SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 Section 240.14a-11(c) or Section
240.14a-12
Computer Associates International, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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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.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
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<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC.
One Computer Associates Plaza
Islandia, NY 11788-7000
1-516-342-5224
July 6, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Computer Associates International, Inc. (the Company), to be held at 10:00
a.m. Eastern Daylight Time on Wednesday, August 12, 1998 at the Wyndham Wind
Watch Hotel located at 1717 Motor Parkway, Islandia, New York.
The Board of Directors urges you to read the accompanying Notice of Annual
Meeting and Proxy Statement and recommends that you vote (1) FOR the election
of the directors nominated; (2) FOR approval of an Amendment to the 1996
Deferred Stock Plan for Non-Employee Directors; (3) FOR approval of the 1998
Incentive Award Plan; and (4) FOR ratification of the Boards appointment of
Ernst & Young LLP as the companys independent auditors for the 1999 fiscal
year.
The vote of every stockholder is important. As an added convenience
and cost-savings measure for our stockholders, we are offering voting by
telephone and the Internet this year. Registered holders and most street name
holders will find the instructions on the enclosed proxy card. Whether or
not you plan to attend the meeting, it is important that your shares be
represented. Accordingly, we urge you to use the electronic voting
alternatives available, or sign, date, and mail the enclosed proxy card in
the envelope provided at your earliest convenience.
Admission to the Annual Meeting will be by ticket only. Stockholders planning
on attending the meeting should use the two cut-out admission tickets on the
outside back cover of this booklet. A map showing the location of
the meeting is also included.
Thank you for your cooperation and support.
Very truly yours,
/S/ Charles B. Wang
CHARLES B. WANG
Chairman of the Board and
Chief Executive Officer
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC.
------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------------------
To the Stockholders of Computer Associates International, Inc.:
The Annual Meeting of Stockholders of Computer Associates International, Inc.
(the Company) will be held on Wednesday, August 12, 1998, 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 directors to serve for the ensuing year and until their
successors are elected;
2. To approve an Amendment to the 1996 Deferred Stock Plan for Non-Employee
Directors;
3. To approve the 1998 Incentive Award Plan;
4. To ratify the appointment of Ernst & Young LLP as the Companys
independent auditors for the fiscal year ending March 31, 1999; and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on June 19, 1998 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.
If you plan to attend the meeting, please bring the admission ticket on the
back of this proxy booklet.
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 June 19, 1998.
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
Secretary
Islandia, New York
July 6, 1998
<PAGE>
COMPUTER ASSOCIATES INTERNATIONAL, INC.
One Computer Associates Plaza
Islandia, NY 11788-7000
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 on behalf
of the Board of Directors of the Company for use at the Annual Meeting of
Stockholders to be held on Wednesday, August 12, 1998, and at any adjournment
thereof. The purposes of the meeting and the matters to be acted upon are set
forth in the accompanying 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
mailed to stockholders on or about July 6, 1998. The Company will bear the
cost of its solicitation of proxies. In addition to the use of the mails,
proxies may be solicited by personal interview, telephone, telegram, and
telefax by the directors, officers, and employees of the Company.
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 stock held by such persons, and the Company may
reimburse such custodians, nominees, and fiduciaries for reasonable out-of-
pocket expenses incurred.
Revocability and Voting of Proxy
A form of proxy for use at the meeting and a postpaid 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 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 managements nominees
for election as directors; (2) FOR approval of an Amendment to the 1996
Deferred Stock Plan for Non-Employee Directors; (3) FOR approval of the 1998
Incentive Award Plan; and (4) FOR ratification of the appointment of Ernst &
Young LLP as the Companys independent auditors for the fiscal year ending
March 31, 1999.
Record Date and Voting Rights
Only stockholders of record at the close of business on June 19, 1998 are
entitled to notice of and to vote at the meeting or any adjournment thereof.
On June 19, 1998, the Company had outstanding 562,908,136 shares of Common
Stock.
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. Likewise, the
inspectors of election will treat shares of Common Stock represented
by broker non-votes as present for purposes of determining a quorum.
The nominees for election to the Board of Directors receiving the greatest
number of affirmative votes cast by holders of Common Stock, up to the number
of directors to be elected, 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.
<PAGE> 2
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
thereat will be required to ratify the selection of the independent auditors.
In determining whether such proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will have the same effect
as votes against the proposal.
Annual Report
The Annual Report of the Company for the fiscal year ended March 31, 1998 is
being mailed with this Proxy Statement.
Stockholders are referred to that report for financial and other information
about the activities of the Company. The Annual Report is not incorporated by
reference into this Proxy Statement and is not deemed to be a part of it.
STOCK OWNERSHIP BY CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to the beneficial
ownership of the Companys Common Stock as of June 19, 1998 by the persons,
other than members of the Board of Directors and management of the Company,
known to the Company to own, or deemed to own, beneficially 5% or more of the
Companys Common Stock:
<TABLE>
<CAPTION>
Number of Shares Percent of
Name and Address of Beneficial Owner Beneficially Owned Class (rounded)
- ------------------------------------ ------------------- ---------------
<S> <C> <C>
Walter Haefner/ 126,562,500(1) 22.5%
Careal Holding AG
Utoquai 49
8022 Zurich, Switzerland
Putnam Investments, Inc. 37,871,553(2) 6.7%
One Post Office Square
Boston, MA 02109
<FN>
(1) According to a Schedule 13D as amended, filed by Walter Haefner and
Careal Holding AG, Mr. Haefner has the sole voting and dispositive power with
respect to 126,562,500 shares of the Companys Common Stock held of record by
Careal Holding AG.
<FN>
(2) According to a Schedule 13G dated December 31, 1997 filed by Putnam
Investments, Inc., Putnam Investment Management, Inc. (PIM), has shared
dispositive power with respect to 33,200,888 shares. The Putnam Advisory Company
(PAC) has shared voting power and shared dispositive power with respect to
2,130,606 and 4,670,665 shares, respectively. Putnam Investments, Inc., as
parent to PIM and PAC, has shared voting power and shared dispositive power with
respect to 2,130,606 and 37,871,553 shares, respectively.
</TABLE>
BOARD AND MANAGEMENT OWNERSHIP
The following table sets forth certain information as to the beneficial
ownership of the Companys Common Stock as of June 19, 1998 for (i) each
director, including Charles B. Wang, the Chairman and Chief Executive
Officer, Sanjay Kumar, President and Chief Operating Officer, and Russell M.
Artzt, Executive Vice President-Research and Development, (ii) the two most
highly compensated executive officers other than Messrs. Wang, Kumar, and
Artzt, and (iii) all directors, and executive officers as a group (12
persons). Information with respect to beneficial ownership is based upon
information furnished to the Company by each security holder.
<PAGE> 3
<TABLE>
<CAPTION>
BOARD AND MANAGEMENT OWNERSHIP (continued)
Number of Shares Percent
Name of Beneficial Owner Beneficially Owned (1)(2) of Class
------------------------ ------------------------- --------
<S> <C> <C>
Directors:
Russell M. Artzt 3,291,657(4) .6%
Willem F.P. de Vogel 50,802 *
Irving Goldstein 49,125 *
Richard A. Grasso 42,000 *
Shirley Strum Kenny 9,300 *
Sanjay Kumar 5,739,661(4) 1.0%
Charles B. Wang 37,636,876(3)(4) 6.7%
Non-Directors:
Charles P. McWade 99,346 *
Peter Schwartz 1,724,834 .3%
All Directors and
Executive Officers
as a Group (12 persons) 48,808,597 8.7%
- -----------------------
<FN>
* Represents less than .1% of the outstanding Common Stock.
