performance Measure(s) for the applicable Performance Cycle.
(e) AWARDS TO NON-KEY EMPLOYEES. Long-Term Performance Bonuses
awarded to Participants who are not Key Employees shall be based on such
Performance Measures and payout formulas (which may be the same or
different as those applicable to Key Employees) as the Committee, in its
discretion, may establish for such purposes.
(f) FORM OF PAYMENT. Long-Term Performance Bonuses shall be paid
in Shares of Restricted Stock. The number of Shares of Restricted Stock
payable in connection with a Long-Term Performance Bonus shall be
determined based on the Fair Market Value (as defined in Section 2.14(a))
of a Share as of the last business day of the applicable Performance Cycle.
Any Shares paid in connection with a Long-Term Performance Bonus shall be
subject to the provisions of Sections 4.6(e) and (f).
(g) AMOUNT OF BONUS. Subject to Section 4.6(f), the maximum
amount that may be paid as a Long-Term Performance Bonus to any one
Participant during any fiscal year of the Company shall not exceed
$20,000,000.
4.6 RESTRICTED STOCK.
The Committee may grant Restricted Stock under the Plan only to such
Employees as the Committee may from time to time select, in such amounts and
subject to such terms, conditions and restrictions as the Committee, in its
discretion, may determine. Notwithstanding the foregoing, any Restricted Stock
awarded to a Key Employee shall be subject to the provisions of paragraphs (a)
through (c) below.
(a) PERFORMANCE CYCLES. Restricted Stock Awards for Key
Employees shall be performance-based and shall be awarded in connection
with a Performance Cycle. Unless the Committee determines that some other
period shall apply, the Performance Cycle shall be the fiscal year of the
Company. In the event that the Committee
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determines that a Performance Cycle shall be a period greater than a
12-month period, a new Restricted Stock Award may be granted and a new
Performance Cycle may commence prior to the completion of the Performance
Cycle associated with the prior Restricted Stock Award. The first
Performance Cycle under the Plan shall commence on April 1, 2002.
(b) PERFORMANCE MEASURES; TARGETS AND PAYOUT FORMULAS.
(i) Within ninety (90) days after the commencement of a
Performance Cycle, the Committee shall designate the Key Employees
who shall be eligible to receive a performance-based Restricted
Stock Award for such Performance Cycle and shall establish, in
writing, the Performance Measure(s) that shall apply for such
Performance Cycle. Unless the Committee determines that a different
Performance Measure shall apply with respect to a given Performance
Cycle, the Performance Measure for Restricted Stock Awards shall be
based on Relative Total Shareholder Return.
(ii) Within ninety (90) days after the commencement of a
Performance Cycle, the Committee shall set forth a target amount of
Restricted Stock that shall be payable to each such Key Employee
and, subject to paragraph (f) below, shall establish a payout
formula for computing the actual amount of Restricted Stock that
shall become payable with respect to each level of attained
performance. Towards this end, such payout formula shall, based on
objective criteria, set forth for the applicable Performance
Measure the minimum level of performance that must be attained
during the Performance Cycle before any Restricted Stock shall
become payable and the percentage (which percentage may not exceed
200%) of the target amount of Restricted Stock that shall be
payable to each such Key Employee upon attainment of various levels
of performance that equal or exceed the minimum required level.
(iii) The actual amount of Restricted Stock that shall be
paid to each such Key Employee for any given Performance Cycle
shall be determined based on such Key Employee's target Restricted
Stock Award, the actual level of achievement of the Performance
Measure(s) and the payout formula determined by the Committee
pursuant to this paragraph (b) for such Performance Cycle.
Notwithstanding the foregoing, the Committee may, on a case by case
basis and in its sole discretion, reduce, but not increase, the
actual amount of Restricted Stock payable to any Key Employee with
respect to any given Performance Cycle, PROVIDED, HOWEVER, that no
such reduction shall result in an increase in the amount of
Restricted Stock payable to any other Key Employee.
(c) COMMITTEE CERTIFICATION. No Restricted Stock shall be paid
to a Key Employee under this Section 4.6 unless and until the Committee
certifies in writing the level of attainment of the applicable Performance
Measure(s) for the applicable Performance Cycle.
(d) AWARDS TO NON-KEY EMPLOYEES. Restricted Stock Awards to
Participants who are not Key Employees shall be subject to such provisions
as the Committee may, in its discretion determine. In addition, for any
Performance Cycle, the Committee may, in its discretion, determine that
Awards of Restricted Stock to such non-Key Employee Participants shall be
performance-based, applying such Performance Measure(s) and payout
schedules (which may be the same or different as those
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applicable to Key Employees) that the Committee, in its discretion, may
establish for such purposes.
(e) PAYMENT OF RESTRICTED STOCK. As soon as practicable after
Restricted Stock has become payable, a certificate or certificates for all
such Shares of Restricted Stock shall be registered in the name of the
Participant and held for the Participant by the Company. The Participant
shall thereupon have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive dividends or other
distributions made or paid with respect to such Shares, except that such
Shares shall be subject to the vesting and forfeiture provisions of
paragraph (e)(i) below. The Committee may, in its discretion, impose such
restrictions on Restricted Stock as it deems appropriate. Unless the
applicable Award Certificate provides that some other restrictions shall
apply, such Shares shall be subject to the following vesting provisions:
(i) VESTING AND FORFEITURE. Shares of Restricted Stock
that have not yet vested shall be forfeited by a Participant upon
the Participant's Termination of Employment for any reason other
than death or Disability. Shares of Restricted Stock shall vest in
equal annual installments over a three-year period after the end of
the applicable Performance Cycle (or date of grant, in the case of
Awards not tied to Performance Measures).
(ii) ACCELERATION OF VESTING. Notwithstanding the
foregoing, all Shares of Restricted Stock shall immediately vest
upon a Change in Control or upon the death or Disability of the
Participant.
(iii) LEGEND. In order to enforce any restrictions that
the Committee may impose on Restricted Stock, the Committee shall
cause a legend or legends setting forth a specific reference to
such restrictions to be placed on all certificates for Shares of
Restricted Stock. As restrictions are released, a new certificate,
without the legend, for the number of Shares with respect to which
restrictions have been released shall be issued and upon request by
the Participant, shall be delivered to the Participant as soon as
possible thereafter.
(f) AMOUNT OF RESTRICTED STOCK. The maximum aggregate number of
Shares of Restricted Stock that may be issued to any one Participant under
Section 4.5(g) and this Section 4.6 during any fiscal year of the Company
shall not exceed 1,000,000 Shares, subject to adjustment as provided in
Section 5.3.
4.7 STOCK OPTIONS.
Stock Options granted under the Plan shall, at the discretion of the
Committee, be in the form of either Nonqualified Stock Options, Incentive Stock
Options or a combination of the two, subject to the restrictions set forth in
paragraph (e) below. Where both an a Nonqualified Stock Option and an Incentive
Stock Option are granted to a Participant at the same time, such Awards shall be
deemed to have been granted in separate grants, shall be clearly identified, and
in no event will the exercise of one such Award affect the right to exercise the
other Award. The Committee shall designate the form of the Stock Option at the
time of grant and such form shall be specified in the Award Certificate. Stock
Options shall be subject to the following terms and conditions:
(a) AMOUNT OF SHARES. The Committee may grant Stock Options to a
Participant in such amounts as the Committee may determine,
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subject to the limitations set forth in Section 5.1 of the Plan. The number
of Shares subject to a Stock Option shall be set forth in the applicable
Award Certificate.
(b) EXERCISE PRICE. Stock Options granted under the Plan shall
be Fair Market Value Stock Options; except, however, that Awards of Stock
Options granted to Key Employees (and such other Employees or Consultants
as the Committee may from time to time select for this purpose) shall
consist of such proportion of Fair Market Value Stock Options to
Premium-Priced Stock Options as the Committee, in its discretion, shall
determine. The Exercise Price of a Stock Option, as determined by the
Committee pursuant to this Section 4.7(b), shall be set forth in the
applicable Award Certificate.
