UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or
15(d)of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
Or
Transition Report Pursuant to Section 13 or
15(d)of the Securities Exchange Act of 1934
For the transition period ended from _____ to
_____
Commission File Number 0-10180
Computer Associates International, Inc.
(Exact name of registrant as specified in its
charter)
Delaware 13-2857434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)Identification No.)
One Computer Associates Plaza
Islandia, New York 11788-7000
(Address of principal executive offices)(Zip Code)
(516) 342-5224
(Registrant's telephone number,includingarea code)
Not applicable
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for
such shorter period that the registrant was
required to file such reports) and (2) has been
subject to such filing requirements for the past
90 days.
Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each
of the issuer's classes of Common Stock, as of the
latest practicable date:
Title of Class Shares Outstanding
Common Stock as of October 31, 1997
par value $.10 per share 364,543,273
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL,INC. AND SUBSIDIARIES
INDEX
PART I. Financial Information: Page No.
Item 1. Consolidated Condensed Balance Sheets -
September 30, 1997 and March 31, 1997 1
Consolidated Statements of Income -
Three Months Ended September 30, 1997 and 1996 2
Consolidated Statements of Income -
Six Months Ended September 30, 1997 and 1996 3
Consolidated Condensed Statements of Cash Flows -
Six Months Ended September 30, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
<PAGE> 1
<TABLE>
Item 1:
Part I. FINANCIAL INFORMATION
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
<CAPTION>
September 30, March 31,
1997 1997
----------- ---------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $127 $143
Marketable securities 59 56
Trade and installment accounts receivable 1,486 1,514
Inventories and other current assets 68 67
----- -----
TOTAL CURRENT ASSETS 1,740 1,780
Installment accounts receivable,
due after one year 2,334 2,200
Property and equipment 446 438
Purchased software products 342 440
Excess of cost over net assets acquired 1,132 1,159
Investments and other noncurrent assets 104 67
------ ------
TOTAL ASSETS $6,098 $6,084
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Loans payable - banks $ 540 $ 540
Other current liabilities 1,153 1,187
Long-term debt 1,307 1,663
Deferred income taxes 893 853
Deferred maintenance revenue 309 338
Stockholders' equity 1,896 1,503
------ ------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $6,098 $6,084
====== ======
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE> 2
<TABLE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share amounts)
<CAPTION>
For the Three Months
Ended September 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
Product revenue and other related income $ 940 $ 800
Maintenance fees 182 190
----- -----
TOTAL REVENUE 1,122 990
Costs and expenses:
Selling, marketing and administrative 428 383
Product development and enhancements 90 76
Commissions and royalties 55 50
Depreciation and amortization 85 106
Interest expense - net 29 21
----- -----
TOTAL COSTS AND EXPENSES 687 636
----- -----
Income before income taxes 435 354
Provision for income taxes 163 131
----- -----
NET INCOME $272 $223
===== =====
NET INCOME PER COMMON SHARE* $ .48 $ .39
===== =====
Weighted average common shares used in
computation* 568 570
<FN>
*Shares and per share amounts adjusted for three-for-two stock splits
effective November 5, 1997 and June 19, 1996.
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE> 3
<TABLE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share amounts)
<CAPTION>
For the Six Months
Ended September 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
Product revenue and other related income $1,651 $1,403
Maintenance fees 362 379
----- -----
TOTAL REVENUE 2,013 1,782
Costs and expenses:
Selling, marketing and administrative 810 725
Product development and enhancements 179 151
Commissions and royalties 100 91
Depreciation and amortization 179 226
Interest expense - net 61 44
----- -----
TOTAL COSTS AND EXPENSES 1,329 1,237
----- -----
Income before income taxes 684 545
Provision for income taxes 256 202
----- -----
NET INCOME $428 $343
===== =====
NET INCOME PER COMMON SHARE* $ .76 $ .60
===== =====
Weighted average common shares used in
computation* 565 569
<FN>
*Shares and per share amounts adjusted for three-for-two stock splits
effective November 5, 1997 and June 19, 1996.
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE> 4
<TABLE>
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
<CAPTION>
For the Six Months
Ended September 30,
-------------------
1997 1996
---- ----
<S>
OPERATING ACTIVITIES: <C> <C>
Net income $428 $343
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 179 226
Provision for deferred income taxes 101 93
Increase in noncurrent installment accounts
receivable (177) (353)
Decrease in deferred maintenance revenue (24) (65)
Changes in other operating assets and liabilities
excludes effects of acquisitions (85) 26
----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES 422 270
INVESTING ACTIVITIES:
Acquisitions, primarily purchased software,
marketing rights and intangibles (17) (25)
Purchase of property and equipment (31) (8)
(Increase) decrease in current marketable
securities (3) 20
Capitalized development costs (10) (8)
----- -----
NET CASH USED IN INVESTING ACTIVITIES (61) (21)
FINANCING ACTIVITIES:
Repayment of borrowings - net (354) (202)
Dividends paid (18) (17)
Exercise of common stock options/other 46 11
Purchases of treasury stock (43) (21)
----- -----
NET CASH USED IN FINANCING ACTIVITIES (369) (229)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH (8) 20
Effect of exchange rate changes on cash (8) (1)
----- -----
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (16) 19
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 143 97
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $127 $116
===== =====
<FN>
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 5
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements have been prepared in accordance with
generally accepted accounting principles for
interim financial information and with the instructions
to Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the six months ended
September 30,1997 are not necessarily indicative of the
results that may be expected for the year ending March 31,1998
For further information, refer to the consolidated
financial statements and footnotes thereto included in
Computer Associates International, Inc.'s (the
"Registrant" or the "Company") Annual Report on Form 10-K
for the fiscal year ended March 31, 1997.