<FN>
(1) Includes shares that may be acquired within 60 days after June 19, 1998
through the exercise of stock options as follows: Mr. Artzt, 1,661,561; Mr.
Kumar, 1,319,564; Mr. McWade, 73,826; Mr. Schwartz, 1,684,282; Mr. Wang,
8,399,231; Mr. de Vogel, 33,750; Mr. Goldstein, 33,750; Mr. Grasso, 27,000;
and all directors and executive officers as a group, 15,128,839.
<FN>
(2) Includes shares credited to the executives accounts in the Companys
tax-qualified profit-sharing plan as follows: Mr. Artzt, 19,529; Mr. Kumar,
32,326; Mr. McWade, 1,426; Mr. Schwartz, 2,981; Mr. Wang, 1,213; and all
executive officers as a group, 82,756.
<FN>
(3) Includes 122,331 shares owned directly and as trustee for a minor by
Mr. Wangs spouse, an employee of the Company; 1,770,809 shares subject to
employee stock options held by Mr. Wangs spouse, which are exercisable within 60
days after June 19, 1998; and 863 shares credited to the account of Mr. Wangs
spouse in the Companys tax-qualified profit-sharing plan. Mr. Wang disclaims
beneficial ownership of such shares.
<FN>
(4) Reflects the issuance of all vested shares under the 1995 Key Employee
Stock Ownership Plan: Mr. Artzt, 1,320,931 shares; Mr. Kumar, 4,088,130
shares; and Mr. Wang, 9,334,205 shares.
</TABLE>
ITEM 1 ELECTION OF DIRECTORS
Nominees
It is proposed that the seven persons named below will be elected at the
meeting. Unless otherwise specified it is the intention of the persons named
in the accompanying form of Proxy to vote all shares of Common Stock
represented by such proxy for the election of Russell M. Artzt, Willem F.P. de
Vogel, Irving Goldstein, Richard A. Grasso, Shirley Strum Kenny, Sanjay Kumar,
and Charles B. Wang to serve as directors until the next Annual Meeting of
Stockholders and until their successors shall have been duly elected and
qualified. Each of the nominees now serves as a director of the Company. At the
time of the Annual Meeting, if any of the nominees named below is not available
to serve as director (an event which the Board of Directors does not now
anticipate), the proxies will be voted for the election as directors 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 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.
<PAGE> 4
<TABLE>
<CAPTION>
Director
Age Since
---- --------
<S> <C> <C>
Russell M. Artzt (1) 51 1980
Executive Vice President-Research
and Development since April 1987 and
the Senior Development Officer
of the Company since 1976.
Willem F.P. de Vogel (2) (3) 47 1991
President of Three Cities Research, Inc.,
a private investment management firm in
New York City, since 1981. From August 1981
to August 1990, Mr. de Vogel served as a
director of the Company. He is also
a director of Morton Industrial Group.
Irving Goldstein (2) (3) 60 1990
Director General and Chief Executive Officer of
INTELSAT, an international satellite
telecommunications company, since February 1992.
He was Chairman and Chief Executive Officer of
COMSAT (formerly known as Communications
Satellite Corporation) from October 1985 to
February 1992 and President from May 1983 to
October 1985, and was a director of that company
from May 1983 to February 1992.
Richard A. Grasso (3) (4) 51 1994
Chairman and Chief Executive Officer of the
New York Stock Exchange since June 1995.
He was Executive Vice Chairman of the New
York Stock Exchange from January 1991 to
May 1995 and President and Chief Operating
Officer from June 1988 to May 1995. He
has been with the Exchange since 1968.
Shirley Strum Kenny (2)(4) 63 1994
President of the State University of New York
at Stony Brook since September 1994. She was
President of Queens College of The City
University of New York from 1989 to August
1994. She is also a director of Toys R Us, Inc.
Sanjay Kumar (1) 36 1994
President and Chief Operating Officer
since January 1994. He was 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 in August 1987.
Charles B. Wang (1)(4) 53 1976
Chief Executive Officer of the Company since 1976
and Chairman of the Board since April 1980. He is
also a director of Symbol Technologies, Inc.
- ---------------------------
<FN>
(1) Member Executive Committee.
<FN>
(2) Member Audit Committee.
<FN>
(3) Member Stock Option and Compensation Committee.
<FN>
(4) Member Nominating Committee.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE
NOMINEES LISTED ABOVE.
<PAGE> 5
Meetings of the Board of Directors and Committees
During the Companys fiscal year ended March 31, 1998, the Board of Directors
of the Company held nine meetings. In addition to these meetings, the Board
of Directors acted by unanimous written consent on two 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 standing
Executive, Audit, Stock Option and Compensation, and Nominating Committees.
The Executive Committee consists of Russell Artzt, Sanjay Kumar, and Charles
B. Wang. During fiscal year 1998 the Executive Committee did not meet, but
acted by unanimous written consent on three occasions. The Stock Option and
Compensation Committee of the Board (the Compensation Committee) consists of
three non-employee directors, Willem F.P. de Vogel, Irving Goldstein, and
Richard A. Grasso. During fiscal year 1998, the Compensation Committee met
twice and acted by unanimous written consent on two occasions. The
Compensation Committee also has the power to prescribe, amend, and rescind
rules relating to the Companys 1994 Annual Incentive Compensation Plan, 1995
Key Employee Stock Ownership Plan, 1991 Stock Incentive Plan, 1981 Incentive
Stock Option Plan, 1987 Non-Statutory Stock Option Plan, and 1993 Stock
Option Plan for Non-Employee Directors (the Plans), to grant options and
other awards under the Plans and to interpret the Plans. The other duties of
the Compensation Committee are described below under Stock Option and
Compensation Committee Report on Executive Compensation.
The Audit Committee of the Board consisted of three non-employee directors,
Willem F.P. de Vogel, Irving Goldstein, and Shirley Strum Kenny. The
committee has the responsibility of 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 three
times during fiscal year 1998. The Audit Committee has recommended the
selection of Ernst & Young LLP as independent auditors for the fiscal year
ending March 31, 1999.
The Nominating Committee of the Board was established in May 1996 and
consists of three directors, Richard A. Grasso, Shirley Strum Kenny, and
Charles B. Wang. The committee has responsibility for suggesting nominees to
the Board for election as directors.
Directors Compensation
Under the 1996 Deferred Stock Plan for Non-Employee Directors (the 1996
Plan), 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 13, 1997, the Board of Directors
established its annual Director Fees for the succeeding twelve months at
$45,000. These Director Fees will be credited to each directors Deferred
Stock Compensation Account based on the Fair Market Value of the Companys
stock on August 11, 1998. Directors who are also employees of the company
receive no Board or Committee fees.
Under the Companys 1993 Stock Option Plan for Non-Employee Directors (the
1993 Plan), non-employee directors are automatically awarded options to
acquire up to 6,750 shares of the Companys Common Stock per year depending on
the Companys 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. On August
14, 1997, each non-employee director, except Ms. Kenny, was granted 6,750
shares of Common Stock at $43.08 per share. On the advice of the New York
State Commission on Ethical Practices, Ms. Kenny has declined to accept any
options under this Plan.
On May 19, 1998, the Board of Directors adopted an Amendment to the 1996
Plan, which 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, with
an amount representing the economic equivalent of options foregone under the
1993 Plan. See Item 2 Amendment to the 1996 Deferred Stock Plan for Non-
Employee Directors.
<PAGE> 6
Report of Compensation Committee
Notwithstanding anything to the contrary set forth in any of the Companys
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might affect future
filings, including this Proxy Statement, the report of the Stock Option and
Compensation Committee of the Companys Board of Directors set forth below and
the Stock Performance Graph set forth on page 8 in accordance with Securities
Exchange Commission requirements, shall not be incorporated by reference into
any such filings.
