SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
COMPUTER ASSOCIATES INTERNATIONAL, INC.
-----------------------------------------------------------------------
(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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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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/ / Fee paid previously with preliminary materials.
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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.
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[LOGO]
COMPUTER ASSOCIATES INTERNATIONAL, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
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
/s/ Michael A. McElroy
Michael A. McElroy
SENIOR VICE PRESIDENT AND SECRETARY
Islandia, New York
July 26, 2002
COMPUTER ASSOCIATES INTERNATIONAL, INC.
ONE COMPUTER ASSOCIATES PLAZA
ISLANDIA, NY 11749
------------------------
PROXY STATEMENT
---------------------
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 29, 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 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.
2
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
Private Capital Management, L.P............................. 33,890,981(3) 5.9%
8889 Pelican Bay Boulevard, Suite 500
Naples, FL
------------------------
(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.
3
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 *
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.
(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
4
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. 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.
5
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.
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.
6
DIRECTOR
AGE SINCE
-------- --------
The Honorable Alfonse M. Managing Director of Park Strategies LLC, a 64 1999
D'Amato........................ 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.
Sanjay Kumar..................... President and Chief Executive Officer since 40 1994
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 Relations 69 2002
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 Blanc 68 2002
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.
7
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 2000. 69 2002
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.
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, and 57 1976
Chief Executive Officer of the Company from
1976 to July 2000.
8
DIRECTOR
AGE SINCE
-------- --------
Thomas H. Wyman.................. President and Chief Executive Officer of 72 2002
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.
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.
9
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 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
10
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 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.
11
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.
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
12
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.
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
13
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
14
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
15
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 -------------------------------
NAME AND FISCAL ----------------------- RESTRICTED STOCK OPTION 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 President 2001 $ 750,000 -- -- -- $31,000
2000 $ 750,000 $ 861,000(1) $1,291,000 250,000 $33,875
Gary Quinn................ 2002 $ 450,000 $ 889,209 -- -- $29,362
Executive Vice President 2001 $ 250,000 $ 700,000 -- 400,000 $29,642
2000 $ 200,000 $ 400,000 -- 75,000 $29,433
Stephen Richards.......... 2002 $ 450,000 $ 880,600 -- -- $29,362
Executive President 2001 $ 300,000 $ 900,000 -- 450,000 $30,885
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.
(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.
16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT MARCH 31, 2002(2) AT MARCH 31, 2002(3)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
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.
17
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
NUMBER OF WEIGHTED-
SECURITIES TO BE AVERAGE EXERCISE NUMBER OF SECURITIES
ISSUED UPON PRICE OF REMAINING AVAILABLE FOR
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 approved by
security holders................... 48,052,549(1) $28.83 34,754,171(2)
Equity compensation plans not
approved by security holders....... N/A N/A N/A
---------- ------ ----------
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 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
18
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
25, 2002, the market price of a Share was $7.61. 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.
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
19
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);
- 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
20
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.
- 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:
21
- 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 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.
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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.
- 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.
23
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 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.
24
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.
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
25
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 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.
26
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. 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.
27
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 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
28
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 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
29
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.
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.
30
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
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.
31
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.
32
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.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
(Among Computer Associates International, Inc., S&P Systems
Software Index, and S&P 500 Index)
[Stock Performance Graph]
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 Veritas Software Corporation
International, Inc.
Microsoft Corporation
33
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.
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
34
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 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 28, 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 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
35
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
[GRAPHIC]
Michael A. McElroy
SENIOR VICE PRESIDENT AND SECRETARY
Dated: July 26, 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).
36
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
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
A-1
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.
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
A-2
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.
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.
A-3
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.
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.
A-4
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:
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.
A-5
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.
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
A-6
- 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
- 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.