Cash Dividends: In May 1997, the Company s Board of
Directors declared its regular, semi-annual cash dividend
of $.05 per share (prior to the Company s three-for-two
stock split effective November 5, 1997). The dividend
was paid on July 7, 1997 to stockholders of record on
June 20, 1997.
Net Income per Share: Net income per share of Common
Stock is computed by dividing net income by the weighted
average number of common shares and any dilutive common share
equivalents outstanding. Fully diluted net income per
share is the same or not materially different from net
income per share.
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings per Share, which is required
to be adopted for both interim and annual financial
statements for periods ending after December 15, 1997.
At that time, the Company will be required to change the
method currently used to compute earnings per share
and to restate all prior periods. SFAS No. 128 will
require the Company to present basic and diluted
earnings per share (EPS) on the face of the income
statement. The computation of basic EPS replaces
primary EPS. If the Company had implemented SFAS No. 128
during this quarter, it would have reported basic EPS
of $.50 and $.41 for the quarters ended September 30, 1997
and 1996, respectively. Diluted EPS would have been $.48
and $.39 for the respective quarters. The Company would
have reported basic EPS of $.79 and $.63 for the six
months ended September 31, 1997 and 1996, respectively.
Diluted EPS for the respective six month periods would
have been $.75 and $.60.
Stock Split: On October 21, 1997 the Company declared
a three-for-two stock split in the form of a stock
dividend, to be distributed November 26, 1997 to
shareholders of record as of November 5, 1997. Shares
and per share amounts have been adjusted to reflect this
stock split as well as the three-for-two split effective
June 19, 1996.
Statements of Cash Flows: For the six months ended
September 30, 1997 and 1996, interest payments were
$64 million and $30 million, respectively, and income
taxes paid were $212 million and $119 million, respectively.
<PAGE> 6
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE B -- ACQUISITIONS
On November 11, 1996, the Company acquired 98% of
the issued and outstanding shares of Common
Stock of Cheyenne Software, Inc. ("Cheyenne"), and
on December 2, 1996 merged into Cheyenne one of
its wholly owned subsidiaries. The aggregate
purchase price of approximately $1.2 billion was
funded from drawings under the Company's $2 billion
credit agreements. Cheyenne was engaged in the
design,development, marketing, and support of storage,
management, security and communications software
for desktops and distributed enterprise networks.
The acquisition was accounted for as a purchase.
The results of Cheyenne's operations have been
combined with those of the Company since the date
of acquisition.
The Company recorded a $598 million after-tax
charge against earnings for the write-off of
purchased Cheyenne research and development technology that
had not reached the working model stage and had
no alternative future use. The research and
development charges recorded are generally based
upon a discounted cash flow analysis.
The following table reflects pro forma combined
results of operations (unaudited) of the Company
and Cheyenne on the basis that the acquisition had
taken place and the related after-tax charge,
noted above, was recorded at the beginning of fiscal year 1997:
<TABLE>
(In millions, except per share amounts)
<CAPTION> For the Six Months For the Three Months
Ended September 30, 1996 Ended September 30, 1996
----------------------- ------------------------
<S> <C> <C>
Revenue $1,884 $1,042
Net (loss) income (296) 200
Net (loss) income per common $(.54) $.35
Shares used in computation 546 570
</TABLE>
In management's opinion, the pro forma combined
results of operations are not indicative of the
actual results that would have occurred had the
acquisitions been consummated at the beginning of
fiscal year 1997 or of future operations of the combined
companies under the ownership and operation of the
Company.
<PAGE> 7
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE C -- THE 1995 KEY EMPLOYEE STOCK OWNERSHIP PLAN
Under the 1995 Key Employee Stock Ownership Plan
(the 1995 Plan) a total of 20.25 million
restricted shares were available for grant to
three key executives. In January 1996, 1.35
million shares of the initial grant of 6.75 million shares vested,
subject to the continued employment of the key
executives through March 31, 2000. Accordingly, the Company
began accruing the compensation expense
associated with these 1.35 million shares over
the employment period. Additional grants of 13.5
million shares are available under the 1995 Plan and have
been reserved pending the achievement of certain
price targets in the fiscal year ending March 31, 2000.
The additional grants and the unvested portion of
the initial grant are subject to risk of forfeiture
through March 31, 2000. However, if the closing
price of the Company s common stock on the NYSE exceeds $53.33
for 60 trading days within any twelve month
period, all 20.25 million shares vest immediately
and will no longer be subject to forfeiture. In
such event, the Company will be required to record a
one time, non cash charge of approximately one
billion dollars. These shares will continue to be subject
to significant limitations on transfer during the
seven years following vesting.
All references to the number of shares available
and reserved for grant, as well as share prices
have been adjusted to reflect three-for-two stock splits
effective November 1997, June 1996 and August
1995.
<PAGE> 8
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this Form 10-Q concerning the
company s future prospects are forward looking
statements under the federal securities laws.
There can be no assurances that future results
will be achieved and actual results could differ
materially from forecasts and estimates.
Important factors that could cause actual results
to differ materially are discussed below in the
section Results of Operations.
RESULTS OF OPERATIONS
Revenue:
Total revenue for the quarter ended September 30,
1997 increased by 13% over the prior year s
comparable quarter. The increase reflects the
acceptance of the Company s enterprise pricing
options, as well as the continued growth of licensing fees
from expanding client/server products. Unicenter
TNG (The Next Generation), a family of integrated
business solutions for monitoring and
administering across multi-platform environments, accounted for
approximately 26% of the Company s overall
revenue. International revenue decreased by 1% for the
September 1997 quarter compared to the September
1996 quarter. Approximately $30 million of this
decrease is attributable to strengthening of the
US dollar against most currencies. Maintenance revenues
decreased $7 million, or 4%, primarily due to the
ongoing trend of site consolidations and
expanding client/server revenues which yield lower
maintenance. Price changes did not have a
material impact in either quarter.