STOCK OPTION AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
General
Decisions as to certain compensation of the Companys executive officers are
made by the Compensation Committee of the Companys Board of Directors, none
of the members of which are employees of the Company. At the Companys fiscal
year end, the members of the Compensation Committee were Willem F.P. de
Vogel, Irving Goldstein, and Richard A. Grasso.
Compensation Policies
The Compensation Committees 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 Companys Comprehensive Executive Compensation Plan with four
components to achieve this objective base salary; annual incentives; long-
term equity participation; and benefits. The majority of each executives
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 its 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 compensation based on achievement of predetermined individual and
Company performance targets. The Companys 1994 Annual Incentive Compensation
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 Companys target return on average stockholders equity.
Different percentages of any such excess are determined for 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 Companys Common Stock, subject to certain
holding restrictions.
Long-term Equity Participation. The Compensation Committee believes strongly
that stock ownership by management and stock-based performance compensation
arrangements are beneficial in aligning managements and stockholders
interests in the enhancement of stockholders return. To this end, the
Compensation Committee grants to key executives stock options which vest
(i.e., become exercisable) 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. Options granted at the current market price to
executives under the Companys 1991 Stock Incentive Plan have a term of ten
years from the date of grant, and subject to the above vesting restrictions,
may be exercised at any time during such term. On June 12, 1998, the Company
issued 14,743,266 shares of Common Stock to certain key executives under the
1995 Key Employee Stock Ownership Plan. These shares are subject to
significant limitations on transfer for seven years after vesting.
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,
<PAGE> 7
as amended (ERISA) and the Code. The Companys medical, dental, and disability
plans as well as the CASH Plan provide all employees with the protection and
peace of mind necessary to devote their full attention to achievement of the
Companys objectives.
Chief Executive Officer Compensation
The Compensation Committee determined the components of Mr. Wangs fiscal year
1998 compensation as follows:
Base Salary. Mr. Wangs base salary of $1,000,000 was not increased from that
of the two previous fiscal years.
Annual Incentives. The Companys fiscal year 1998 performance produced a
return on average stockholders equity, in excess of the predetermined
threshold. Pursuant to the 1994 Annual Incentive Compensation Plan for fiscal
year 1998, Mr. Wangs award was calculated at a predetermined percentage of
the Companys net income for the fiscal year less a cost of equity. The cost
of equity was computed based on a five point quarterly average of the
Companys reported stockholders equity. Mr. Wangs total performance-based at
risk compensation calculated under the 1994 Annual Incentive Compensation
Plan was approximately $16,000,000. This amount was reduced by the
Compensation Committee to $15,000,000. In addition, 60% of this amount or $9
million, as reduced, was granted in unregistered Company Common Stock which
is therefore restricted from transfer for one year from the date of award.
Long-term Equity Participation. Under the terms of the 1995 Key Employee
Stock Ownership Plan which was approved by the stockholders in August 1995,
810,000 shares were previously awarded and vested based on pre-established
performance criteria, but remained contingent upon Mr. Wangs continued
employment until March 31, 2000. Additional grants of the remaining 8,100,000
shares available under the 1995 Plan have been made based upon the
achievement of certain target stock prices. These additional grants and the
unvested portion of the initial grant (3,240,000 shares) are non-transferable
and subject to substantial risk of forfeiture through March 31, 2000 if
certain stock performance objectives are not attained. If the Company stock
price objectives are attained in the fiscal year ended March 31, 2000 or in
some instances sooner, these shares are further subject to significant
limitation on transfer for seven years after vesting. Mr. Wang has agreed to
restrict the transfer of 8,100,000 shares of Common Stock which he currently
owns. Such restriction will lapse concomitantly with those shares under the
1995 Key Employee Stock Ownership Plan. All share amounts referred to above
reflect the three-for-two stock split effective November 5, 1997.
Benefits. Mr. Wang received matching and discretionary contributions to the
Companys benefit plans of $24,400 in fiscal year 1998. He was also provided
benefits under the Companys medical, dental, and disability plans consistent
with those provided to other full-time employees.
Other Executive Officers
The compensation plans of most of the Companys other executive officers,
including the four persons listed in the Summary Compensation Table on page
9, provide for a base salary, annual incentive cash compensation based on
either individual fixed percentages of the Companys aggregate net income
above a predetermined return on average stockholders equity for the fiscal
year or an absolute level of Company revenue/net margin achievement, long-
term equity grants under the Companys 1991 Stock Incentive Plan and access to
the Companys standard employee benefit plans. For fiscal 1998, the
Compensation Committee allocated an aggregate of approximately 1% of the
Companys net income to the four executive officers, other than the Chief
Executive Officer. Except for Mr. McWade, approximately 60% of this amount
was awarded in the form of Company Common Stock which is restricted from
transfer for one year from date of award. Under the 1995 Key Employee Stock
Ownership Plan, two of the executive officers have been awarded shares of
Common Stock which are vested but remain contingent upon continued
employment. These shares are non-transferable and further subject to
significant limitations on transfer for seven years after vesting.
Deductibility
Beginning in 1994, Section 162(m) of the U.S. Internal Revenue Code of 1986
limits deductibility of compensation in excess of $1 million paid to the
Companys chief executive officer and to each of the other four highest-paid
executive officers unless this compensation qualifies as performance-based.
In 1994, the Committee adopted, and the stockholders approved, terms under
which Annual Incentive compensation and Long-Term Equity Participation awards
should qualify as performance-based. The Company believes that all awards
under the 1995 Key Employee Stock Ownership Plan will be fully deductible
under current tax regulations. Additionally, based on the applicable tax
regulations, any taxable compensation derived from the exercise of stock
options under the Companys 1991 Stock Incentive Plan and any prior Plans
should qualify as performance-based. The 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).
<PAGE> 8
SUBMITTED BY THE STOCK OPTION AND COMPENSATION
COMMITTEE OF THE COMPANYS BOARD OF DIRECTORS:
Willem F.P. de Vogel
Irving Goldstein
Richard A. Grasso
Common Share Price Performance Graph
The following graph compares cumulative total return of the Companys Common
Stock (using the closing price on the NYSE at March 31, 1998 of $57.75) with
the Standard and Poors Computer Software and Services Index* and the Standard
and Poors 500 Index during the fiscal years 1994 through 1998** assuming the
investment of $100 on April 1, 1993 and the reinvestment of dividends.
<TABLE>
<CAPTION>
TOTAL RETURN DATA
3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Computer Associates
International, Inc. 100 130 251 455 371 829
S&P Computer Software
and Services Index 100 112 151 214 300 549
S&P 500 Index 100 101 117 155 186 275
<FN>
Source: Standard and Poors Compustat Custom Business Unit
<FN>
* The Standard and Poors Computer Software and Services Index is composed of
the following companies:
Adobe Systems, Inc. Microsoft Corporation
Autodesk, Inc. Novell, Inc.
Computer Associates International, Inc. Oracle Systems Corporation
Computer Sciences Corporation Parametric Technology Corporation
HBO & Company, Inc. Unisys Corporation
<FN>
** The Companys fiscal years ended March 31 of each year.
<PAGE> 9
COMPENSATION AND OTHER INFORMATION CONCERNING
EXECUTIVE OFFICERS
The following table sets forth the cash and non-cash compensation for the
Chief Executive Officer and each of the four next most highly compensated
executive officers of the Company for each of the fiscal years ended March 31,
1998, 1997, and 1996, respectively.