(c) TERM AND TIMING OF EXERCISE. Each Stock Option granted under
the Plan shall be exercisable in whole or in part, subject to the following
conditions, limitations and restrictions:
(i) Unless the applicable Award Certificate provides
otherwise, one third of the Shares subject to a Stock Option shall
first become exercisable on the one-year anniversary of the date of
grant, one-third shall first become exercisable on the two-year
anniversary of the date of grant and the remaining third shall
first become exercisable on the three-year anniversary of the date
of grant;
(ii) Stock Options shall lapse 10 years after the date of
grant;
(iii) Unless the applicable Award Certificate provides
otherwise, all Stock Options subject to the Award shall become
immediately exercisable upon a Change in Control;
(iv) All Stock Options granted to a Participant shall
become immediately exercisable upon the death or Disability of the
Participant and must be exercised, if at all, within one year after
such Participant's death or Disability, but in no event after the
date such Stock Options would otherwise lapse. Stock Options of a
deceased Participant may be exercised only by the estate of the
Participant or by the person given authority to exercise such Stock
Options by the Participant's will or by operation of law. In the
event a Stock Option is exercised by the executor or administrator
of a deceased Participant, or by the person or persons to whom the
Stock Option has been transferred by the Participant's will or the
applicable laws of descent and distribution, the Company shall be
under no obligation to deliver Shares thereunder unless and until
the Company is satisfied that the person or persons exercising the
Stock Option is or are the duly appointed executor(s) or
administrator(s) of the deceased Participant or the person to whom
the Stock Option has been transferred by the Participant's will or
by the applicable laws of descent and distribution;
(v) Unless the applicable Award Certificate provides
otherwise, upon an Employee's Retirement, all Stock Options that
have not become exercisable as of the date of Retirement shall be
forfeited and to the extent that Stock Options have become
exercisable as of such date, such Stock Options must be exercised,
if at all, within one year after Retirement; and
(vi) Except as otherwise provided in Section 7.3, upon an
Employee's Termination of Employment, or a Consultant's Termination
of Consultancy, for any reason other than death, Disability or
Retirement, all Stock Options that have not become
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exercisable as of the date of termination shall be forfeited and to
the extent that Stock Options have become exercisable as of such
date, such Stock Options must be exercised, if at all, within 30
days after such Termination of Employment or Termination of
Consultancy, or within such other period set forth in the
applicable Award Certificate.
(d) PAYMENT OF EXERCISE PRICE. The Exercise Price shall be paid
in full when the Stock Option is exercised and stock certificates shall be
registered and delivered only upon receipt of such payment. Payment of the
Exercise Price may be made in cash or by certified check, bank draft, wire
transfer, or postal or express money order. In addition, at the discretion
of the Committee, payment of all or a portion of the Exercise Price may be
made by
(i) Delivering a properly executed exercise notice to
the Company, or its agent, together with irrevocable instructions
to a broker to deliver promptly to the Company the amount of sale
or loan proceeds with respect to the portion of the Shares to be
acquired upon exercise having a Fair Market Value on the date of
exercise equal to the sum of the applicable portion of the Exercise
Price being so paid;
(ii) Tendering (actually or by attestation) to the
Company previously acquired Shares that have been held by the
Participant for at least six months having a Fair Market Value on
the day prior to the date of exercise equal to the applicable
portion of the Exercise Price being so paid; or
(iii) any combination of the foregoing.
(e) INCENTIVE STOCK OPTIONS. Incentive Stock Options granted
under the Plan shall be subject to the following additional conditions,
limitations and restrictions:
(i) ELIGIBILITY. Incentive Stock Options may only be
granted to Employees of the Company or a Related Company that is a
subsidiary or parent corporation, within the meaning of Code
Section 424, of the Company. In no event may an Incentive Stock
Option be granted to an Employee who owns stock possessing more
than 10% of the total combined voting power of all classes of stock
of the Company or such Related Company or to a Consultant.
(ii) TIMING OF GRANT. No Incentive Stock Option shall be
granted under the Plan after the 10-year anniversary of the date
the Plan is adopted by the Board or, if earlier, the date the Plan
is approved by the Company's shareholders.
(iii) AMOUNT OF AWARD. The aggregate Fair Market Value on
the date of grant of the Shares with respect to which such
Incentive Stock Options first become exercisable during any
calendar year under the terms of the Plan for any Participant may
not exceed $100,000. For purposes of this $100,000 limit, the
Participant's Incentive Stock Options under this Plan and all
Plan's maintained by the Company and a Related Company shall be
aggregated. To the extent any Incentive Stock Option first becomes
exercisable in a calendar year and such limit would be exceeded,
such Incentive Stock Option shall thereafter be treated as a
Nonqualified Stock Option for all purposes.
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(iv) TIMING OF EXERCISE. In the event that the Committee
exercises its discretion to permit an Incentive Stock Option to be
exercised by a Participant more than 30 days after the
Participant's Termination of Employment and such exercise occurs
more than three months after such Participant has ceased being an
Employee (or more than 12 months after the Participant is
Disabled), such Incentive Stock Option shall thereafter be treated
as a Nonqualified Stock Option for all purposes.
(v) TRANSFER RESTRICTIONS. In no event shall the
Committee permit an Incentive Stock Option to be transferred by a
Participant other than by will or the laws of descent and
distribution, and any Incentive Stock Option granted hereunder
shall be exercisable, during his or her lifetime, only by the
Participant.
(f) NO REPRICING. Except as otherwise provided in Section 5.3,
in no event shall the Committee decrease the Exercise Price of a Stock
Option after the date of grant or cancel outstanding Stock Options and
grant replacement Stock Options with a lower exercise price without first
obtaining the approval of the holders of a majority of the Shares present
in person or by proxy at a meeting of the Company's shareholders and
entitled to vote at such meeting.
4.8 OTHER EQUITY-BASED AWARDS.
The Committee may, from time to time, grant Awards (other than Performance
Bonuses, Restricted Stock or Stock Options) under this Section 4.8 that consist
of, or are denominated in, payable in, valued in whole or in part by reference
to, or otherwise based on or related to, Shares to any Employee or Consultant.
These Awards may include, among other things Shares, restricted stock options,
stock appreciation rights, phantom or hypothetical Shares and Share units. The
Committee shall determine, in its discretion, the terms, conditions,
restrictions and limitations, if any, that shall apply to Awards granted
pursuant to this Section 4.8, including whether dividend equivalents shall be
credited with respect to any Award, which terms, conditions, restrictions and/or
limitations shall be set forth in the applicable Award Certificate.
(a) AWARDS TO KEY EMPLOYEES. Notwithstanding the foregoing, to
the extent necessary to comply with the requirements for performance-based
compensation under Code Section 162(m), the Committee shall condition the
grant of Other Equity-Based Awards to Key Employees on the attainment
during a Performance Cycle of specified levels of performance on one or
more Performance Measures. The Performance Cycle, Performance Measure(s)
and payout schedules applicable to Other Equity-Based Awards under this
Section 4.8 shall be determined by the Committee at such time and in the
manner as set out in paragraphs (a) and (b) of Section 4.6. In such case,
no Other Equity-Based Award shall be paid to a Key Employee under this
Section 4.8 unless and until the Committee certifies in writing the level
of attainment of the applicable Performance Measure(s) for the applicable
Performance Cycle.
4.9 CODE SECTION 162(m).
It is the intent of the Company that Awards granted under the Plan satisfy,
and that this Article IV be interpreted in a manner that satisfies, the
applicable requirements of Code Section 162(m) and the regulations thereunder
so that the Company's tax deduction for Awards is not disallowed in whole or
in part by operation of Code Section 162(m). If any provision or this Plan
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or of any Award would otherwise frustrate or conflict with such intent, that
provision shall be interpreted and deemed amended so as to avoid such
conflict.
ARTICLE V
SHARES SUBJECT TO THE PLAN; ADJUSTMENTS
5.1 SHARES AVAILABLE.
The Shares issuable under the Plan shall be authorized but unissued Shares
or Shares held in the Company's treasury. Subject to adjustment in accordance
with Section 5.3, the total number of Shares with respect to which Awards may be
issued under the Plan may equal but shall not exceed in the aggregate 45,000,000
Shares; provided, however, that from the aggregate limit
(a) no more than 5,000,000 Shares may be issued in connection
with Long-Term Performance Bonuses, Restricted Stock Awards and Other
Equity-Based Awards and no more than 20,000,000 Shares may be issued under
Incentive Stock Options during the term of the Plan; and
(b) no more than 2,000,000 Shares in the form of Stock Options
and 1,000,000 Shares in the form of Restricted Stock (including Shares
issued in connection with Long-Term Performance Bonuses under Section
4.5(f) and Restricted Stock Awards under Section 4.6) and Other
Equity-Based Awards may be issued to any one Participant during any fiscal
year of the Company, and the maximum aggregate number of Shares with
respect to which Awards may be granted to any one Participant during any
such fiscal year of the Company may not exceed 3,000,000 Shares.
Notwithstanding the foregoing, any Shares that have been approved by
Company shareholders for issuance under 2001 Stock Option Plan (the "2001
PLAN"), but which have not been awarded under such 2001 Plan (or have been
awarded, but will not be issued due to expiration, forfeiture, cancellation,
settlement in cash in lieu of Shares or otherwise) and which are no longer
available for issuance under such 2001 Plan for any reason (including without
limitation, the termination of such 2001 Plan) shall be available for issuance
under this Plan in addition to the 45,000,000 Shares reserved hereunder.