Costs and Expenses:
Selling, marketing and administrative expenses as
a percentage of total revenue for the September
1997 quarter decreased to 38% from 39% for the
September 1996 quarter. The modest percentage
reduction reflects a higher revenue achievement without a
proportionate increase in total fixed and variable
administrative costs. Net research and
development expenditures increased $14 million, or
18%, over the September 1996 quarter. Continued emphasis on
adapting and enhancing products for the client/server
environment, in particular Unicenter TNG and
Jasmine, the addition of Cheyenne product
development personnel and broadening of the Company s
Internet/Intranet product offerings were largely
responsible for the increase. Commissions and royalties as a
percentage of revenue was 5% for both the
September 1997 and 1996 quarters. Depreciation and
amortization expense decreased $21 million in the
September 1997 quarter from the September 1996 quarter. The
decrease was primarily due to completion of the
amortization associated with the On-Line Software
International, Inc. and Pansophic Systems, Inc.
acquisitions, as well as the scheduled reduction
in the amortization associated with The ASK Group,
Inc. and Legent Corporation acquisitions. This
decrease was only partially offset by the
additional accelerated purchased software amortization
related to the Cheyenne Software, Inc. acquisition. In the
September 1997 quarter, net interest expense increased by $8
million over the September 1996 quarter as a result of
higher debt levels associated with the Cheyenne
acquisition.
<PAGE> 9
Item 2: (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating Margins:
The pre-tax income of $435 million for the
September 1997 quarter is an increase of 23%, or
$81 million, over the September 1996 quarter pre-tax of $354
million. As a percentage of total revenue, pre-
tax income for the September 1997 quarter was 39%, an
increase of three percentage points over the pre-
tax margin for the quarter ended September 1996. The
Company s consolidated effective tax rate was
37.5% for the September 1997 quarter compared with
37% for the prior year s comparable quarter.
Operations:
The Company s products are designed to improve the
productivity and efficiency of its clients
information processing resources. Accordingly,
in a recessionary environment, the Company s
products are often a reasonable economic alternative to
customers faced with the prospect of incurring
expenditures to increase their existing
information processing resources. However, a
general or regional slowdown in the world economy
could adversely affect the Company s operations.
The Company has traditionally reported lower
profit margins in the first two quarters of each
fiscal year than those experienced in the third and fourth
quarters. As part of the annual budget process,
management establishes higher discretionary
expense levels in relation to projected revenue
for the first half of the year. Historically, the Company s
combined third and fourth quarter revenues have
been greater than the first half of the year, as these
two quarters coincide with clients calendar year
budget periods and culmination of the Company s annual
sales plan. These historically higher second half
revenues have resulted in significantly higher
profit margins since total expenses have not
increased in proportion to revenue. However, past financial
performance should not be considered to be a
reliable indicator of future performance.
The Company s future operating results may be
affected by a number of other factors, including,
but not limited to: uncertainties relative to global
economic conditions; the Company s increasing
reliance on a single family of products; market acceptance of
competing technologies; the availability and cost
of new solutions; delays in delivery of new products or
features; the Company s ability to successfully
maintain or increase market share in its core business while
expanding its product base into other markets; the
strength of its distribution channels; the
Company s ability to manage fixed and variable
expense growth relative to revenue growth; and the Company s
ability to effectively integrate acquired products
and operations.
<PAGE> 10
Item 2: (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company s cash, cash equivalents and
marketable securities for the quarter ended
September 30, 1997 decreased by approximately $3 million from
the balance at June 30, 1997. For the quarter
ended September 30 1997, cash generated from operations
totaled $245 million. This cash was primarily used
for bank debt repayments of $185 million, treasury
stock purchases of $ 33 million, and dividends of
$ 18 million.
At September 30, 1997, $ 1,490 million was
outstanding under the Company s credit facilities
and $320 million remains outstanding under the Company s
6.77% Senior Notes. Borrowing costs and facility
fees are based upon the achievement of certain
financial ratios.
The total number of shares purchased under the
Company s various open market Common Stock
repurchase programs as of September 30, 1997, was
approximately 119 million shares, including .8
million for the most recent quarter. The total
shares available for repurchase at September 30,
1997 are approximately 45 million. These amounts have been
adjusted to reflect the November 1997 three for
two stock split.
The Company s capital resource requirements as of
September 30, 1997 consisted of lease obligations
for office space, computer equipment, mortgage or loan
obligations and amounts due as a result of product
and company acquisitions. In addition, the
Company is proceeding with a project to purchase
land and construct a building in the United Kingdom for
approximately $150 million. It is expected that
existing cash, cash equivalents, short-term marketable
securities, the availability of borrowings under
committed and uncommitted credit lines, as well as cash
provided from operations, will be sufficient to
meet ongoing cash requirements.
<PAGE> 11
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a vote of Security Holders.
(a) Annual Meeting of Stockholders held on August
13, 1997.
(b) The Stockholders elected Directors for the
ensuring year as follows:
<TABLE>
<CAPTION>
Affirmative Authority
Name Votes Withheld
- ----------------- ----------- --------
<S> <C> <C>
Russell M. Artzt 323,511,536 598,628
Willem F.P. de Vogel 323,509,887 600,277
Irving Goldstein 323,509,579 600,585
Richard A. Grasso 323,510,564 599,600
Shirley Strum Kenny 323,482,461 627,703
Sanjay Kumar 323,479,046 631,118
Charles B. Wang 323,507,469 602,695
</TABLE>
(c) The Stockhholders voted to ratify the appointment of
Ernst & Young LLP as the Company s independent auditors
for the fiscal year ending March 31, 1998:
Affirmative 323,379,589
Negative Votes 186,231
Abstentions 544,344
<PAGE> 12
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits.