A-7
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"............................. 1
(c) "Restricted Stock".......................................... 1
(d) "Stock Options"............................................. 1
(e) "Other Equity-Based Awards"................................. 1
2.3 "Award Certificate".............................................. 1
2.4 "Board".......................................................... 1
2.5 "Change in Control".............................................. 2
2.6 "Code"........................................................... 2
2.7 "Committee"...................................................... 3
2.8 "Common Stock"................................................... 3
2.9 "Company"........................................................ 3
2.10 "Consultant"..................................................... 3
2.11 "Disabled" or "Disability"....................................... 3
2.12 "Employee"....................................................... 3
2.13 "Exercise Price"................................................. 3
2.14 "Fair Market Value".............................................. 3
2.15 "Fair Market Value Stock Option"................................. 3
2.16 "GAAP"........................................................... 3
2.17 "Incentive Stock Option"......................................... 3
2.18 "Key Employee"................................................... 3
2.19 "Long-Term Performance Bonus".................................... 3
2.20 "Nonqualified Stock Option"...................................... 4
2.21 "Participant".................................................... 4
2.22 "Performance Cycle".............................................. 4
2.23 "Performance Measure"............................................ 4
2.24 "Plan"........................................................... 4
2.25 "Premium-Priced Stock Option".................................... 4
2.26 "Prior Plans".................................................... 4
2.27 "Related Company"................................................ 4
2.28 "Reporting Person"............................................... 5
2.29 "Restricted Stock"............................................... 5
2.30 "Retirement"..................................................... 5
2.31 "Rights Agreement"............................................... 5
2.32 "Shares"......................................................... 5
2.33 "Stock Option"................................................... 5
2.34 "Termination of Consultancy"..................................... 5
2.35 "Termination of Employment"...................................... 5
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PAGE
--------
ARTICLE III ADMINISTRATION................................................... 5
3.1 The Committee.................................................... 5
3.2 Authority of the Committee....................................... 5
3.3 Effect of Determinations......................................... 6
3.4 Delegation of Authority.......................................... 6
3.5 No Liability..................................................... 6
ARTICLE IV AWARDS............................................................ 6
4.1 Eligibility...................................................... 6
4.2 Participation.................................................... 6
4.3 Form of Awards................................................... 6
4.4 Annual Performance Bonuses....................................... 6
(a) Performance Cycles.......................................... 6
(b) Bonus Participants.......................................... 6
(c) Performance Measures; Targets; Payout Formula............... 7
(d) Payment of Bonuses; Certification........................... 7
(e) Awards to Non-Key Employees................................. 7
(f) Form of Payment............................................. 7
(g) Amount of Bonus............................................. 7
4.5 Long-Term Performance Bonuses.................................... 7
(a) Performance Cycles.......................................... 7
(b) Bonus Participants.......................................... 8
(c) Performance Measures; Targets; Payout Formula............... 8
(d) Payment of Bonuses; Certification........................... 8
(e) Awards to Non-Key Employees................................. 8
(f) Form of Payment............................................. 8
(g) Amount of Bonus............................................. 8
4.6 Restricted Stock................................................. 8
(a) Performance Cycles.......................................... 8
(b) Performance Measures; Targets and Payout Formulas........... 9
(c) Committee Certification..................................... 9
(d) Awards to Non-Key Employees................................. 9
(e) Payment of Restricted Stock................................. 9
(i) Vesting and Forfeiture................................. 10
(ii) Acceleration of Vesting............................... 10
(iii) Legend................................................ 10
(f) Amount of Restricted Stock.................................. 10
4.7 Stock Options.................................................... 10
(a) Amount of Shares............................................ 10
(b) Exercise Price.............................................. 10
(c) Term and Timing of Exercise................................. 10
(d) Payment of Exercise Price................................... 11
(e) Incentive Stock Options..................................... 12
(i) Eligibility............................................ 12
(ii) Timing of Grant....................................... 12
(iii) Amount of Award....................................... 12
(iv) Timing of Exercise..................................... 12
(v) Transfer Restrictions.................................. 12
(f) No Repricing................................................ 12
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PAGE
--------
4.8 Other Equity-Based Awards........................................ 12
(a) Awards to Key Employees..................................... 12
4.9 Code Section 162(m).............................................. 13
ARTICLE V SHARES SUBJECT TO THE PLAN; ADJUSTMENTS............................ 13
5.1 Shares Available................................................. 13
5.2 Counting Rules................................................... 13
5.3 Adjustments...................................................... 14
5.4 Consolidation, Merger or Sale of Assets.......................... 14
5.5 Fractional Shares................................................ 14
ARTICLE VI AMENDMENT AND TERMINATION......................................... 15
6.1 Amendment........................................................ 15
6.2 Termination...................................................... 15
ARTICLE VII GENERAL PROVISIONS............................................... 15
7.1 Nontransferability of Awards..................................... 15
7.2 Withholding of Taxes............................................. 16
(a) Stock Options............................................... 16
(b) Restricted Stock............................................ 16
7.3 Special Forfeiture Provision..................................... 16
7.4 Code Section 83(b) Elections..................................... 16
7.5 No Implied Rights................................................ 17
7.6 No Obligation to Exercise Options................................ 17
7.7 No Rights as Stockholders........................................ 17
7.8 Indemnification of Committee..................................... 17
7.9 No Required Segregation of Assets................................ 17
7.10 Nature of Payments............................................... 17
7.11 Securities Exchange Act Compliance............................... 17
7.12 Governing Law; Severability...................................... 17
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;
(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.
B-1
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
(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.
B-2
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;
(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.
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.
B-3
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;
(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.
B-4
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).
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 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
B-5
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 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.
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(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.
(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.
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(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 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
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determines that some other period shall apply, the Performance Cycle shall
be the fiscal year of the Company. In the event that the Committee
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 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
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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, 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
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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 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.