5.2 COUNTING RULES.
For purposes of determining the number of Shares remaining available under
the Plan (including Shares originally approved under the 2001 Plan, but made
available for issuance under this Plan in accordance with Section 5.1), only
Awards payable in Shares shall be counted. Any Shares related to Awards, which
terminate by expiration, forfeiture, cancellation or otherwise without issuance
of Shares, or are settled in cash in lieu of Shares, shall be available again
for issuance under the Plan. In the event Shares are tendered or withheld in
payment of all or part of the Exercise Price of a Stock Option, or in
satisfaction of the withholding obligations thereunder, the Shares so tendered
or withheld shall become available for issuance under the Plan. An outstanding
stock appreciation right shall not be taken into account in determining the
aggregate number of Shares with respect to which Stock Options may thereafter be
granted. Shares that remain available for grant under Prior Plans shall not be
counted towards the maximum number of shares that may be issued under this Plan
as set forth in Section 5.1.
5.3 ADJUSTMENTS.
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In the event of a change in the outstanding Shares by reason of any stock
split, reverse stock split, dividend or other distribution (whether in the form
of cash, Shares, other securities or other property), extraordinary cash
dividend, recapitalization, merger, consolidation, split-up, spin-off,
reorganization, combination, repurchase or exchange of Shares or other
securities, the exercisability of stock purchase rights received under the
Rights Agreement, the issuance of warrants or other rights to purchase Shares or
other securities, or other similar corporate transaction or event, if the
Committee shall determine, in its sole discretion, that, in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, such transaction or event equitably requires an
adjustment in the number or kind of Shares that may be issued under the Plan, in
the number or kind of Shares subject to an outstanding Award, or in the Exercise
Price of a Stock Option, stock appreciation right or other Award, such
adjustment shall be made by the Committee and shall be conclusive and binding
for all purposes under the Plan. Notwithstanding the foregoing, no adjustments
shall be made with respect to Awards granted to a Key Employee to the extent
such adjustment would cause the Award to fail to qualify as performance-based
compensation under Section 162(m) of the Code.
5.4 CONSOLIDATION, MERGER OR SALE OF ASSETS.
Upon the occurrence of (i) a merger, consolidation, acquisition of property
or stock, reorganization or otherwise involving the Company in which the Company
is not to be the surviving corporation, (ii) a merger, consolidation,
acquisition of property or stock, reorganization or otherwise involving the
Company in which the Company is the surviving corporation but holders of Shares
receive securities of another corporation, or (iii) a sale of all or
substantially all of the Company's assets (as an entirety) or capital stock to
another person, any Award granted hereunder shall be deemed to apply to the
securities, cash or other property (subject to adjustment by cash payment in
lieu of fractional interests) to which a holder of the number of Shares equal to
the number of Shares the Participant would have been entitled, and proper
provisions shall be made to ensure that this clause is a condition to any such
transaction; PROVIDED, HOWEVER, that the Committee (or, if applicable, the board
of directors of the entity assuming the Company's obligations under the Plan)
shall, in its discretion, have the power to either:
(a) provide, upon written notice to Participants, that all
Awards that are currently exercisable must be exercised within the time
period specified in the notice and that all Awards not exercised as of the
expiration of such period shall be terminated without consideration;
PROVIDED, HOWEVER, that the Committee (or successor board of directors) may
provide, in its discretion, that for purposes of this subsection, all
outstanding Awards are currently exercisable, whether or not vested; or
(b) cancel any or all Awards and, in consideration of such
cancellation, pay to each Participant an amount in cash with respect to
each Share issuable under an Award equal to the difference between the Fair
Market Value of such Share on such date (or, if greater, the value per
Share of the consideration received by holders of Shares as a result of
such merger, consolidation, reorganization or sale) and the Exercise Price.
5.5 FRACTIONAL SHARES.
No fractional Shares shall be issued under the Plan. In the event that a
Participant acquires the right to receive a fractional Share under the Plan,
such Participant shall receive, in lieu of such fractional Share, cash equal to
the Fair Market Value of the fractional Share as of the date of settlement.
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ARTICLE VI
AMENDMENT AND TERMINATION
6.1 AMENDMENT.
The Plan may be amended at any time and from time to time by the Board
without the approval of shareholders of the Company, except that no amendment
which increases the aggregate number of Shares which may be issued pursuant to
the Plan, decreases the Exercise Price at which Stock Options may be granted or
materially modifies the eligibility requirements for participation in the Plan
shall be effective unless and until the same is approved by the shareholders of
the Company. No amendment of the Plan shall adversely affect any right of any
Participant with respect to any Award theretofore granted without such
Participant's written consent.
6.2 TERMINATION.
The Plan shall terminate upon the earlier of the following dates or events
to occur:
(a) the adoption of a resolution of the Board terminating the
Plan; or
(b) the 10-year anniversary of the date of the Company's 2002
Annual Meeting of Stockholders
No Awards shall be granted under this Plan after it has been terminated.
However, the termination of the Plan shall not alter or impair any of the rights
or obligations of any person, without such person's consent, under any Award
theretofore granted under the Plan. After the termination of the Plan, any
previously granted Awards shall remain in effect and shall continue to be
governed by the terms of the Plan and the applicable Award Certificate.
ARTICLE VII
GENERAL PROVISIONS
7.1 NONTRANSFERABILITY OF AWARDS.
Except as otherwise provided in this Section 7.1, no Awards under the Plan
shall be subject in any manner to alienation, anticipation, sale, assignment,
pledge, encumbrance or transfer, other than by will or by the laws of descent or
distribution, by the Participant and no other persons shall otherwise acquire
any rights therein. Nothing in the preceding sentence, however, shall bar the
transfer of an Award (other than an Incentive Stock Option) to a Participant's
spouse pursuant to a qualified domestic relations order as defined by Section
414(p) of the Code or Section 206(d) of the Employee Retirement Income Security
Act or 1974, as amended. During the lifetime of a Participant, Stock Options
(except for Nonqualified Stock Options that are transferable pursuant to
subparagraphs (a) and (b) below) shall be exercisable only by the Participant
and shall not be assignable or transferable except as provided above.
(a) In the case of a Nonqualified Stock Option, the Committee
may, in its sole discretion, provide in the applicable Award Certificate
that all or any part of such Nonqualified Stock Option may, subject to the
prior written consent of the Committee, be transferred to one or more of a
following classes of donees: family member, a trust for the benefit of a
family member, a limited partnership whose partners are solely family
members or any other legal entity set up for the benefit of family members.
For purposes of this Section 7.1, a family member
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means a Participant's spouse, children, grandchildren, parents,
grandparents (natural, step, adopted, or in-laws), siblings, nieces,
nephews and grandnieces and grandnephews.
(b) Except as otherwise provided in the applicable Award
Certificate, any Nonqualified Stock Option transferred by a Participant
pursuant to paragraph (a) above may be exercised by the transferee only to
the extent such Nonqualified Stock Option would have been exercisable by
the Participant had no transfer occurred. Any such transferred Nonqualified
Stock Option shall be subject to all of the same terms and conditions as
provided in the Plan and in the applicable Award Certificate. The
Participant or the Participant's estate shall remain liable for any
withholding tax which may be imposed by any federal, state or local tax
authority and the transfer of Shares upon exercise of such Nonqualified
Stock Option shall be conditioned on the payment of such withholding tax.
The Committee may, in its sole discretion, withhold its consent to all or a
part of any transfer of a Nonqualified Stock Option pursuant to this
Section 7.1 unless and until the Participant makes arrangements
satisfactory to the Committee for the payment of any such withholding tax.
The Participant must immediately notify the Committee, in such form and
manner as required by the Committee, of any proposed transfer of a
Nonqualified Stock Option pursuant to this Section and no such transfer
shall be effective until the Committee consents thereto in writing.
(c) Anything in this Section 7.1 to the contrary
notwithstanding, in no event may the Committee permit an Incentive Stock
Option to be transferred by any Participant other than by will or the laws
of descent and distribution.
7.2 WITHHOLDING OF TAXES.
(a) STOCK OPTIONS. As a condition to the delivery of any Shares
pursuant to the exercise of a Stock Option, the Committee may require that
the Participant, at the time of such exercise, pay to the Company by cash
or by certified check, bank draft, wire transfer or postal or express money
order an amount sufficient to satisfy any applicable tax withholding
obligations. The Committee may, however, in its discretion, accept payment
of tax withholding obligations through any of the Exercise Price payment
methods described in Section 4.7(d). In addition, the Committee may, in its
discretion, permit payment of tax withholding obligations to be made by
instructing the Company to withhold Shares that would otherwise be issued
on exercise having a Fair Market Value (as defined in Section 2.14(a)) on
the date of exercise equal to the applicable portion of the tax withholding
obligations being so paid. Notwithstanding the foregoing, in no event may
any amount greater than the minimum statutory withholding obligation be
satisfied by tendering or withholding Shares.