(1) 1991 Stock Incentive Plan, as amended.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
COMPUTER ASSOCIATES INTERNATIONAL, INC.
Dated: November 6, 1997 By:/s/Sanjay Kumar
-----------------------
Sanjay Kumar, President
and Chief Operating Officer
Dated: November 6, 1997 By:/s/Peter Schwartz
-----------------------
Peter Schwartz
Sr. Vice President-Finance
(Chief Financial and
Accounting Officer
COMPUTER ASSOCIATES INTERNATIONAL, INC.
1991 STOCK INCENTIVE PLAN, AS AMENDED
I. Purpose.
The purpose of the Computer Associates International, Inc. 1991
Stock Incentive Plan is to promote the growth and profitability of
Computer Associates International, Inc. (the Company) and its
subsidiaries and to provide officers and key employees of the
Company and its subsidiaries with an incentive to achieve long-
term corporate objectives, to attract and retain key employees of
outstanding competence, and to provide such key employees with an
opportunity to acquire an equity interest in the Company.
II. Definitions.
The following terms shall have the meaning shown:
2.1 Board shall mean the Board of Directors of the Company.
2.2 Code shall mean the Internal Revenue Code of 1986, as the
same shall be amended from time to time.
2.3 Committee shall mean the Stock Option and Compensation
Committee of the Board, having at least two (2) members and
consisting of directors appointed to the Committee by the
Board, none of whom shall be eligible to participate in the
Plan and each of whom shall otherwise qualify as a
disinterested person for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, or any
successor rule, promulgated by the Securities and Exchange
commission.
2.4 Common Stock shall mean the Company s Common Stock, par
value $.10 per share.
2.5 Continuing Director shall mean (a) any member of the
Board, while such person is a member of the Board, who was a
member of the Board on June 24, 1991, the date of the
adoption of the Plan, or (b) any member of the Board, while
such person is a member of the Board, if such person s
nomination or election to the Board was recommended or made
by a majority of the Continuing Directors.
2.6 Fair Market Value shall mean the value of a share of
Common Stock on a particular date, determined as follows:
(a) If the Common Stock is listed or admitted
to trading on such date on the New York Stock
Exchange, the closing sales price of the Common Stock
on such date as reported in the principal consolidated
transaction reporting system with respect to
securities listed or admitted to trading on the New
York Stock Exchange; or
<PAGE>
(b) If the Common Stock is not listed or
admitted to trading on the New York Stock Exchange but
is listed or admitted to trading on another national
exchange, the closing sales price of the Common Stock
on such date as reported in the principal consolidated
transaction reporting system with respect to
securities listed or admitted to trading on such
national exchange; or
(c) If the Common Stock is not listed or
admitted to trading on any national exchange, the mean
of the closing bid and asked prices (or, if available,
the high and low sales prices) of a share on such date
in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc.
Automatic Quotation Systems, the National Quotation
Bureau or such other system then in use with regard to
the Common Stock or, if on such date the stock of the
Company is publicly traded but not quoted by any such
system, the mean of the closing bid and asked prices
of the Common Stock on such date as furnished by a
professional market maker making a market in the
Common Stock; or
(d) If in (a), (b) or (c) above, as
applicable, there were no sales on such date reported
as provided above, but a public market exists, the
last sale price on the most recent prior day on which
a sale of the Common Stock took place; or
(e) If no public market exists for the Common
Stock, the fair market value as determined by the
Committee.
2.7 ISOs shall mean stock options which at the time granted
qualify as incentive stock options under Section 422 of the
Code granted by the Company or any Subsidiary.
2.8 Non-Statutory Options shall mean stock options which at
the time granted are not intended to qualify as ISOs.
2.9 Options shall mean any rights to purchase shares of Common
Stock granted pursuant to Article IV of this Plan including
both ISOs and Non-Statutory Options.
2.10 Parent shall mean any corporation which, on the date of
determination, qualifies as a parent corporation of the
Company under Section 424(e) of the Code, or any similar
provision hereafter enacted.
2.11 Plan shall mean this Computer Associates International,
Inc. 1991 Stock Incentive Plan, as the same shall be amended
from time to time.
2.12 SARs shall mean stock appreciation rights granted pursuant
to Article V of the Plan.
<PAGE>
2.13 Subsidiary shall mean any corporation which, on the date
of determination, qualifies as a subsidiary corporation of
the Company under Section 424(f) of the Code, or any similar
provision hereafter enacted.
2.14 Ten Percent Stockholder shall mean any stockholder who at
the time an ISO is granted owns (within the meaning of
Section 424(d) of the Code) more than ten percent (10%) of
the voting power of all classes of stock of the Company or
any Subsidiary.
III. General.
3.1 Administration.
(a) The Plan shall be administered by the
Committee. The Committee shall have full authority to
interpret the Plan and all Options and SARs granted
hereunder; to establish, amend, and rescind rules for
carrying out the Plan; to administer the Plan; to
select employees to participate in the Plan; to grant
Options and SARs under the Plan; to determine the
terms, exercise price and form of exercise payment for
each Option and SAR granted under the Plan; to
determine whether each Option granted under the Plan
shall be intended to qualify as an ISO; and to make
all other determinations and to take all such steps in
connection with the Plan, the Options and the SARs as
the Committee, in its discretion, deems necessary or
desirable. The Committee shall not be bound to any
standards of uniformity or similarity of action,
interpretation or conduct in the discharge of its
duties hereunder, regardless of the apparent
similarity of the matters coming before it. Its
determination shall be binding on all parties.