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(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.
(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
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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 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.
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5.3 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 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 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
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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 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.
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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.
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"............................................. 2
Section 2.09 "Director Service Year"..................................... 2
Section 2.10 "Disabled" or "Disability".................................. 2
Section 2.11 "Eligible Director"......................................... 2
Section 2.12 "Exercise Price"............................................ 2
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".............................................. 3
ARTICLE III ADMINISTRATION................................................... 3
Section 3.01 The Committee............................................... 3
Section 3.02 Authority of the Committee.................................. 3
Section 3.03 Effect of Determinations.................................... 3
Section 3.04 No Liability................................................ 3
ARTICLE IV DIRECTOR FEES..................................................... 4
Section 4.01 Eligibility................................................. 4
Section 4.02 Director Fees............................................... 4
(a) Amount of Director Fees..................................... 4
(b) Form of Payment............................................. 4
(c) Automatic Deferral.......................................... 4
Section 4.03 Stock Deferrals............................................. 4
(a) General..................................................... 4
(b) Dividends on Deferred Shares................................ 4
(c) Payment of Stock Deferrals.................................. 4
(d) Election to Receive Installment Payments.................... 5
(e) Hardship Withdrawals........................................ 5
Section 4.04 Beneficiary Designation..................................... 5
ARTICLE V STOCK OPTIONS...................................................... 6
Section 5.01 Automatic Grant............................................. 6
Section 5.02 Stock Options............................................... 6
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PAGE
--------
(a) Option Agreement............................................ 6
(b) Exercise Price.............................................. 6
(c) Term and Timing of Exercise................................. 6
(d) Payment of Exercise Price................................... 6
(e) No Repricing................................................ 7
Section 5.03 Offset Awards............................................... 7
ARTICLE VI SHARES SUBJECT TO THE PLAN; ADJUSTMENTS........................... 7
Section 6.01 Shares Available............................................ 7
Section 6.02 Counting Rules.............................................. 7
Section 6.03 Adjustments................................................. 7
Section 6.04 Consolidation, Merger or Sale of Assets..................... 8
Section 6.05 Fractional Shares........................................... 8
ARTICLE VII AMENDMENT AND TERMINATION........................................ 8
Section 7.01 Amendment................................................... 8
Section 7.02 Termination................................................. 9
ARTICLE VIII GENERAL PROVISIONS.............................................. 9
Section 8.01 Nontransferability of Awards................................ 9
Section 8.02 No Implied Rights........................................... 9
Section 8.03 No Obligation to Exercise Options........................... 10
Section 8.04 No Rights as Stockholders................................... 10
Section 8.05 Indemnification of Committee................................ 10
Section 8.06 Nature of Payments.......................................... 10
Section 8.07.. Nature of Deferred Stock Compensation Accounts.............. 10
Section 8.08 Securities Law Compliance................................... 10
Section 8.09 Governing Law; Severability................................. 10
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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
(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
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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 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.
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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.
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.
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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.
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.
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(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 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 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
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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.
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
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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;
(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 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.
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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
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
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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 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
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 Michael A. McElroy and Ira H. Zar, 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.
Your internet or telephone vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy
card.
(Continued on Reverse Side. Please Sign and Date.)
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* FOLD AND DETACH HERE *
ADMISSION TICKET
Notice: If you plan on attending the 2002 Annual Meeting,
please use this admission ticket.
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 sign, date, and return the proxy card promptly using the enclosed
envelope even if you plan to attend the 2002 Annual Meeting.
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: 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: / / / / / /
========================================
IF YOU WISH TO VOTE BY TELEPHONE
OR INTERNET PLEASE READ THE INSTRUCTIONS
BELOW
========================================
I consent to future access of the Annual / /
Reports and Proxy Statements electronically
via the Internet and I understand that the
Company may no longer distribute printed
materials to me for any future shareholder
meetings until such consent is revoked. I
understand that I may revoke my consent
at anytime.
Mark here if your address has changed and provide us with
your new address in the space provided below: / /
New Address: _________________________________________________________
_________________________________________________________
_________________________________________________________
Signature _____________________Signature____________________ Date _____________
NOTE: 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 *
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 4PM Eastern time
the business day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
-------------------------- --------------------------- -----------------------
INTERNET TELEPHONE MAIL
http://www.eproxy.com/ca 1-800-435-6710
Use the Internet to vote Use any touch-tone Mark, sign and date
your proxy. Have your telephone to vote your your proxy card
proxy card in hand when proxy. Have your proxy and
you access the website. OR card in hand when you OR return it in the
You will be prompted to call. You will be prompted enclosed postage-paid
enter your control number, to enter your control envelope.
located in the box below, number, located in the box
to create and submit an below, and then follow the
electronic ballot. directions given.
-------------------------- ------------------------- -----------------------
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.