(b) RESTRICTED STOCK. The Company shall satisfy tax withholding
obligations arising in connection with the release of restrictions on
Shares of Restricted Stock by withholding Shares that would otherwise be
available for delivery upon such release having a Fair Market Value (as
defined in Section 2.14(a)) on the date of release equal to the minimum
statutory withholding obligation.
7.3 SPECIAL FORFEITURE PROVISION.
The Committee may, at its discretion, provide in an Award Certificate that
a Stock Option or Restricted Stock Award granted to any Participant who, without
prior written approval of the Company, enters into any employment or
consultation arrangement (including service as an agent, partner, stockholder,
consultant, officer or director) to any entity or person engaged in any business
in which the Company or its affiliates is engaged which, in the sole judgment of
the Company, is competitive with the
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Company or any subsidiary or affiliate, (i) shall forfeit all rights under any
outstanding Stock Option and shall return to the Company the amount of any
profit realized upon the exercise, within such period as the Committee may
determine, of any Stock Option and (ii) shall forfeit and return to the Company
all Shares of Restricted Stock which are not then vested or which vested but
remain subject to the restrictions imposed by this Section 7.3, as provided in
the Award Certificate.
7.4 CODE SECTION 83(b) ELECTIONS.
Neither the Company, any Related Company, nor the Committee shall have any
responsibility in connection with a Participant's election, or attempt to elect,
under Code Section 83(b) to include the value of a Restricted Stock Award in the
Participant's gross income for the year of payment. Any Participant who makes a
Code Section 83(b) election with respect to any such Award shall promptly notify
the Committee of such election and provide the Committee with a copy thereof.
7.5 NO IMPLIED RIGHTS.
The establishment and subsequent operation of the Plan, including
eligibility as a Participant, shall not be construed as conferring any legal or
other right upon any Employee for the continuation or his or her employment, or
upon any Consultant for the continuation of his or her consultancy, for any
Performance Cycle or any other period. The Company expressly reserves the right,
which may be exercised at any time and without regard to when, during a
Performance Cycle or other accounting period, such exercise occurs, to discharge
any individual and/or treat him or her without regard to the effect which such
treatment might have upon him or her as a Participant in the Plan.
7.6 NO OBLIGATION TO EXERCISE OPTIONS.
The granting of a Stock Option shall impose no obligation upon the
Participant to exercise such Stock Option.
7.7 NO RIGHTS AS STOCKHOLDERS.
A Participant granted an Award under the Plan shall have no rights as a
stockholder of the Company with respect to such Award unless and until such time
as certificates for the Shares underlying the Award are registered in such
Participant's name. The right of any Participant to receive an Award by virtue
of participation in the Plan shall be no greater than the right of any unsecured
general creditor of the Company.
7.8 INDEMNIFICATION OF COMMITTEE.
The Company shall indemnify, to the full extent permitted by law, each
person made or threatened to be made a party to any civil or criminal action or
proceeding by reason of the fact that he, or his testator or intestate, is or
was a member of the Committee or a delegate of the Committee so acting.
7.9 NO REQUIRED SEGREGATION OF ASSETS.
Neither the Company nor any Related Company shall be required to segregate
any assets that may at any time be represented by Awards granted pursuant to the
Plan.
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7.10 NATURE OF PAYMENTS.
All Awards made pursuant to the Plan are in consideration of services for
the Company or the Related Companies. Any gain realized pursuant to Awards under
the Plan constitutes a special incentive payment to the Participant and shall
not be taken into account as compensation for purposes of any of the employee
benefit plans of the Company or any Related Company except as may be determined
by the Board or by the board of directors of the applicable Related Company.
7.11 SECURITIES EXCHANGE ACT COMPLIANCE.
Awards under the Plan are intended to satisfy the requirements of Rule
16b-3 under the Securities Exchange Act of 1934. If any provision or this Plan
or of any grant of an Award would otherwise frustrate or conflict with such
intent, that provision shall be interpreted and deemed amended so as to avoid
such conflict.
7.12 GOVERNING LAW; SEVERABILITY.
The Plan and all determinations made and actions taken thereunder shall be
governed by the internal substantive laws, and not the choice of law rules, of
the State of New York and construed accordingly, to the extent not superseded by
applicable federal law. If any provision of the Plan shall be held unlawful or
otherwise invalid or unenforceable in whole or in part, the unlawfulness,
invalidity or unenforceability shall not affect any other provision of the Plan
or part thereof, each of which shall remain in full force and effect.
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EXHIBIT C
COMPUTER ASSOCIATES INTERNATIONAL, INC.
2002 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
Effective July 1, 2002
TABLE OF CONTENTS
PAGE
ARTICLE I ESTABLISHMENT AND PURPOSE............................................................1
Section 1.01 Purpose.....................................................................1
Section 1.02 Effective Date; Stockholder Approval........................................1
ARTICLE II DEFINITIONS.........................................................................1
Section 2.01 "Annual Meeting"............................................................1
Section 2.02 "Board".....................................................................1
Section 2.03 "Change in Control".........................................................1
Section 2.04 "Code"......................................................................2
Section 2.05 "Committee".................................................................2
Section 2.06 "Company"...................................................................2
Section 2.07 "Deferred Stock Compensation Account".......................................2
Section 2.08 "Director Fees".............................................................3
Section 2.09 "Director Service Year".....................................................3
Section 2.10 "Disabled" or "Disability"..................................................3
Section 2.11 "Eligible Director".........................................................3
Section 2.12 "Exercise Price"............................................................3
Section 2.13 "Fair Market Value".........................................................3
Section 2.14 "Payment Commencement Date".................................................3
Section 2.15 "Plan"......................................................................3
Section 2.16 "Related Company"...........................................................3
Section 2.17 "Rights Agreement"..........................................................3
Section 2.18 "Shares"....................................................................3
Section 2.19 "Stock Deferral"............................................................3
Section 2.20 "Stock Option"..............................................................4
ARTICLE III ADMINISTRATION.....................................................................4
Section 3.01 The Committee...............................................................4
Section 3.02 Authority of the Committee..................................................4
Section 3.03 Effect of Determinations....................................................4
Section 3.04 No Liability................................................................4
ARTICLE IV DIRECTOR FEES.......................................................................4
Section 4.01 Eligibility.................................................................4
Section 4.02 Director Fees...............................................................5
(a) Amount of Director Fees.....................................................5
(b) Form of Payment.............................................................5
(c) Automatic Deferral..........................................................5
Section 4.03 Stock Deferrals.............................................................5
(a) General.....................................................................5
(b) Dividends on Deferred Shares................................................5
(c) Payment of Stock Deferrals..................................................5
(d) Election to Receive Installment Payments....................................5
(e) Hardship Withdrawals........................................................6
Section 4.04 Beneficiary Designation.....................................................6
ARTICLE V STOCK OPTIONS........................................................................7
Section 5.01 Automatic Grant.............................................................7
Section 5.02 Stock Options...............................................................7
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(a) Option Agreement............................................................7
(b) Exercise Price..............................................................7
(c) Term and Timing of Exercise.................................................7
(d) Payment of Exercise Price...................................................8
(e) No Repricing................................................................8
Section 5.03 Offset Awards...............................................................8
ARTICLE VI SHARES SUBJECT TO THE PLAN; ADJUSTMENTS.............................................8
Section 6.01 Shares Available............................................................8
Section 6.02 Counting Rules..............................................................9
Section 6.03 Adjustments.................................................................9
Section 6.04 Consolidation, Merger or Sale of Assets.....................................9
Section 6.05 Fractional Shares...........................................................9
ARTICLE VII AMENDMENT AND TERMINATION.........................................................10
Section 7.01 Amendment..................................................................10
Section 7.02 Termination................................................................10
ARTICLE VIII GENERAL PROVISIONS...............................................................10
Section 8.01 Nontransferability of Awards...............................................10
Section 8.02 No Implied Rights..........................................................11
Section 8.03 No Obligation to Exercise Options..........................................11
Section 8.04 No Rights as Stockholders..................................................11
Section 8.05 Indemnification of Committee...............................................11
Section 8.06 Nature of Payments.........................................................11
Section 8.07 Nature of Deferred Stock Compensation Accounts.............................11
Section 8.08 Securities Law Compliance..................................................12
Section 8.09 Governing Law; Severability................................................12
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COMPUTER ASSOCIATES INTERNATIONAL, INC.