(b) Any employee may hold more than one Option
or SAR under the Plan and under any other plan
pursuant to which stock options, stock appreciation
rights or other incentives may be granted, issued or
paid.
(c) The Committee may designate any employees
of the Company or professional advisors to assist the
Committee in the administration of the Plan, and may
grant authority to such persons to execute agreements
or other documents on behalf of the Committee. The
Committee may employ such legal counsel, consultants
and agents as it may deem desirable for the
administration of the Plan, and may rely upon any
opinion received from any such counsel or consultant
and any computation received from any such consultant
or agent. Expenses incurred by the Committee in the
engagement of such counsel, consultant or agent shall
be paid by the Company.
(d) No member or former member of the
Committee or of the Board shall be liable for any
action or determination made in good faith with
respect to the Plan or any Option or SAR granted under
it. To the maximum extent permitted by applicable
<PAGE>
law, each member or former member of the Committee or
of the Board shall be indemnified and held harmless by
the Company against any cost or expense (including
counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the
Company) arising out of any act or omission to act in
connection with the Plan unless arising out of such
member s or former member s own fraud or bad faith.
Such indemnification shall be in addition to any
rights of indemnification the members or former
members may have as directors under applicable law or
under the certificate of incorporation or by-laws of
the Company.
(e) The Committee shall select one of its
members as a Chairman and shall adopt such rules and
regulations as it shall deem appropriate concerning
the holding of its meetings and the transaction of its
business. Any member of the Committee may be removed
at anytime either with or without cause by resolution
adopted by the Board, and any vacancy on the Committee
may at any time be filled by resolution adopted by the
Board.
(f) All determinations by the Committee shall
be made by the affirmative vote of a majority of its
members. Any such determination may be made at a
meeting duly called and held at which a majority of
the members of the Committee were in attendance in
person or through telephonic communication. Any
determination set forth in writing and signed by all
of the members of the Committee shall be as fully
effective as if it had been made by a majority vote of
the members at a meeting duly called and held.
IV. Options.
4.1 No Grants to Outside Directors.
Directors of the Company who are not also employees of the
Company or a Subsidiary shall in no event be eligible to be
granted Options or SARs under this Plan.
4.2 Terms and Conditions.
The grant of an Option shall be evidenced by a written
option agreement in a form approved by the Committee. Such
Option shall be subject to the following express terms and
conditions and to such other terms and conditions, not
inconsistent with the terms of this Plan, which the
Committee may deem appropriate.
(a) Terms of Options.
The term of each Option shall be for such period as
the Committee shall determine, but for not more than
ten (10) years from the date of grant thereof;
provided, however, that in the case of an ISO granted
<PAGE>
to any individual who, at the time of grant is a Ten
Percent Stockholder, such period shall not exceed five
(5) years from the date of grant.
(b) Exercise Price.
The exercise price per share for the Common Stock
covered by any Option (the Exercise Price) shall be
determined by the Committee and shall not be less than
the Fair Market Value (or in the case of an Option
granted to a Ten Percent Stockholder, 110 percent of
the Fair Market Value) of one (1) share of Common
Stock (but in no event less than the par value) on the
date the Option is granted. The aggregate Fair Market
Value (determined at the time the ISO is granted) of
the shares of Common Stock (together with all other
stock of the Company and all stock of any Parent or
Subsidiary) with respect to which ISOs may first
become exercisable by an individual optionee during
any calendar year, under all stock option plans of the
Company and of its Parents and Subsidiaries, shall not
exceed $100,000.
(c) Exercise of Options.
An Option may be exercised from time to time by
written notice by the optionee of his intent to
exercise the Option with respect to a specified number
of shares. Alternatively, the Company may provide for
exercise of an optionee s Option by delivery of an
irrevocable notice of exercise signed by the optionee,
accompanied by payment in full of the Exercise Price
by the optionee s broker and an irrevocable
instruction to the Company to deliver the shares of
Common Stock issuable upon exercise of the Option
promptly to the optionee s broker for the optionee s
account, provided that at the time of such exercise
the optionee is not subject to Section 16(b) of the
Securities Exchange Act of 1934 (the Exchange Act),
or that such exercise would not subject the optionee
to liability under such Section 16(b) pursuant to
Securities and Exchange Commission Rule 16b-3 or any
successor rule or regulation of the Commission. In
either case, the specified number of shares will be
issued and transferred to the optionee upon receipt by
the Company of (i) such notice and (ii) payment in
full for such shares.
(d) Payment of Exercise Price Upon Exercise.
The medium for payment of the Exercise Price for the
shares of Common Stock with respect to which an Option
shall be exercised shall be determined by the
Committee and specified in each option agreement and
may include payment in (i) cash (or by certified or
bank check), (ii) whole shares of Common Stock already
owned by the optionee, valued at their Fair Market
Value on the date immediately preceding the date of
exercise, (iii) a combination of cash (or certified or
bank check) and Common Stock equal to the Exercise
<PAGE>
Price or (iv) such other form of consideration as the
Committee may, in it sole discretion, determine to be
acceptable.
(e) Exercise Period; Termination of Employment.
(1) No Exercise Within One Year of
Grant. The Committee shall have the discretion
to determine when each Option granted hereunder
shall become exercisable, and to prescribe any
vesting schedule limiting the exercisability of
such Options as it may deem appropriate. Unless
the Committee affirmatively determines
otherwise, no Option shall become exercisable
prior to the date which is one (1) year after
the date on which the Option was granted.