</TABLE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Compensation Awards
Name and Fiscal Annual Compensation Restricted Stock Option All Other
Principal Position Year Salary Incentive(1) Awards ($)(1)(4) Awards(#)(2)Compensation(3)
- ------------------ ------ ------ ------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles B. Wang 1998 $1,000,000 $6,000,000 $9,000,000 $36,400
Chairman of the Board 1997 $1,000,000 $5,000,000 $7,000,000 $36,400
and Chief Executive 1996 $1,000,000 $5,000,000 $5,000,000 1,270,687 $38,376
Officer
Sanjay Kumar 1998 $ 900,000 $4,240,000 $6,360,000 $36,400
President and Chief 1997 $ 900,000 $3,250,000 $5,850,000 $36,400
Operating Officer 1996 $ 650,000 $3,250,000 $3,250,000 1,017,562 $38,376
Russell M. Artzt 1998 $ 750,000 $1,165,000 $1,745,000 $36,400
Executive Vice 1997 $ 750,000 $ 975,000 $1,425,000 $36,400
President-Research 1996 $ 550,000 $ 975,000 $ 975,000 680,062 $37,923
and Development
Charles P. McWade 1998 $ 200,000 $ 350,000 130,515 $32,520
Senior Vice 1997 $ 175,000 $ 315,000 115,357 $30,410
President-Business 1996 $ 175,000 $ 265,000 89,437 $31,915
Development
Peter Schwartz 1998 $ 600,000 $ 580,000 $ 875,000 443,015 $36,400
Senior Vice 1997 $ 600,000 $ 525,000 $ 675,000 396,607 $36,400
President-Finance and 1996 $ 450,000 $ 525,000 $ 525,000 545,062 $38,376
Chief Financial Officer
<FN>
(1) Incentive compensation and restricted stock awards shown for Messrs.
Wang, Kumar, Artzt, and Schwartz for fiscal years 1996, 1997, and 1998 were
made under the 1994 Annual Incentive Compensation Plan.
<FN>
(2) Option awards reflect the three-for-two stock splits effective August
21, 1995, June 19, 1996, and November 5, 1997. All options granted to such
executive officers of the Company vest over a five year period following the
date of grant, 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.
<FN>
(3) Consists of Company contributions to the Companys benefit plans and a
non-reimbursed travel allowance for each executive officer of $12,000 for
each fiscal year.
<FN>
(4) Does not reflect the vesting on May 21, 1998 of all shares under the
1995 Key Employee Stock Ownership Plan which was previously described in the
1995 Proxy and approved by the stockholders at the 1995 Annual Meeting (Mr.
Wang 9,334,205 shares, Mr. Kumar 4,088,130 shares, Mr. Artzt 1,320,931
shares).
</TABLE>
<PAGE> 10
The following tables summarize option grants and exercises during the fiscal
year ended March 31, 1998 to or by the executive officers named in the
Summary Compensation Table on page 9, and the value of the options
held by such person on March 31, 1998.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Granted Percent of Exercise Expiration Potential Appreciation
Name Options(1) Total Grants(4) Price Date 5%(2) 10%(3)
- -------- ---------- --------------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
C.B. Wang
S. Kumar
R.M. Artzt
P. Schwartz 265,905 3.0% $29.33 April 6, 2007 $4,903,549 $12,425,577
P. Schwartz 177,110 2.0% $47.25 Feb. 22, 2008 $5,261,050 $13,331,483
C.P. McWade 78,405 .9% $29.33 April 6, 2007 $1,445,865 $ 3,663,817
C.P. McWade 52,110 .6% $47.25 Feb. 22, 2008 $1,547,927 $ 3,922,441
<FN>
(1) Share amounts and exercise prices reflect the three-for-two stock split
effective November 5, 1997.
<FN>
(2) Realizable net value if Company stock were to increase in value five
percent (5%) per year for the ten year term of the options.
<FN>
(3) Realizable net value if Company stock were to increase in value ten
percent (10%) per year for the ten year term of the options.
<FN>
(4) Based on a total of 8,914,251 options granted.
</TABLE>
<PAGE> 11
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Net Value of Unexercised
Unexercised Options In-The-Money Options
Shares Acquired/ Value at March 31, 1998(1) at March 31, 1998(4)
Name Exercised(1) Realized(2) Exercisable(3) Unexercisable Exercisable(3) Unexercisable
- ---------- ---------------- ----------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
C.B. Wang 300,000 $13,797,000 7,539,341 1,916,431 $397,801,508 $83,962,925
S. Kumar 190,905 $ 8,667,758 1,003,633 1,439,712 $ 47,434,732 $62,555,810
R.M. Artzt 474,999 $18,858,572 1,215,108 1,006,026 $ 60,012,535 $43,967,534
P. Schwartz 10,800 $ 482,667 1,275,780 1,552,017 $ 63,872,667 $50,125,069
C.P. McWade 77,574 $ 3,234,774 349,115 $10,066,402
<FN>
(1) Share amounts reflect the three-for-two stock split effective November
5, 1997.
<FN>
(2) Market value of shares purchased at exercise date less aggregate option
exercise price.
<FN>
(3) All option grants vest over a five year period: 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.
<FN>
(4) Pro forma net valuation based on the March 31, 1998 closing price of
$57.75, less fair market price at the grant date.
</TABLE>
<PAGE> 12
Employees Profit Sharing Plans
The Company maintains a profit sharing plan, the CASH Plan, for the benefit
of employees of the Company. The CASH Plan is intended to be a qualified plan
under Section 401(a) of the Code, and certain contributions made thereunder
qualify for tax deferral under Section 401(k) of the Code. The CASH Plan is
funded through the Companys and participating employees contributions, and
generally provides that employees may contribute, through payroll deductions,
a percentage of their regular salary. The Company makes matching and
discretionary contributions for eligible participants in the CASH Plan who
have one year of service, including the Companys executive officers (Employer
Contributions). Participants in the CASH Plan receive a 50% match of
their contributions, up to a maximum of 5% of annual compensation (subject to
certain Code limitations), and a portion of the Companys discretionary
contribution for each year generally in proportion to their annual
compensation as allowed by the Code. The Companys contributions under the
CASH Plan vest in incremental amounts over a period of seven years from date
of hire, and are 100% vested after seven years. The CASH Plan is administered
by a committee of officers of the Company appointed by the Board of
Directors. All employees are eligible to participate in the CASH Plan in the
month following hire.
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.
During the 1998 fiscal year, the Company contributed $24,400 for the accounts
of each of Messrs. Wang, Kumar, Artzt, and Schwartz, $20,520 for the account
of Mr. McWade and $23,351,000 for all participating employees under the CASH,
the Excess Benefit and the Restoration Plans. Such contributions are included
in the amount of other cash compensation set forth opposite the five
executive officers names on the Summary Compensation Table on page 9.
Stock Option Plans
During fiscal year 1998, the Company maintained the 1981 Incentive Stock
Option Plan (the 1981 Plan) which provides for the issuance to certain
selected employees of incentive stock options to purchase up to a maximum of
27,000,000 shares of Common Stock. Incentive stock options are stock options
which are intended to satisfy the criteria established in Section 422 of the
Code and are subject to different tax treatment than non-statutory stock
options. Under the 1981 Plan, stock options may be granted for terms of up to
ten years. The 1981 Plan terminated in accordance with its terms, on October
23, 1991, which was the tenth anniversary of the date on which it was first
adopted. No additional options may be granted under the 1981 Plan.
The Company also maintains the 1987 Non-Statutory Stock Option Plan (the 1987
Plan) pursuant to which non-statutory options to purchase up to 16,875,000
shares of Common Stock may be granted to selected officers and key employees
of the Company. Pursuant to the 1987 Plan, the option price of stock options
granted thereunder may not be less than the market price of the shares of
Common Stock on the date of grant. The option period may not exceed twelve
years.