2002 COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
ESTABLISHMENT AND PURPOSE
Section 1.01 PURPOSE.
The purposes of this Computer Associates International, Inc. 2002
Compensation Plan For Non-Employee Directors (the "Plan") are to attract and
retain the services of knowledgeable non-employee Directors of Computer
Associates International, Inc. (the "Company") and to provide an incentive
for such Directors to increase their proprietary interests in the Company's
long-term success and progress.
Section 1.02 EFFECTIVE DATE; STOCKHOLDER APPROVAL.
The Plan is effective as of July 1, 2002, subject to the approval by a vote
at the Company's 2002 Annual Meeting of Stockholders, or any adjournment of
such meeting, of the holders of at least a majority of the Shares of the
Company, present in person or by proxy and entitled to vote at such meeting.
If such approval is not obtained, the Plan shall have no effect.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms shall have the following
meanings, unless another definition is clearly indicated by particular usage and
context:
Section 2.01 "ANNUAL MEETING" means the Annual Meeting of Stockholders
of the Company, as specified in the Company's By-Laws.
Section 2.02 "BOARD" means the Board of Directors of the Company.
Section 2.03 "CHANGE IN CONTROL" means the happening of any of the
following events:
(a) an acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"))(a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
25% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the following: (i) any
acquisition directly from the Company, other than an acquisition by virtue
of the exercise of a conversion privilege unless the security being so
converted was itself directly acquired from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the Company or any
entity controlled by the Company, or (iv) any acquisition pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this Section 2.03; or
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(b) a change in the composition of the Board such that the
individuals who, as of the effective date of the Plan, constitute the Board
(such Board shall be hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute a majority of the Board; PROVIDED,
HOWEVER, for purposes of this Section 2.03, that any individual who becomes
a member of the Board subsequent to the effective date of the Plan, whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of a majority of those individuals who are members of
the Board and who were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though such
individual was a member of the Incumbent Board; but, PROVIDED FURTHER, that
any such individual whose initial assumption of office occurs as a result
of any actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board shall not be so considered as a
member of the Incumbent Board; or
(c) consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, such a Corporate
Transaction pursuant to which (i) all or substantially all of the
individuals and entities who are beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 50% of, respectively, the outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
Corporate Transaction (including, without limitation, a corporation which
as the result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (other than the Company, any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Corporate Transaction) will beneficially own, directly or indirectly, 25%
or more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors, except to the
extent that such ownership existed prior to the Corporate Transaction, and
(iii) individuals who were members of the Incumbent Board will constitute
at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(d) the approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Section 2.04 "CODE" means the Internal Revenue Code of 1986, as amended.
Section 2.05 "COMMITTEE" means the Compensation and Human Resource
Committee of the Board, or any successor committee or subcommittee of the Board.
Section 2.06 "COMPANY" means Computer Associates International, Inc.
Section 2.07 "DEFERRED STOCK COMPENSATION ACCOUNT" means the bookkeeping
account maintained by the
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Company to track Stock Deferrals in accordance with Section 4.03. A separate
Deferred Stock Compensation Account shall be maintained for each Eligible
Director.
Section 2.08 "DIRECTOR FEES" means an Eligible Director's fees payable
for future services as a member of the Board and as a member of any committee
thereof.
Section 2.09 "DIRECTOR SERVICE YEAR" means the approximate one-year
period between Annual Meetings.
Section 2.10 "DISABLED" or "DISABILITY" means permanently and totally
disabled within the meaning of Section 22(e) of the Code.
Section 2.11 "ELIGIBLE DIRECTOR" means any member of the Board, elected
or appointed, who is not otherwise an employee of the Company or a Related
Company. An individual who is elected to the Board at an Annual Meeting shall
be deemed to be a member of the Board as of the date of such Annual Meeting.
Section 2.12 "EXERCISE PRICE" means the price per Share at which Shares
may be purchased under a Stock Option.
Section 2.13 "FAIR MARKET VALUE" means the closing sales price of a Share
as reported on the New York Stock Exchange (or any other reporting system
selected by the Committee, in its sole discretion) on the date as of which
the determination is being made or, if no sale of Shares is reported on such
date, on the next preceding day on which there were sales of Shares reported.
Section 2.14 "PAYMENT COMMENCEMENT DATE" means January 2(or if January 2
is not a business day, on the first succeeding business day) of the calendar
year following the Director Service Year in which the Eligible Director
ceases to be a member of the Board for any reason, including without
limitation, death or Disability.
Section 2.15 "PLAN" means the Computer Associates International, Inc.
2002 Compensation Plan For Non-Employee Directors, as set forth in this
document and as may be amended from time to time.
Section 2.16 "RELATED COMPANY" means a consolidated subsidiary of the
Company for purposes of reporting in the Company's consolidated financial
statements.
Section 2.17 "RIGHTS AGREEMENT" means the Rights Agreement dated June 18,
1991, as amended from time to time, between the Company and Mellon Investor
Services LLC (as successor rights agent to Manufacturers Hanover Trust
Company).
Section 2.18 "SHARES" means shares of Common Stock, $.10 par value per
share, of the Company.
Section 2.19 "STOCK DEFERRAL" means the deferral of the issuance of
Shares by the Company to an Eligible Director in accordance with Section 4.03
of the Plan.
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Section 2.20 "STOCK OPTION" means a right granted under Article V of the
Plan to purchase from the Company a stated number of Shares at a specified
price.
ARTICLE III
ADMINISTRATION
Section 3.01 THE COMMITTEE.
The Plan shall be administered by the Committee.
Section 3.02 AUTHORITY OF THE COMMITTEE.
The Committee shall have authority, in its sole and absolute discretion
and subject to the terms of the Plan, to (1) interpret the Plan; (2)
prescribe such rules and regulations as it deems necessary for the proper
operation and administration of the Plan, and amend or rescind any existing
rules or regulations relating to the Plan; (3) in accordance with Article VI,
make such adjustments to the Plan (including but not limited to adjustment of
the number of shares available under the Plan, that underlie any Stock
Deferral or Stock Option, or that are credited to a Deferred Stock
Compensation Account) as may be appropriate; and (4) take any and all other
action it deems necessary or advisable for the proper operation or
administration of the Plan.
Section 3.03 EFFECT OF DETERMINATIONS.
All determinations of the Committee shall be final, binding and conclusive
on all persons having an interest in the Plan.
Section 3.04 NO LIABILITY.
No member of the Committee, nor any person acting as a delegate of the
Committee in respect of the Plan, shall be liable for any losses incurred by
any person resulting from any action, interpretation or construction made in
good faith with respect to the Plan or any Stock Deferral credited or Stock
Option granted thereunder.
ARTICLE IV
DIRECTOR FEES
Section 4.01 ELIGIBILITY.
Each Eligible Director shall be entitled to annual Director Fees under the
Plan, subject to the following limitations:
(a) An Eligible Director shall not be entitled to Director Fees
under the Plan in respect of any Director Service Year in which the
Eligible Director is party to a separately compensated consulting
arrangement with the Company.
(b) An Eligible Director who, during a Director Service Year,
either (i) fails to attend (or otherwise participate in) at least 80% of
the meetings of the Board or any committee thereof, or (ii) maintains a
paid directorship or paid advisory position with any organization in which
another Director of the Company is an executive officer, shall not be
entitled to Director Fees under the Plan for such Director Service Year and
shall forfeit all Stock Deferrals allocated or allocable to such Eligible
Director's Deferred Stock Compensation Account in respect of such Director
Service Year.
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Section 4.02 DIRECTOR FEES.
All Director Fees to Eligible Directors shall be paid exclusively under
the Plan. Director Fees payable under the Plan shall be subject to the
following terms and conditions:
(a) AMOUNT OF DIRECTOR FEES. The annual Director Fees for the
succeeding Director Service Year shall be established by a majority vote of
the Board at its annual meeting.
(b) FORM OF PAYMENT. Director Fees shall be paid exclusively in
Shares.
(c) AUTOMATIC DEFERRAL. Issuance of Shares in payment of
Director Fees shall be automatically deferred in accordance with
Section 4.03.
Section 4.03 STOCK DEFERRALS.
(a) GENERAL. On the day of each year's Annual Meeting, beginning
with the 2002 Annual Meeting, the Company shall, in lieu of issuing Shares
in payment of the Director Fees, credit each Eligible Director's Deferred
Stock Compensation Account with a Stock Deferral of a number of Shares
(including fractional Shares) equal to (x) 100% of the dollar amount of
Director Fees that would have otherwise been payable to the Eligible
Director but for the Stock Deferral divided by (y) the Fair Market Value of
a Share on such date.