(2) By Reason of the Participant s
Death. If the optionee dies while an employee
of the Company or a Subsidiary, all outstanding
Options not exercised by the optionee prior to
death shall remain exercisable (to the extent
that the optionee was entitled so to exercise it
at the date of his death) by the estate or by
the person given authority to exercise such
Options by his will or by operation of law for a
period of one (1) year from the date of the
optionee s death; provided, however, that no
Option may be exercised more than ten (10) years
from the date of grant or the date such Option
expires by its terms.
In the event an Option is exercised by the
executor or administrator of a deceased
optionee, or by the person or persons to whom
the 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 stock thereunder
unless and until the Company is satisfied that
the person or persons exercising the Option is
or are the duly appointed executor(s) or
administrator(s) of the deceased optionee or the
person to whom the Option has been transferred
by the optionee s will or by the applicable laws
of descent and distribution.
(3) By Reason of the Participant s
Retirement or Disability. If an optionee
retires at or after age 65 (or, at his early
retirement date as defined in any retirement
plan of the Company or a Subsidiary which is
qualified under Section 401 et seq. of the
Code), all outstanding Options not exercised by
the optionee prior to the termination of his
employment shall, unless otherwise specified in
his option agreement, remain exercisable (to the
extent that the optionee was entitled to
exercise them at the date of such age 65
retirement or early retirement) for a period of
three (3) months after termination of
employment. If an optionee terminates due to
disability, all outstanding Options not
exercised by the Optionee prior to the
<PAGE>
termination of employment shall, unless
otherwise specified in his option agreement,
remain exercisable (to the extent that the
optionee was entitled to exercise them at the
date of such termination ) for a period of one
(1) year from the date of termination of the
optionee s employment. Notwithstanding anything
in the foregoing to the contrary, no Option may
be exercised more than ten (10) years after the
date of grant thereof. As used in this
subsection, the term disability shall refer to
a condition causing an employee to be unable to
engage in any substantially gainful activity by
reason of any medically determinable physical or
mental impairment which can be expected to
result in death or can be expected to last for a
continuous period of not less than twelve (12)
months.
(4) By Reason of Other Separation
from Service. Upon any termination of
employment not governed by Section 4.2(e)(2) or
(3) thereof, all outstanding Options not
exercised by the optionee prior to the
termination of his employment shall terminate on
the date his employment terminates; provided,
however, that the Committee may, in its
discretion, extend the period for exercise up to
a date not more than ninety (90) days following
such termination of employment in the case of an
ISO, and not more than one year following such
termination of employment in the case of all
other Options. The assignment of any optionee
from the Company to a Subsidiary or from a
Subsidiary to the Company or from one Subsidiary
to another Subsidiary shall not be considered a
termination of employment.
For purposes of this Agreement, the employment
of an optionee shall be treated as continuing
intact while the optionee 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 optionee s right to reemployment with the
Company or a Subsidiary is guaranteed either by
statute or by contract. Where the period of
leave exceeds ninety (90) days and where the
optionee s right to re-employment is not
guaranteed either by statute or by contract, the
employment relationship shall be deemed to have
terminated on the ninety-first (91st) day of
such leave.
4.3 Designation of Options.
Each written option agreement which provides for the grant
of ISOs shall designate such Options as ISOs.
4.4 Incentive Stock Options.
<PAGE>
Each provision of the Plan and of each written option
agreement relating to an Option designated as an ISO shall
be construed so that such Option qualifies as an ISO, and
any provision that cannot be so construed shall be
disregarded.
4.5 Waiver of Restrictions on Exercisability Upon a Change in
Control.
(a) The Committee may, in its sole discretion,
determine that any option agreement to be executed
with respect to Options to be granted to an individual
under the Plan shall, or that any existing option
agreement (or agreements) executed with respect to all
or any portion of Options previously granted to the
individual under this Plan shall be amended to,
include a provision stating that if, during the period
of one (1) year ending on the first anniversary of the
effective date of any Change of Control Transaction,
(1) the optionee s employment with
the Company or any Subsidiary shall be
terminated without just cause (relating to the
specific optionee) on the part of the Company;
or
(2) the optionee s aggregate
annual compensation shall be materially reduced,
then the Options granted to the optionee (or the
relevant portion thereof) shall, notwithstanding any
vesting schedule or period of non-exercisability
imposed on such Options pursuant to Paragraph 4.2(e)
of this Plan, and without any further action of the
Company or the Committee, immediately become
exercisable in full, effective as of the date of such
change in the optionee s employment status.
(b) For purposes of this Paragraph, a Change
of Control Transaction shall be deemed to have
occurred if more than thirty (30%) percent of the
aggregate voting power of all classes of outstanding
securities of the Company ordinarily entitled to vote
in elections of directors shall be acquired (whether
by direct purchase, exchange upon merger or otherwise)
by another corporation or other person or group
without the prior consent (evidenced by a resolution
adopted at a duly called meeting of the Board or by a
written statement of action) of a majority of the
Continuing Directors. Group shall mean persons who
act in concert as described in Section 14(d)(2) of the
Securities Exchange Act of 1934, as amended. In
addition, any transfer or sale of substantially all
the assets of the Company shall constitute a Change
of Control Transaction.
(c) The Committee may, in its sole discretion,
determine at any time that all or any portion of
Options granted to an individual under the Plan shall,
notwithstanding any restrictions on exercisability
imposed pursuant to Paragraph 4.2(e), become
immediately exercisable in full.
4.6 Tax Gross-Ups.
<PAGE>
The Committee may, in its sole discretion, award to any
optionee tax gross-up rights, which entitle the optionee to
cash payments from the Company at such time as income and/or
exercise tax liability arises with respect to the exercise
of Options granted hereunder. Such tax gross-up rights may
be granted coincident with or after the date of grant of the
related Option.