The Companys 1991 Stock Incentive Plan (the 1991 Plan) provides that up to an
aggregate of 67,500,000 shares of the Companys Common Stock may be granted to
employees (including officers of the Company) pursuant to stock options or
stock appreciation rights (SARs). The options may be either options intended
to qualify as incentive stock options, as that term is defined in the Code,
or non-statutory options. The Compensation Committee has the power to
determine whether such options are intended to qualify as an incentive stock
option under the Code.
<PAGE> 13
The 1993 Stock Option Plan for Non-Employee Directors (the 1993 Plan)
provides for non-statutory options to purchase up to 337,500 shares of Common
Stock to be available for grant to each member of the Board of Directors who
is not otherwise an employee of the Company.
The 1981 Plan, the 1987 Plan, the 1991 Plan, and the 1993 Plan are
administered by the Compensation Committee of the Board of Directors, which
determines the individuals to whom options and SARs are granted, the date or
dates of grant, and the number of shares covered by the options and SARs
granted. The per share exercise price of options and SARs granted may not be
less than 100% of the Fair Market Value of a share of the Companys Common
Stock on the date of grant. Shares of Common Stock acquired may be treasury
shares, including shares purchased in the open market, newly issued shares or
a combination thereof. Fair Market Value, as of any date, means the closing
sales price of a share of Common Stock on such date as reflected in the
consolidated trading of New York Stock Exchange issues (as long as the
Companys Common Stock is listed on the New York Stock Exchange). All share
amounts referred to above reflect the three-for-two stock split effective
November 5, 1997.
1995 Key Employee Stock Ownership Plan
Under the 1995 Key Employee Stock Ownership Plan (1995 Plan), a total of
20,250,000 restricted shares were granted to Messrs. Artzt, Kumar, and Wang.
On May 21, 1998, the closing price of the Companys common stock exceeded
$53.33 for 60 trading days beginning October 21, 1997, and all of the
20,250,000 shares vested. After an adjustment for applicable taxes, a total
of 14,743,266 shares were issued to Messrs. Artzt, Kumar, and Wang on June
12, 1998. These shares issued are subject to significant limitations on
transfer during the seven years following vesting.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act),
requires the Companys directors and executive officers, and persons who own
more than 10% of a registered class of the Companys equity securities, to
file with the Securities and Exchange Commission (SEC) and the New York Stock
Exchange (the NYSE) initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company (Section
16(a) Forms). Officers, directors and greater than 10% stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) Forms they file.
Based solely on its review of such copies of Section 16(a) Forms received by
it, or written representations from certain reporting persons, during the
fiscal year ended March 31, 1998, the Company believes that each of
its officers, directors and greater than 10% beneficial stockholders complied
with all applicable filing requirements.
Certain Transactions
During the fiscal year ended March 31, 1998, the Company retained the law
firm of Wang & Wang, in which Charles B. Wangs brother, Mr. Francis S. L.
Wang, is a member, to perform legal services for the Company. Wang & Wang,
who represented the Company in connection with a number of matters involving
protection of intellectual property rights, employment issues, and
litigation, received approximately $262,000 in fees and disbursements during
the fiscal year.
ITEM 2 AMENDMENT TO THE 1996 DEFERRED STOCK PLAN FOR NON-EMPLOYEE
DIRECTORS
The 1993 Stock Option Plan for Non-Employee Directors (the 1993 Plan) was
adopted by the Board of Directors on May 12, 1993 and approved by the
stockholders on August 11, 1993. The 1996 Deferred Stock Plan for Non-
Employee Directors (the 1996 Plan) was adopted by the Board on May 21, 1996
and approved by the stockholders on August 14, 1996.
On May 19, 1998, the Companys Board of Directors unanimously adopted, subject
to approval of the Companys stockholders, an Amendment to the 1996 Plan in
the form annexed hereto as Exhibit A. The Amendment 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, with an amount representing the
economic equivalent of options foregone under the 1993 Plan.
<PAGE> 14
The capitalized term, Director, as used herein is defined in the Plans as any
Director of the Company who is not an employee of the Company or separately
compensated for their services.
Description of the Amendment
The 1993 Plan provides for an Initial Award of 6,750 options upon adoption of
the Plan and annual awards of 6,750 options, dependent upon the attainment of
certain specific return on equity objectives, to each non-employee director.
Under the 1996 Plan, non-employee directors receive their entire annual fees
in Common Stock, receipt of which is deferred until termination of the
Directors term of office, resignation, or death.
Capitalized terms used in this description without definition are used as
defined in the 1993 and 1996 Plans.
Both the 1993 and 1996 Plans are designed to more closely align the interests
of the non-employee directors and the stockholders. Specifically, the non-
employee directors receive their entire remuneration in Common Stock and
Stock Options. Under the 1993 Plan, the options vest annually one year after
grant. Under the 1996 Plan, all fees are paid in Common Stock and retained in
a Deferred Stock Compensation Account until January 2 of the calendar year
following the Director Service Year in which a Director ceases to be a member
of the Board.
The Amendment to the 1996 Plan provides that no director, who through no
fault of their own is unable to participate in the 1993 Plan, shall be
penalized or subjected to inequitable treatment by reason of their service on
the Companys Board. It maintains and reinforces the common intent of both
plans as well as providing for equal treatment of any directors who by virtue
of their external commitments are limited from participating in the 1993
Plan. The Amendment provides that to the extent a Director is precluded from
participating in the 1993 Plan, he or she will receive an amount of Common
Stock credited to their Deferred Stock Compensation Account, representing the
economic equivalent of options foregone under the 1993 Plan (the Offset
Award).
All the provisions and limitations of the 1996 Plan including prohibition of
separately compensated consulting relationships, avoidance of interlocking
directorships and attendance at least 80% of the meetings of the Board
and its committees remain applicable to such Offset Award.
If approved, the Amendment to the 1996 Plan will be retroactively effective
as of May 14, 1993. If the Amendment is not approved, the 1996 Plan will
remain in effect as previously approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL AND
ADOPTION OF THE AMENDED 1996 DEFERRED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS.
ITEM 3 1998 INCENTIVE AWARD PLAN
Introduction
On June 19, 1998, the Board of Directors of the Company ratified and approved
the Computer Associates International, Inc. 1998 Incentive Award Plan (the
1998 Plan), which had been previously adopted by the Stock Option and
Compensation Committee on June 11, 1998. The 1998 Plan is being submitted
for stockholder approval at the Companys Annual Meeting of Stockholders.
The purpose of the 1998 Plan is to promote the creation of shareholder value
by encouraging and rewarding outstanding performance by key employees of the
Company.
Description of the 1998 Plan
The following is a summary of certain provisions of the 1998 Plan; the
summary is not, however, intended to be complete, and is qualified by
reference to the complete text of the 1998 Plan attached as Exhibit B to this
Proxy Statement. Capitalized terms used in this description without
definition are used as defined in the 1998 Plan.
Under the 1998 Plan, the Committee is authorized to grant up to 4,000,000
Phantom Shares to certain employees of the Company (other than Charles B.
Wang, Sanjay Kumar, Russell M. Artzt, and the Companys Chief Financial and
<PAGE> 15
Internal Audit Officers). A Phantom Share is a right to receive one share of
the Companys Common Stock. The Committee may make grants of Phantom Shares
from time to time through March 31, 2008.
Administration
The 1998 Plan will be administered by the Committee or a subcommittee
comprised solely of at least two Non-Employee Directors (as defined in Rule
16b-3 of the Securities and Exchange Commission under Section 16 of the
Securities Exchange Act of 1934, as amended) who are outside directors within
the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended. Any determination, decision or action of the Committee in
connection with the construction, interpretation, administration or
application of the 1998 Plan will be final, conclusive and binding upon all
persons.