(b) DIVIDENDS ON DEFERRED SHARES. If a dividend or distribution
is paid on Shares in cash or property other than Shares, on the date of
payment of the dividend or distribution to the holders of Shares, each
Deferred Stock Compensation Account shall be credited with an additional
Stock Deferral of a number of Shares (including fractional Shares) equal to
(x) the number of Shares in respect of Stock Deferrals that have been
credited to such Deferred Stock Compensation Account as of the date fixed
for determining the stockholders entitled to receive dividend or
distribution multiplied by (y) the amount of the dividend of distribution
paid per Share divided by the Fair Market Value of a Share on the date on
which such dividend of distribution is paid. If the dividend or
distribution is paid in property, the amount of the dividend or
distribution for purposes of the foregoing calculation shall be the fair
market value of the property on the date on which such dividend or
distribution is paid.
(c) PAYMENT OF STOCK DEFERRALS. Subject to Section 4.03(d),
Shares in respect of Stock Deferrals credited to a Deferred Stock
Compensation Account shall be issued in one lump sum on the Payment
Commencement Date. The Company shall issue Share certificates to the
Eligible Director or, in the event of the Eligible Director's death prior
to the complete payment of his or her Deferred Stock Compensation Account
balance, to the Eligible Director's beneficiary designated in accordance
with Section 4.04. As of the date on which an Eligible Director is entitled
to the issuance of Shares in respect of his or her Deferred Stock
Compensation Account, such Eligible Director shall become a stockholder of
the Company in respect of such Shares.
(d) ELECTION TO RECEIVE INSTALLMENT PAYMENTS. An Eligible
Director may elect to be issued Shares in respect of his or her Stock
Deferrals in annual installments rather than a lump sum, provided, however,
that such election is made prior to the date such Eligible Director ceases
to be a member of the Board and
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the payment period for the installment payments does not exceed ten (10)
years following the Payment Commencement Date. If installments are elected,
the number of Shares issued in respect of each installment shall be
determined by multiplying (x) the number of Shares in respect of Stock
Deferrals remaining in the Eligible Director's Deferred Stock Compensation
Account on the date such installment is paid by (y) a fraction, the
numerator of which is one (1) and the denominator of which is the number of
remaining unpaid installments, and by rounding such result to the nearest
whole number of Shares. The Eligible Director's Deferred Compensation
Account shall be reduced to reflect each installment payments made
thereunder. Amounts remaining in each Deferred Stock Compensation Account
pending completion of installment payments shall continue to be credited
with additional Stock Deferrals to reflect dividends and distributions made
after the Payment Commencement Date in accordance with Section 4.03(b).
(e) HARDSHIP WITHDRAWALS. The Board may, in its sole and
absolute discretion, permit the issuance of Shares in respect of Stock
Deferrals credited to a Deferred Stock Compensation Account prior to the
Payment Commencement Date upon the request of an Eligible Director, an
Eligible Director's representative or, following the death of an Eligible
Director, upon the request of the Eligible Director's beneficiary
designated in accordance with Section 4.04 or such beneficiary's
representative, if the Board determines that the Eligible Director or his
or her designated beneficiary, as the case may be, is confronted with an
unforeseeable emergency. For this purpose, an unforeseeable emergency is an
unanticipated emergency caused by an event that is beyond the control of
the Eligible Director or his or her designated beneficiary, and that would
result in severe financial hardship to the Eligible Director or his or her
designated beneficiary if an early hardship withdrawal were not permitted.
The Eligible Director or his or her designated beneficiary, as the case may
be, shall provide to the Board such evidence as the Board, in its
discretion, may require to demonstrate that such emergency exists and
financial hardship would occur if the withdrawal were not permitted. The
withdrawal shall be limited to the number of Shares necessary to meet the
unforeseen financial hardship if the Eligible Director has an unexpected
need for cash to pay for expenses incurred by him or a member of his or her
immediate family (spouse and/or natural or adopted children) such as those
arising from illness, casualty loss or death. Cash needs arising from
foreseeable events, such as the purchase or building of a house or
education expenses, will not be considered to be the result of an
unforeseen financial emergency. Issuance of Shares shall be made as soon as
practicable after the Board approves the payment and determines the number
of Shares that shall be withdrawn in a single lump sum from the Eligible
Director's Deferred Stock Compensation Account. No affected Eligible
Director shall participate in any decision of the Board regarding such
Eligible Director's request for a hardship withdrawal under this Section
4.03(e).
Section 4.04 BENEFICIARY DESIGNATION.
An Eligible Director may designate, on the Beneficiary Designation Form
prescribed by the Company, any person to whom payment of Shares shall be made
if the Eligible Director dies before receiving payment of the entire balance
of his or her Deferred Stock Compensation Account. A beneficiary designation
will be effective only after the signed Beneficiary Designation Form is filed
with the Secretary of the Company while the Eligible Director is alive and
will cancel all beneficiary designations signed and filed earlier. If an
Eligible Director fails to designate a beneficiary, or if all designated
beneficiaries of the Eligible Director die before the Eligible Director or
before complete payment of the Eligible Director's Deferred Stock
Compensation Account, any remaining unpaid amounts shall be paid in one lump
sum to the estate of the last to die of the Eligible Director or the Eligible
Director's designated beneficiaries, if any.
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ARTICLE V
STOCK OPTIONS
Section 5.01 AUTOMATIC GRANT.
On the day of each year's Annual Meeting, beginning with the 2002 Annual
Meeting, each Eligible Director shall receive an automatic grant of Stock
Options to purchase 6,750 Shares, subject to adjustment in accordance with
Section 6.03.
Section 5.02 STOCK OPTIONS.
Stock Options granted under the Plan shall be subject to the following
terms and conditions:
(a) OPTION AGREEMENT. Each Stock Option granted under the Plan
shall be evidenced by an option agreement (an "Option Agreement") duly
executed on behalf of the Company. Each Option Agreement shall comply with
and be subject to the terms and conditions of the Plan. Any Option
Agreement may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Committee.
(b) EXERCISE PRICE. The per Share Exercise Price of a Stock
Option shall be the Fair Market Value of a Share as of the date of grant.
(c) TERM AND TIMING OF EXERCISE. Each Stock Option granted under
the Plan shall be exercisable in whole or in part, subject to the following
conditions, limitations and restrictions:
(i) Each Stock Option granted hereunder shall become
100% vested and exercisable on the day before the date of the next
succeeding Annual Meeting after date of grant or upon a Change in
Control, if earlier;
(ii) All Stock Options granted hereunder shall become
immediately exercisable upon the death or Disability of the
optionee and must be exercised, if at all, within one year after
such optionee's death or Disability, but in no event after the date
such Stock Options would otherwise lapse. Stock Options of a
deceased optionee may be exercised only by the estate of the
optionee or by the person given authority to exercise such Stock
Options by the optionee's will or by operation of law. In the event
a Stock Option is exercised by the executor or administrator of a
deceased optionee, or by the person or persons to whom the Stock
Option has been transferred by the optionee's will or the
applicable laws of descent and distribution, the Company shall be
under no obligation to deliver Shares thereunder unless and until
the Company is satisfied that the person or persons exercising the
Stock Option is or are the duly appointed executor(s) or
administrator(s) of the deceased optionee or the person to whom the
Stock Option has been transferred by the optionee's will or by the
applicable laws of descent and distribution;
(iii) In the event an optionee shall cease to be a
Director for any reason other than as a result of the death or
Disability of the optionee, all Stock Options that have not become
vested and exercisable as of the date of such cessation of service
shall be forfeited and to the extent that Stock Options have become
vested and exercisable as of such date, such Stock Options must be
exercised, if at all, within twelve (12) months after the optionee
ceases being a Director, after which time the Stock Options shall
automatically terminate; PROVIDED, HOWEVER, in the event an
optionee ceases being a
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Director because the optionee was removed for cause, all Stock
Options granted hereunder (whether vested or unvested) shall
terminate immediately; and
(iv) Notwithstanding the foregoing, all Stock Options
shall lapse 10 years after the date of grant.
(d) PAYMENT OF EXERCISE PRICE. The Exercise Price shall be paid
in full when the Stock Option is exercised and stock certificates shall be
registered and delivered only upon receipt of such payment. Payment of the
Exercise Price may be made in cash or by certified check, bank draft, wire
transfer, or postal or express money order. In addition, payment of all or
a portion of the Exercise Price may be made by
(i) Delivering a properly executed exercise notice to
the Company, or its agent, together with irrevocable instructions
to a broker to deliver promptly to the Company the amount of sale
or loan proceeds with respect to the portion of the Shares to be
acquired upon exercise having a Fair Market Value on the date of
exercise equal to the sum of the applicable portion of the Exercise
Price being so paid;
(ii) Tendering (actually or by attestation) to the
Company previously acquired Shares that have been held by the
Eligible Director for at least six months having a Fair Market
Value on the day prior to the date of exercise equal to the
applicable portion of the Exercise Price being so paid; or
(iii) any combination of the foregoing.