V. Stock Appreciation Rights.
5.1 Grant of SARs
The Committee may, in its sole discretion, from time to time
grant SARs to optionees in connection with (but not
separately from) any Option granted under this Plan.
Holders of SARs shall be entitled to receive upon exercise
thereof, in cash or Common Stock as provided in Paragraph
5.3(c), the difference between the Fair Market Value of the
Common Stock underlying the Option on the day preceding the
exercise date and the Exercise Price of the Option. SARs may
be granted with respect to all or part of the common Stock
issuable upon exercise of a particular Option, except as
otherwise expressly provided herein.
5.2 Related-to Options.
SARs shall entitle the holder of the related Option, upon
exercise, in whole or in part, of the SARs, to receive
payment in the amount and form determined pursuant to
Paragraph 5.3(c). SARs may be exercised only to the extent
that the related Option has not been exercised. The
exercise of SARs shall result in a pro rata surrender of the
related Option to the extent that the SARs have been
exercised.
5.3 Terms and Conditions.
The grant of SARs shall be evidenced by a written option
agreement in a form approved by the Committee. Such SARs
shall be subject to the following express terms and
conditions and to such other terms and conditions, not
inconsistent with the terms of the Plan, which the Committee
may deem appropriate.
(a) SARs shall be exercisable at such time or
times and to the extent, but only to the extent, that
the Option to which they relate shall be exercisable.
(b) SARs (and any Option related thereto)
shall in no event be exercisable during the first year
after the date of grant and such rights shall not be
transferable other than by will or by the laws of
descent and distribution and shall be exercisable
during the optionee s lifetime only by the optionee.
(c) Upon exercise of SARs, the holder thereof
shall be entitled to receive an amount equal in value
to the difference between the per share Exercise Price
of the Option and the Fair Market Value per share of
Common Stock on the day preceding the exercise date,
multiplied by the number of shares in respect of which
<PAGE>
the SARs shall have been exercised. Such amount shall
be paid in the form of (i) cash, (ii) shares of Common
Stock with a Fair Market Value on the day preceding
the exercise date equal to such amount or (iii) a
combination of cash and shares of Common Stock, all as
determined by the Committee.
(d) In no event shall an SAR be exercisable at
a time when the Exercise Price of the related Option
is greater than the Fair Market Value of the shares of
the Common Stock issuable upon exercise of such
Option.
VI. Aggregate Limitation on Shares of Common Stock.
6.1 Number of Shares of Common Stock.
(a) Shares of Common Stock which may be issued
pursuant to Options or SARs granted under the Plan may
be either authorized and unissued shares of Common
Stock or authorized and issued shares of Common Stock
held by the Company as treasury stock. The aggregate
number of shares of Common Stock reserved and
available for issuance under Options and SARs granted
under this Plan shall be sixty-seven million, five
hundred thousand (67,500,000) shares of Common Stock
(adjusted for all stock splits or stock dividends
through November 5,1997), subject to such adjustments
as may be made pursuant to Paragraph 7.8.
(b) For purposed of Paragraph 6.1(a), in
addition to shares of Common Stock actually issued
pursuant to the exercise of Options granted under the
Plan, there shall be deemed to have been issued under
the Plan a number of shares of Common Stock equal to
the SARs which have been exercised, except that to the
extent that SARs are settled by the actual delivery of
shares of Common Stock, the number of shares deemed to
have been issued under the Plan pursuant to the
exercise of SARs shall be reduced.
(c) Any shares of Common Stock subject to an
option which for any reason either terminates
unexercised or expires, except by reason of the
exercise of a related SAR, shall again be available
for issuance under the Plan.
VII. Miscellaneous.
7.1 General Restrictions.
Any Option or SAR granted under this Plan shall be subject
to the requirement that, if at any time the Committee shall
determine that any listing or registration of the shares of
Common Stock, or any consent or approval of any governmental
body, or any other agreement or consent, is necessary or
desirable as a condition of the granting of an award or
issuance of Common Stock or cash in satisfaction thereof,
such award may not be consummated unless such requirement is
satisfied in a manner acceptable to the Committee.
<PAGE>
7.2 Non-Assignability.
(a) Except as provided in this subparagraph
(a), non-statutory options granted under the Plan may
not be transferred other than by will or the laws of
descent and distribution or pursuant to Title I of the
Employee Retirement Income Security Act, or the rules
thereunder. Notwithstanding the foregoing, any
presently outstanding non-statutory options, or non-
statutory options granted in the future, may be
transferred by the option holder to members of his
other immediate family, or to one or more trusts for
the benefit of such family members, or partnerships in
which such family members are the only partners,
provided that any such transfer shall be permitted
only if: (1) the optionholder does not receive any
consideration for such transfer, (2) written notice of
such proposed transfer and the details thereof shall
have been furnished to the Committee, and (3) the non-
statutory stock option agreement with respect to the
options being transferred (including any amendments
thereof) which shall have been approved by the
Committee, expressly permits such transfer. Any non-
statutory options transferred to such immediate family
members, trusts or partnership will continue to be
subject to the same terms and conditions that were
applicable to such options immediately prior to their
transfer. Any transfer in violation of this paragraph
shall be void and of no effect. As used herein, the
term family members shall mean the optionee s
spouse, children and grandchildren.
(b) No ISO or SAR granted under this Plan
shall be assignable or transferable except by will or
by the laws of descent and distribution.