Vesting and Forfeiture
All grants of Phantom Shares made pursuant to the 1998 Plan will be subject
to vesting over a five-year period. As discussed below, vesting is contingent
upon (i) the attainment of certain Target Closing Prices (the Target
Requirement) and (ii) the employees continuing employment with the Company
from the date of grant through the fifth anniversary of such date (the
Continued Employment Requirement).
Target Closing Price
For each grant under the 1998 Plan, a number of Phantom Shares in 20% annual
increments, will be deemed to have met the Target Requirement for each of the
five Plan Years following the date of grant, if the average closing price of
the Companys Common Stock for the ten business days immediately preceding and
including March 31 of the Plan Year equals or exceeds the Target Closing
Price for that Plan Year. The Target Closing Price is calculated as: (i) for
the year the grant is made, 120% of the Base Price (the average closing price
of the Common Stock for the ten trading days up to and including the March 31
that immediately precedes the grant date); and (ii) for each of the next four
years, 120% of the Target Closing Price for the immediately preceding Plan
Year. For the Plan Year ending March 31, 1999, the Base Price will be the
greater of $57.75 (closing price on March 31, 1998) or the closing price on
August 12, 1998.
Forfeiture
If the Closing Price of the Common Stock on March 31 of the applicable year
does not equal or exceed the Target Closing Price, the Phantom Shares that
were eligible for vesting with respect to the Target Requirement for that
Plan Year will be forfeited (subject to the possibility of early vesting as
described below).
Continued Employment
Vesting will also be contingent on the employees being employed by the
Company or any of its majority owned subsidiaries from the date of grant of
the Phantom Shares through the fifth anniversary of such date. If, prior to
such anniversary, the employees employment with the Company (and its
subsidiaries) terminates for any reason other than death or permanent
disability, all Phantom Shares held by such employee will be forfeited.
After the fifth anniversary of the grant date, Phantom Shares that have
vested with respect to the Target Requirement will no longer be subject to
forfeiture.
Early Vesting
All Phantom Shares (including Phantom Shares previously forfeited by virtue
of not having met the applicable Target Requirement) will immediately vest
and no longer be subject to forfeiture if the closing price of the Companys
Common Stock exceeds an amount equal to 400% of the Base Price for 60 days
within any 12-month period in the first five years starting with the Grant
date.
Payment
The Company will pay to the applicable employee one share of Company Common
Stock per vested Phantom Share; provided that the Committee, in its
discretion, can provide for deferral of payment with respect to Phantom
Shares in accordance with such rules and procedures as it may adopt from time
to time.
<PAGE> 16
Except in the event of the death or disability of the employee (and in the
event of a Change-of-Control), vested Phantom Shares generally will become
payable over a four-year period, beginning one year after the first date
on which such Phantom Shares were fully vested and no longer subject to
forfeiture, in the following annual percentage amounts: 10%, 20%, 30%, and
40%.
Death or Disability
If the employee dies or becomes permanently disabled while employed by the
Company or any of its majority owned subsidiaries, all Phantom Shares held by
such employee will immediately vest and become payable.
Dividend Equivalent Rights
The Committee may grant a dividend equivalent right (a DER) in respect of any
granted Phantom Share, which right would consist of the right to receive a
cash payment in an amount equal to the dividend distributions paid on a share
of the Companys Common Stock from time to time. Unless otherwise provided by
the Committee, each such cash payment will be made as soon as practicable
after the time at which the corresponding dividend distribution is made to
stockholders of the Company. The Committee may provide that, in the case of
DERs applicable with respect to unvested Phantom Shares, such DERs will be
accumulated (with or without interest, as the Committee may provide) and will
be forfeited if the applicable Phantom Share is forfeited, or paid after such
Phantom Share becomes vested.
In addition, the Committee may provide that DERs (including DERs with respect
to unvested shares) may be invested in additional Phantom Shares, or that
payments with respect to DERs may otherwise be deferred in accordance with
such rules and procedures as the Committee may adopt from time to time.
Change-of-Control
In the event of a Change-of-Control, all outstanding Phantom Shares (other
than Phantom Shares previously forfeited) will immediately vest and become
payable. If any Federal excise tax liability arises as to any employee as a
result of the immediate vesting of a Phantom Share by virtue of a Change-of-
Control, the Company will generally make such payments as necessary to place
the employee in the same after-tax position as he would have been in the
absence of such excise taxes.
Amendment and Termination
The Committee may amend or terminate the 1998 Plan at any time and for any
reason; provided, however, that no amendment may relieve the Company of its
obligations under the 1998 Plan in the event of a Change-of-Control, and no
amendment may adversely affect an employee with respect to Phantom Shares
previously granted unless such amendments are required in order to comply
with applicable laws. However, the Committee may not make any amendment of
the 1998 Plan that would, if not approved by the stockholders, cause the 1998
Plan to fail to comply with any requirement of applicable law or regulation,
unless and until such approval of the stockholders is obtained.
Federal Tax Consequences
Beginning in 1994, Section 162(m) of the U.S. Internal Revenue Code of 1986
limits deductibility of compensation in excess of $1 million paid to the
Companys chief executive officer and to each of the other four
highest-paid executive officers unless this compensation qualifies as
performance-based. Company believes that all awards under the 1998
Incentive Award Plan will be fully deductible as performance-based
compensation. The 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).
The Phantom Shares have been designed with the intention that there generally
will be no tax consequences as a result of the granting of a Phantom Share
until payment is made with respect to such Phantom Share.
Generally, when payment is made (and, it is intended, not until such time),
the applicable employee will recognize ordinary income, and the Company will
be entitled to a deduction, equal to the fair market value of the
Common Stock received upon payment.
<PAGE> 17
With regard to dividend equivalent rights (to the extent not reinvested in
Phantom Shares), it is anticipated that the Participant would have ordinary
income in an amount equal to the amount received in respect of such rights
at the time of receipt.
Additional special tax rules may apply to those employees who are subject to
the rules set forth in Section 16 of the Securities Exchange Act of 1934, as
amended.
The foregoing tax discussion is a general description of the tax consequences
that the Company expects based on the current state of the law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL AND ADOPTION OF THE 1998 INCENTIVE AWARD PLAN.
ITEM 4 RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
A representative of Ernst & Young LLP will be present at the meeting and will
be available to respond to appropriate questions from stockholders.
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. Ernst & Young LLP (and its
predecessor firm Ernst & Whinney) has been the independent auditor for the
Company since 1980 and has been appointed to serve in that capacity for the
1999 fiscal year. The Board of Directors will ask the stockholders to ratify
the appointment of this firm as independent auditors for the Company at the
Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPOINTMENT OF ERNST
& YOUNG LLP AS THE COMPANYS INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS
The Companys By-laws require advance notice for any stockholder nomination or
proposal at an annual or special meeting of stockholders. In general, all
nominations or proposals must be delivered to the Secretary of the Company at
the Companys world headquarters. The submission deadline for stockholder
proposals for consideration for inclusion in proxy materials for the 1999
Annual Meeting is March 6, 1999.
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at the
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 sign and date your proxy and
return it in the enclosed postpaid envelope.
By Order of the Board of Directors
/s/ Michael A. McElroy
MICHAEL A. MCELROY
Secretary
Dated: July 6, 1998
Islandia, New York
A COPY OF THE COMPANYS 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 11788-7000.
<PAGE> 18
EXHIBIT A
COMPUTER ASSOCIATES INTERNATIONAL, INC.