(e) NO REPRICING. Except as otherwise provided in Section 6.03,
in no event shall the Committee decrease the Exercise Price of a Stock
Option after the date of grant or cancel outstanding Stock Options and
grant replacement Stock Options with a lower exercise price without first
obtaining the approval of the holders of a majority of the Shares present
in person or by proxy at an Annual Meeting and entitled to vote at such
Annual Meeting.
Section 5.03 OFFSET AWARDS.
In the event an Eligible Director is limited or precluded by applicable
federal, state or local regulations from receiving Stock Options under this
Plan, in lieu of such Stock Options, such Eligible Director's Deferred Stock
Compensation Account shall be credited, on the date such Eligible Director
would have received a Stock Option grant under Section 5.01 but for such
limitation or preclusion, with a Stock Deferral under Section 4.03 in respect
of a number of Shares with a Fair Market Value (determined as of such date)
equal to the economic value of the foregone Stock Options (the "Offset
Award"). Any such Offset Award credited to an Eligible Director under this
Section 5.03 shall be subject to the eligibility requirements set forth in
Section 4.01 and shall be determined using the Black-Scholes or a similar
methodology as determined by the Compensation Committee, excluding such
affected Eligible Director.
ARTICLE VI
SHARES SUBJECT TO THE PLAN; ADJUSTMENTS
Section 6.01 SHARES AVAILABLE.
The Shares issuable under the Plan shall be authorized but unissued Shares
or Shares held in the Company's treasury. Subject to adjustment in accordance
with Section 6.03, the total number of Shares with respect which may be
issued under the Plan may equal but shall not exceed in the aggregate 650,000
Shares.
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Section 6.02 COUNTING RULES.
For purposes of determining the number of Shares remaining available under
the Plan, any Shares underlying Stock Options which terminate by expiration,
forfeiture, cancellation or otherwise without issuance of Shares, or are
settled in cash in lieu of Shares, shall be available again for issuance
under the Plan. In the event Shares are tendered or withheld in payment of
all or part of the Exercise Price of a Stock Option, the Shares so tendered
or withheld shall become available for issuance under the Plan.
Section 6.03 ADJUSTMENTS.
In the event of a change in the outstanding Shares by reason of any stock
split, reverse stock split, dividend or other distribution (whether in the
form of cash, Shares, other securities or other property), extraordinary cash
dividend, recapitalization, merger, consolidation, split-up, spin-off,
reorganization, combination, repurchase or exchange of Shares or other
securities, the exercisability of stock purchase rights received under the
Rights Agreement, the issuance of warrants or other rights to purchase Shares
or other securities, or other similar corporate transaction or event, if the
Committee shall determine, in its sole discretion, that, in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, such transaction or event equitably requires
an adjustment in the number or kind of Shares that may be issued under the
Plan, in the number or kind of Shares payable in connection with Directors
Fees or subject to an existing Stock Deferral or an outstanding Stock Option,
or in the Exercise Price of a Stock Option, such adjustment shall be made by
the Committee and shall be conclusive and binding for all purposes under the
Plan.
Section 6.04 CONSOLIDATION, MERGER OR SALE OF ASSETS.
Upon the occurrence of (i) a merger, consolidation, acquisition of property
or stock, reorganization or otherwise involving the Company in which the
Company is not to be the surviving corporation, (ii) a merger, consolidation,
acquisition of property or stock, reorganization or otherwise involving the
Company in which the Company is the surviving corporation but holders of
Shares receive securities of another corporation, or (iii) a sale of all or
substantially all of the Company's assets (as an entirety) or capital stock
to another person, any Stock Deferral credited or Stock Option granted
hereunder shall be deemed to apply to the securities, cash or other property
(subject to adjustment by cash payment in lieu of fractional interests) to
which a holder of the number of Shares equal to the number of Shares the
Eligible Director would have been entitled, and proper provisions shall be
made to ensure that this clause is a condition to any such transaction;
PROVIDED, HOWEVER, that the Committee (or, if applicable, the board of
directors of the entity assuming the Company's obligations under the Plan)
shall, in its discretion, have the power to either:
(a) provide, upon written notice to optionees, that all Stock
Options that are currently exercisable must be exercised within the time
period specified in the notice and that all Stock Options not exercised as
of the expiration of such period shall be terminated without consideration;
PROVIDED, HOWEVER, that the Committee (or successor board of directors) may
provide, in its discretion, that for purposes of this subsection, all
outstanding Stock Options are currently exercisable, whether or not vested;
or
(b) cancel any or all Stock Options and, in consideration of
such cancellation, pay to each optionee an amount in cash with respect to
each Share issuable under a Stock Option equal to the difference between
the Fair Market Value of such Share on such date (or, if greater, the value
per Share of the consideration received by holders of Shares as a result of
such merger, consolidation, reorganization or sale) and the Exercise Price.
Section 6.05 FRACTIONAL SHARES.
No fractional Shares shall be issued under the Plan. In the event that an
optionee acquires the right to receive
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a fractional Share under the Plan, such optionee shall receive, in lieu of such
fractional Share, cash equal to the Fair Market Value of the fractional Share as
of the date of settlement.
ARTICLE VII
AMENDMENT AND TERMINATION
Section 7.01 AMENDMENT.
The Plan may be amended at any time and from time to time by the Board
without the approval of shareholders of the Company, except that no amendment
which increases the aggregate number of Shares which may be issued pursuant
to the Plan, decreases the Exercise Price at which Stock Options may be
granted or materially modifies the eligibility requirements for participation
in the Plan shall be effective unless and until the same is approved by the
shareholders of the Company. No amendment of the Plan shall adversely affect
any right of any Eligible Director with respect to (i) any Stock Deferral
theretofore credited to the Eligible Director's Deferred Stock Compensation
Account or (ii) any Stock Option theretofore granted, without such Eligible
Director's written consent.
Section 7.02 TERMINATION.
The Plan shall terminate upon the earlier of the following dates or events
to occur:
(a) the adoption of a resolution of the Board terminating the
Plan; or
(b) the 10-year anniversary of the date of the Company's 2002
Annual Meeting.
No Director Fees shall be paid, no Stock Deferrals shall be credited to any
Deferred Stock Compensation Accounts and no Stock Options shall be granted under
this Plan after it has been terminated. However, the termination of the Plan
shall not alter or impair any of the rights or obligations of any person,
without such person's consent, under any Deferred Stock Compensation Account or
any Stock Option theretofore granted under the Plan. After the termination of
the Plan, any existing Stock Deferrals and previously granted Stock Options
shall remain in effect and shall continue to be governed by the terms of the
Plan and the applicable Option Agreement.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01 NONTRANSFERABILITY OF AWARDS.
Except as otherwise provided in this Section 8.01, the rights to receive
Shares hereunder shall not be subject in any manner to alienation,
anticipation, sale, assignment, pledge, encumbrance or transfer, other than
by will or by the laws of descent or distribution, by an Eligible Director or
his or her designated beneficiary, and no other persons shall otherwise
acquire any rights therein. Nothing in the preceding sentence, however, shall
bar the transfer of a Stock Option to an optionee's spouse pursuant to a
qualified domestic relations order as defined by Section 414(p) of the Code
or Section 206(d) of the Employee Retirement Income Security Act or 1974, as
amended. Except as provided in subparagraphs (a) and (b) below, during the
lifetime of an optionee, Stock Options shall be exercisable only by the
optionee and shall not be assignable or transferable except as provided above.
(a) An Option Agreement may provide that all or any part of a
Stock Option may, subject to the prior written consent of the Committee, be
transferred to one or more of a following classes of donees: family member,
a trust for the benefit of a family member, a limited partnership whose
partners are solely family members or any other legal entity set up for the
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benefit of family members. For purposes of this Section 8.01, a family
member means an optionee's spouse, children, grandchildren, parents,
grandparents (natural, step, adopted, or in-laws), siblings, nieces,
nephews and grandnieces and grandnephews.