7.3 Withholding Taxes.
(a) The Committee shall have the right to
require participating employees to remit to the
Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to
the delivery of any shares of Common Stock under the
Plan. If an employee sells, transfers, assigns or
otherwise disposes of shares of Common Stock acquired
upon the exercise of an ISO within two (2) years after
the date on which the ISO was granted or within one
(1) year after the receipt of the shares of Common
Stock by the employee, the employee shall promptly
notify the Company of such disposition and the Company
shall have the right to require the employee to remit
to the Company the amount necessary to satisfy any
federal, state and local tax withholding requirements
imposed by reason of such disposition.
(b) The Company shall have the right to
withhold from payments made in cash to an employee (or
his permitted transferee) under the terms of the Plan,
an amount sufficient to satisfy any federal, state and
local withholding tax requirements.
<PAGE>
(c) Amounts to which the Company is entitled
pursuant to Paragraph 7.3(a) or (b) may be paid at the
election of the employee and with the approval of the
Committee, either (i) in cash, withheld from the
employee s salary or other compensation payable by the
Company (or any Parent or Subsidiary), or (ii) in
shares of Common Stock otherwise issuable to the
employee upon exercise of an Option or SAR that have a
Fair Market Value on the date on which the amount of
tax to be withheld is determined (the Tax Date)
equal to the amount of tax the Company is entitled to
withhold. An optionee s election to have withheld
shares of Common Stock that are otherwise issuable
shall be in writing, shall be irrevocable upon
approval by the Committee, and shall be delivered to
the Company prior to the Tax Date with respect to the
exercise of an Option or SAR and, if the participant
is subject to the short-swing profit rules of Section
16(b) of the Securities Exchange Act of 1934, as
amended, shall be delivered to the Company at least
six (6) months prior to such Tax Date.
7.4 Investment Representation.
Each Option or SAR agreement may provide, upon demand by the
Company, that the optionee or recipient shall deliver to the
Company at the time of any exercise of any Option or SAR a
written representation that the shares to be acquired are to
be acquired for investment and not for resale or with a view
to the distribution thereof. Upon such demand, delivery of
such representation prior to delivery of any shares shall be
a condition precedent to the right of the employee or such
other person to purchase any shares.
7.5 No Right to Employment.
Nothing in this Plan or any agreement entered into pursuant
to it shall confer upon any participating employee the right
to continue in the employment of the Company or a Parent or
Subsidiary or affect any right which the Company or a Parent
or Subsidiary may have to terminate the employment of such
participating employee.
7.6 Non-Uniform Determinations.
The Committee s determinations under this Plan (including
without limitation its determinations of the persons to
receive Options or SARs, the form amount and timing of such
awards and the terms and provisions of such awards) need not
be uniform and may be made by it selectively among persons
who receive, or are eligible to receive, awards under this
plan, whether or not such persons are similarly situated.
7.7 No Rights as Stockholders.
<PAGE>
Employees granted Options or SARs under this Plan shall have
no rights as stockholders of the Company (or of a Parent or
Subsidiary) as applicable with respect thereto unless and
until certificates for shares of Common Stock are issued to
them.
7.8 Adjustments of Stock.
(a) Recapitalization.
In the event of changes in the Common Stock due to a
change in capitalization, such as a stock dividend,
stock split, or the exchange of the Common Stock in
the whole or in part for another class of shares of
the Company, there shall be a proportionate adjustment
in the number and kind of shares with respect to which
Options may be granted under the Plan, including any
shares subject to Option or SARs, and of the Option
price stated in any Option or SAR; provided, however,
that the Board may determine in its discretion that no
such adjustment shall be made unless the aggregate
effect of such change, or a series of such changes, in
capitalization is to increase or decrease the number
of outstanding shares of Common Stock by 5% or more;
provided, further, that any fractional shares
resulting from such adjustment shall be eliminated.
The computation by the Board of any such adjustment
shall be conclusive.
(b) Merger or Consolidation.
In the event of a consolidation or merger in which the
Company is not the surviving corporation, or in the
event of complete liquidation of the Company, all
outstanding Options and SARs shall thereupon
terminate, provided the Board shall, at least twenty
(20) days prior to the effective date of any such
corporate event, either (a) make all outstanding
Options immediately exercisable or (b) arrange to have
the surviving corporation grant to the optionees
replacement options on terms which the Board
determines to be fair and reasonable.
7.9 Amendment or Termination of the Plan.
The Committee, without further approval of the stockholders,
but with the approval of the Board, may at any time
terminate this Plan or any part thereof and may from time to
time amend this Plan as it may deem advisable; provided,
however, that without stockholder approval, the Committee
may not amend the Plan in any manner that would, absent
stockholder approval, disqualify the Plan for coverage under
Rule 16b-3 of the Securities and Exchange Commission, or any
successor rule or regulation adopted by the Commission,
including an amendment which would (i) increase the
aggregate number of shares of Common Stock which may be
issued under this plan (other than increases permitted under
Paragraph 7.8), (ii) extend the term of this Plan, (iii)
<PAGE>
extend the period during which an Option or SAR may be
exercised. The termination or amendment of this Plan shall
not, without the consent of the employee, affect such
employee s rights under an award previously granted.
7.10 Term of Plan.
Unless previously terminated pursuant to Paragraph 7.9, the
Plan shall terminate on June 24, 2001, the tenth (10th)
anniversary of the date on which the Plan became effective,
and no Options or SARs may be granted on or after such date.
VIII. Effective Date of the Plan
The effective date of this Plan shall be June 24, 1991, the date
on which the Plan was adopted by the Board, subject to the
subsequent approval by stockholders of the Company holding not
less than a majority of the shares present and voting at a meeting
of its stockholders. No Options or SARs may be granted hereunder
until the stockholders of the Company have approved the Plan.
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<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
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0
0
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