1996 DEFERRED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
Amendment 1
3.a. Administration
3.b. If any Director is limited or precluded by applicable federal, state, or
local regulations from receiving options under the 1993 Stock Option Plan for
Non-Employee Directors, they are eligible to receive a Common Stock grant of
equivalent economic value to the foregone options (the Offset Award) which
will be creditable to such Directors Deferred Stock Compensation Account as of
the date they became eligible for such Stock Option grants, subject to
eligibility requirements of paragraph 2.b.
3.c. The Offset Award will be determined using the Black-Scholes or a similar
methodology by a subcommittee excluding the affected director(s).
<PAGE> 19
EXHIBIT B
COMPUTER ASSOCIATES INTERNATIONAL, INC.
1998 INCENTIVE AWARD PLAN
I. Establishment and Purpose
1.1 Purpose. Computer Associates International, Inc. (the Company) hereby
establishes the 1998 Incentive Award Plan (the Plan). The Plan is intended
to promote the creation of shareholder value by encouraging and rewarding
outstanding performance by key employees of the Company.
1.2 Effective Date. The Plan is effective as of June 19, 1998 (the Effective
Date), subject to the approval of the Plan by an affirmative vote at the 1998
Annual Meeting of Stockholders, or any adjournment of such meeting, of the
holders of a majority of the outstanding shares of the Companys Common Stock,
present in person or by proxy and entitled to vote at such meeting.
II. Definitions
2.1 Defined Terms. When used in the Plan, the following terms shall have the
meanings specified below:
2.1.1 Additional Grant means a Grant made by the Committee after March
31, 1999.
2.1.2 Base Price means (i) for any Initial Grant, the greater of (1)
$57.75 and (2) the closing price of the Common Stock on August 12, 1998 and
(ii) for any Additional Grant, the average closing price of the Common Stock
for ten trading days up to and including the March 31 immediately preceding
the date of any additional Grant.
2.1.3 Board means the Companys Board of Directors.
2.1.4 Change of Control shall mean the happening of any of the
following:
(i) any person including a group (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the Exchange
Act), but excluding the Company, any entity controlling, controlled by or
under common control with the Company, any employee benefit plan of the
Company or any such entity, and, with respect to any particular Participant,
the Participant and any group (as such term is used in Section 13(d)(3) of
the Exchange Act) of which the Participant is a member), is or becomes the
beneficial owner (as defined in Rule 13(d)(3) under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more
of either (A) the combined voting power of the Companys then outstanding
securities or (B) the then outstanding shares (in either such case other than
as a result of an acquisition of securities directly from the Company),
provided that, for purposes of this section only, the shares of the Company
held by Walter Haefner/Careal Holding AG as of June 19, 1998 shall not be
included in determining the beneficial ownership of Walter Haefner/Careal
Holding AG; or
(ii) any consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, shares representing in the aggregate 51% or
more of the voting securities of the corporation issuing cash or securities
in the consolidation or merger (or of its ultimate parent corporation, if
any); or
(iii) there shall occur (A) any sale lease, exchange or other transfer (in
one transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of the
Company, other than a sale or disposition by the Company of all or
substantially all of the Companys assets to an entity, at least 51% of the
combined voting power of the voting securities of which are owned by Persons
in substantially the same proportion as their ownership of the Company
immediately prior to such sale or (B) the approval by shareholders of the
Company of any plan or proposal for the liquidation or dissolution of the
Company; or
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(iv) the members of the Board at the beginning of any consecutive 24-
calendar-month period (the Incumbent Directors) cease for any reason other
than due to death to constitute at least a majority of the members of the
Board; provided that any director whose election, or nomination for election
by the Companys stockholders, was approved by a vote of at least a majority
of the members of the Board then still in office who were members of the
Board at the beginning of such 24-calendar-month period, shall be deemed to
be an Incumbent Director.
2.1.5 Closing Price means, for each Plan Year, the average closing
price of the Common Stock on the NYSE for the ten trading days up to and
including March 31 of such Plan Year.
2.1.6 Code means the Internal Revenue Code of 1986, as amended.
2.1.7 Committee means the Stock Option and Compensation Committee of
the Board formed to act on performance-based compensation for key employees,
or any successor committee or subcommittee of the Board.
2.1.8 Common Stock means the Common Stock, $.10 par value per share, of
the Company.
2.1.9 Eligible Employee means all employees of the Company and its
majority owned subsidiaries (other than Charles B. Wang, Sanjay Kumar,
Russell M. Artzt, and the Companys Chief Financial and Internal Audit
Officers).
2.1.10 Fair Market Value per share of Common Stock as of a particular
date means (i) if such shares are then listed on a national stock exchange,
the closing price per share on the exchange for the last preceding date on
which there was a sale of shares of Common Stock on such exchange, as
determined by the Committee; (ii) if such shares are not then listed on a
national stock exchange but are then traded on an over-the-counter market,
the average of the closing bid and asked prices for such shares in such over-
the-counter market for the last preceding date on which there was a sale of
such shares in such market, as determined by the Committee; or (iii) if
shares of Common Stock are not then listed on a national exchange or traded
on an over-the-counter market, such value as the Committee in its discretion
may in good faith determine; provided that where such shares are so listed or
traded, the Committee may make discretionary determinations where the shares
have not been traded for ten trading days.
2.1.11 Grant means the grant of Phantom Shares to Participants pursuant
to Section 3.3.2 of the Plan.
2.1.12 Initial Grant means a Grant made by the Committee prior to March
31, 1999.
2.1.13 Lapse Date means the first date on which a Participants Phantom
Shares with respect to an applicable Grant are vested and thereby are no
longer subject to forfeiture pursuant to either Section 4.2.1 or Section
4.2.2.
2.1.14 NYSE means the New York Stock Exchange Composite Tape.
2.1.15 Participant means any Eligible Employee selected by the
Committee to receive a Grant under the Plan.
2.1.16 Phantom Share means a right pursuant to the Plan (and subject to
Section 3.1.2) of the Participant to payment of one share of Common Stock.
2.1.17 Plan Year means the fiscal year commencing April 1, 1998 and
ending March 31, 1999, and each succeeding fiscal year up to and including
the fiscal year commencing April 1, 2007 and ending March 31, 2008.
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2.1.18 Rule 16b-3 means Rule 16b-3, as from time to time in effect,
promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act, including any successor to such Rule.
2.1.19 Target Closing Price means, for any Grant under the Plan, (i)
for the Plan Year in which the Grant is made, an amount equal to 120% of the
Base Price applicable to such grant, (ii) for each of the next four Plan
Years thereafter, an amount equal to 120% of the Target Closing Price for the
immediately preceding Plan Year applicable to such Grant.
III. Awards and Committee Determinations
3.1 Authorization. Subject to adjustments pursuant to Section 3.2 the total
number of Phantom Shares available for Grant issuance under the Plan shall be
4,000,000. If any Phantom Shares are, prior to payment of such Phantom
Shares, forfeited, canceled, exchanged or surrendered, such Phantom Shares
shall, to the extent of any such forfeiture, cancellation, exchange,
surrender, termination or expiration, again be available for grant under the
Plan. The aggregate number of Phantom Shares that may be granted under the
Plan to any individual during any calendar year may not exceed 100% of such
Phantom Shares available under the Plan.