(b) Except as otherwise provided in the applicable Option
Agreement, any Stock Option transferred by an optionee pursuant to
paragraph (a) above may be exercised by the transferee only to the extent
such Stock Option would have been exercisable by the optionee had no
transfer occurred. Any such transferred Stock Option shall be subject to
all of the same terms and conditions as provided in the Plan and in the
applicable Option Agreement. The optionee or the optionee's estate shall
remain liable for any withholding tax which may be imposed by any federal,
state or local tax authority and the transfer of Shares upon exercise of
such Stock Option shall be conditioned on the payment of such withholding
tax. The Committee may, in its sole discretion, withhold its consent to all
or a part of any transfer of a Stock Option pursuant to this Section 8.01
unless and until the optionee makes arrangements satisfactory to the
Committee for the payment of any such withholding tax. The optionee must
immediately notify the Committee, in such form and manner as required by
the Committee, of any proposed transfer of a Stock Option pursuant to this
Section and no such transfer shall be effective until the Committee
consents thereto in writing.
Section 8.02 NO IMPLIED RIGHTS.
Neither the establishment and subsequent operation of Plan, nor the payment
of Director Fees, nor the crediting of Stock Deferrals to a Deferred Stock
Compensation Account, nor the granting of any Stock Options, nor any other
action taken pursuant to the Plan, shall constitute or be evidence of any
agreement or understanding, express or implied, that an individual has a
right to continue as a Director for any period of time or at any particular
rate of compensation.
Section 8.03 NO OBLIGATION TO EXERCISE OPTIONS.
The granting of a Stock Option shall impose no obligation upon the optionee
to exercise such Stock Option.
Section 8.04 NO RIGHTS AS STOCKHOLDERS.
Neither the recipient of a Stock Option under the Plan nor the optionee's
successor(s) in interest shall have any rights as a stockholder of the
Company with respect to any Shares subject to a Stock Option granted to such
person unless and until such time as certificates for the Shares are
registered in such person's name.
Section 8.05 INDEMNIFICATION OF COMMITTEE.
The Company shall indemnify, to the full extent permitted by law, each
person made or threatened to be made a party to any civil or criminal action
or proceeding by reason of the fact that he, or his testator or intestate, is
or was a member of the Committee or a delegate of the Committee so acting.
Section 8.06 NATURE OF PAYMENTS.
All Director Fees and Stock Options granted pursuant to the Plan are in
consideration of services rendered for the Company as member of the Board.
Section 8.07 NATURE OF DEFERRED STOCK COMPENSATION ACCOUNTS.
Deferred Stock Compensation Accounts established and maintained under the
Plan, and all credits and adjustments to such Accounts, shall be bookkeeping
entries only and reflect a mere unfunded and unsecured promise by the Company
to issue Shares in the future. No Shares or other assets or funds of the
Company shall be removed from the claims
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of the Company's general or judgment creditors or otherwise be made available
until Shares are actually issued to Eligible Directors or their designated
beneficiaries as provided herein. The Eligible Directors and their designated
beneficiaries shall have the status of, and their rights to be issued Shares in
settlement of amounts credited to their Deferred Stock Compensation Accounts
shall be no greater than the rights of, general unsecured creditors of the
Company. The Company may, however, in its discretion, set aside funds in a trust
or other vehicle, subject to the claims of its creditors, in order to assist it
in meeting its obligations under the Plan, if such arrangement will not cause
the Plan to be considered a funded deferred compensation plan under the Internal
Revenue Code of 1986, as amended.
Section 8.08 SECURITIES LAW COMPLIANCE.
The obligation of the Company to issue Shares under the Plan shall be
subject to (i) the effectiveness of a registration statement under the
Securities Act of 1933, as amended, with respect to such Shares, if deemed
necessary or appropriate by counsel to the Company, (ii) the condition that
the Shares shall have been be listed (or authorized for listing upon official
notice of issuance) upon each stock exchange, if any, upon which Shares may
then be listed, and (iii) all other applicable laws, regulations, rules and
orders which may then be in effect.
Stock Options granted under the Plan are intended to satisfy the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934. If any
provision or this Plan or of any grant of a Stock Option would otherwise
frustrate or conflict with such intent, that provision shall be interpreted and
deemed amended so as to avoid such conflict.
Section 8.09 GOVERNING LAW; SEVERABILITY.
The Plan and all determinations made and actions taken thereunder shall be
governed by the internal substantive laws, and not the choice of law rules,
of the State of New York and construed accordingly, to the extent not
superseded by applicable federal law. If any provision of the Plan shall be
held unlawful or otherwise invalid or unenforceable in whole or in part, the
unlawfulness, invalidity or unenforceability shall not affect any other
provision of the Plan or part thereof, each of which shall remain in full
force and effect.
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PROXY
PRELIMINARY COPY
COMPUTER ASSOCIATES INTERNATIONAL, INC.
2002 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPUTER ASSOCIATES BOARD OF
DIRECTORS FOR THE 2002 ANNUAL MEETING OF STOCKHOLDERS ON AUGUST 28, 2002.
The undersigned hereby appoints Daniel H. Burch and Jeanne M. Carr, and
each of them, as proxies, acting jointly and severally, with full power of
substitution, for and in the name of the undersigned to vote all shares of
Common Stock, par value $.10 per share, of Computer Associates International,
Inc. that the undersigned is entitled to vote at the Annual Meeting of
Stockholders to be held on Wednesday, August 28, 2002, at 10:00 a.m. Eastern
Daylight Time, at the Wyndham Wind Watch Hotel, 1717 Motor Parkway, Islandia,
New York, and at any adjournment or postponement thereof, upon the matters set
forth in the accompanying Notice of Annual Meeting of Stockholders and upon such
other matters as may properly come before the Annual Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS SPECIFIED, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1, 2, 3 AND 4 AND IN THE DISCRETION OF THE PROXIES
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. AT
PRESENT, THE BOARD KNOWS OF NO OTHER BUSINESS WHICH WILL COME BEFORE THE
MEETING.
(Continued on Reverse Side. Please Sign and Date.)
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
IF YOU HAVE ANY QUESTIONS, OR NEED ASSISTANCE VOTING, PLEASE CONTACT EITHER
ONE OF THE FIRMS ASSISTING US IN THE SOLICITATION OF PROXIES, MACKENZIE
PARTNERS, INC., TOLL FREE AT 1-800-322-2885, OR D.F. KING & CO., INC.,
TOLL FREE AT 1-800-628-8509.
Please mark
your votes as /x/
indicated in
this example
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3 AND 4.
FOR WITHHOLD
1. Election of the following director nominees to serve for / / / /
the following year and until their successors are elected:
Nominees are: Russell M. Artzt, Kenneth Cron, Alfonse M. D'Amato, Sanjay
Kumar, Robert E. La Blanc, Jay W. Lorsch, Lewis S. Ranieri, Walter P.
Schuetze, Alex Serge Vieux, Charles B. Wang, Thomas H. Wyman.
withhold vote only from:______________________________________________________
FOR AGAINST ABSTAIN
2. Approval of the 2002 Incentive Plan: / / / / / /
3. Approval of the 2002 Compensation Plan for
Non-Employee Directors: / / / / / /
4. Ratification of the appointment of KPMG LLP
as the Company's independent auditors for the
fiscal year ending March 31, 2003: / / / / / /
Mark here if your address has changed and provide us with
your new address in the space provided below: / /
New Address: _________________________________________________________
_________________________________________________________
_________________________________________________________
Signature _____________________Signature____________________ Date _____________
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS CARD. JOINT OWNERS SHOULD EACH
SIGN PERSONALLY. CORPORATION PROXIES SHOULD BE SIGNED IN CORPORATE NAME BY AN
AUTHORIZED OFFICER. EXECUTORS, ADMINISTRATORS, TRUSTEES OR GUARDIANS SHOULD
GIVE THEIR TITLE WHEN SIGNING.
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
Notice: If you plan on attending the 2002 Annual Meeting, please cut out and
use the admission ticket(s) below.
No admission will be granted without an admission ticket.
ANNUAL MEETING OF STOCKHOLDERS
AUGUST 28, 2002, 10:00 A.M. (EASTERN DAYLIGHT TIME)
WYNDHAM WIND WATCH HOTEL
1717 MOTOR PARKWAY
ISLANDIA, NY 11749
1-631-232-9800
From East of Islandia: Take 495 West to Exit 58. (Old Nichols Road.) Go North on
Old Nichols Road. Make a left on Motor Parkway. The Wyndham Wind Watch Hotel is
on the right.
From West of Islandia: Take 495 East to Exit 57. (Motor Parkway.) At the light,
turn left. Go straight across Route 454 (Veterans Highway.) The Wyndham Wind
Watch Hotel is on the left.
PLEASE VOTE YOUR SHARES VIA THE TELEPHONE OR INTERNET, OR SIGN, DATE, AND
RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE EVEN IF YOU
PLAN TO ATTEND THE 2002 ANNUAL MEETING.