3.2 Change in Capital Structure. In the event that the Committee shall
determine, in its sole discretion, that any dividend or other distribution
(whether in the form of cash, Common Stock or other property),
recapitalization, stock split, reverse split, any reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, license
agreement, strategic alliance or other similar corporate transaction or
event, affects the Common Stock such that an adjustment is appropriate in
order to prevent dilution or enlargement of the rights of any Participant,
then the Committee may make such equitable changes or adjustments as it deems
necessary or appropriate including, without limitation, adjustments to (i)
the maximum aggregate number of Phantom Shares which may be granted in
accordance with the Plan, (ii) the number of Phantom Shares granted and
outstanding under the Plan, (iii) the amount of any Target Closing Price
applicable to outstanding Grants (iv) the adjusted value of the Base Price
for purposes of determining Early Vesting under Section 4.3 of the Plan, and
(v) the number and kind of shares to be distributed in respect of Phantom
Shares.
3.3 Grants
3.3.1 The Committee shall determine the Eligible Employees to whom,
and the time or times at which, grants of Phantom Shares shall be made and
all other conditions of the grant of Phantom Shares under the Plan; provided
that all such grants shall be subject to the terms and conditions
specifically set forth in the Plan (including without limitation those set
forth in Article IV hereof).
3.3.2 The Committee may make grants of Phantom Shares under the Plan
from time to time through March 31, 2003.
IV. Vesting and Forfeiture
4.1 Vesting. Subject to Section 4.3, all Grants of Phantom Shares made
pursuant to the Plan shall be subject to vesting over a five-year period,
with vesting contingent upon (i) the attainment of certain Target Closing
Prices as set forth in Section 4.1.1 and (ii) the satisfaction of the
requirements set forth in Section 4.1.2.
4.1.1 For each Grant under the Plan, a number of Phantom Shares
(rounded down to the nearest whole number) shall vest in 20% annual
increments, for each of the five Plan Years following the date of Grant
(including the Plan Year in which the Grant was made), if the Closing Price
for such Plan Year equals or exceeds the Target Closing Price for such Plan
Year.
4.1.2 Vesting shall be contingent on the Participants being employed by
the Company or any of its majority owned subsidiaries from the date of Grant
through the fifth anniversary of such date of Grant.
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4.1.3 Notwithstanding the foregoing provisions of this Section 4.1 in
the event of death or permanent disability of a Participant, all Grants made
to such Participant (other than portions of Grants that had previously been
forfeited) shall immediately vest and shall not be subject to forfeiture.
4.2 Forfeiture
4.2.1 Subject to Section 4.3 for any Grant under the Plan, if the
Closing Price for a particular Plan Year does not equal or exceed the Target
Closing Price for such Plan Year as provided in Section 4.1.1, the portion of
such Grant that would have vested had the Target Closing Price been equaled
or exceeded, shall be forfeited.
4.2.2 Subject to Section 4.3 of the Plan, if, prior to the fifth
anniversary of any Grant, a Participants employment with the Company or any
of its majority owned subsidiaries terminates for any reason other than
death or permanent disability, all Phantom Shares granted to the Participant
pursuant to the Plan, whether or not vested on the date of such termination,
shall be forfeited. After the fifth anniversary of any such Grant, any
Phantom Shares with respect to such Grants that have vested shall no longer
be subject to forfeiture.
4.3 Early Vesting. Any Grant under the Plan (including portions of such Grant
that had previously been forfeited pursuant to Section 4.2.1) shall
immediately vest, and shall no longer be subject to forfeiture pursuant to
either Section 4.2.1 or Section 4.2.2 of the Plan, on the first day within
the five-year period commencing on the date of such Grant that the closing
price of the Common Stock has exceeded an amount equal to 400% of the Base
Price for such Grant for 60 trading days within any preceding 12-month
period.
V. Payment of Common Stock
5.1 Payment of Common Stock Generally. Except as provided in Section 5.2 and
in Section 9.2.1, the Company shall pay to the applicable Participant one
share of Common Stock per vested Phantom Share held by such Participant in
accordance with the following schedule: (i) 10% of such Phantom Shares shall
become payable on the date which is one year after Lapse Date; (ii) an
additional 20% of such Phantom Shares shall become payable on the date which
is two years after the Lapse Date; (iii) an additional 30% of such Phantom
Shares shall become payable on the date which is three years after the Lapse
Date; and (iv) the remaining 40% of such Phantom Shares shall become payable
on the date which is four years after the Lapse Date. The Committee, in its
discretion, may permit the deferral of payments or distributions hereunder in
accordance with such rules and procedures as it may adopt from time to time.
5.2 Death or Disability. In the event of the death or permanent disability of
a Participant, the Company shall pay to such Participant, or the Participants
beneficiary or estate, as applicable, one share of Common Stock for
each vested Phantom Share held by such Participant (including all Phantom
Shares which have vested by virtue of such death or disability) as soon as
practicable (but in no event more that 60 days) after the date of such
Participants death or the date on which he or she becomes permanently
disabled. Each Participant may designate, in writing and on such form and in
accordance with such procedures as the Company may prescribe, one or more
beneficiaries to receive the Common Stock that becomes payable upon the death
of such Participant and may amend or revoke such designation at any time. In
the event that the Participant has not designated a beneficiary, any Common
Stock payable hereunder upon such Participants death shall be paid to
such Participants estate.
VI. Dividend Equivalent Rights
6.1. The Committee may (but need not) grant a dividend equivalent right in
respect of any Grant of a Phantom Share, which right would consist of the
right to receive a cash payment in an amount equal to the dividend
distributions paid on a share of Common Stock from time to time. Unless
otherwise provided by the Committee at the time of Grant, each such payment
shall be made as soon as practicable (but not more than 60 days) after the
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corresponding dividend distribution is made to shareholders of the Company.
The Committee may provide that dividends with respect to Phantom Shares which
have not vested pursuant to Article IV hereof, may be accumulated (with or
without interest), and that such dividends shall be forfeited if the Phantom
Shares with respect to which the dividends have been accumulated, are
subsequently forfeited, and paid when the Phantom Shares vest. In addition,
the Committee may provide that Dividend Equivalent Rights shall, or may, at
the election of the Participant, be reinvested in additional Phantom Shares
which shall vest (or be forfeited) and be paid pro-rata with the Phantom
Shares with respect to which the Dividend Equivalent Rights were granted.
VII. Administration
7.1 Committee. The Plan shall be administered by the Committee or a
subcommittee composed solely of at least two Non-Employee Directors (as
defined in Rule 16b-3) that are outside directors within the meaning of
Section 162(m) of the Code. No employee or former employee of the Company may
serve on the Committee.
7.2 Rules and Interpretation. The Committee shall be vested with all
discretion and authority and may make such rules and regulations and
establish such procedures as it deems necessary or appropriate to administer
the Plan and to interpret the provisions of the Plan, and any award,
agreement, or notice thereunder, with such interpretations to be conclusive
and binding on all persons and otherwise accorded the maximum deference
permitted by law provided that the Committees interpretation shall not be
entitled to deference on and after a Change-of-Control except to the extent
that such interpretations are made exclusively by members of the Committee
who are individuals who served as Committee members before Change-of-Control.
Without limiting the generality of the foregoing, the Committee may determine
the extent, if any, to which Phantom Shares shall be forfeited; and take any
other actions and make any other determinations or decisions that it deems
necessary or appropriate in connection with the Plan or the administration
or interpretation thereof. Unless otherwise expressly provided hereunder, the
Committee, with respect to any Grant, may exercise its discretion hereunder
at the time of the Grant or thereafter. Any determination, decision or action
of the Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final, conclusive and
binding upon all persons.
7.3 Records. The records of the Committee with respect to the Plan shall be
conclusive on all Participants and their beneficiaries and on all other
persons.
7.4 Tax Withholding. The Company shall take such action as the Committee may
deem advisable to enable the Company and each Participant to satisfy
obligations for payment of withholding and other taxes with respect
to any Grant, vesting or elimination of risk of forfeiture or payment under
the Plan. Such action may include withholding shares of Common Stock from the
shares otherwise to be received by the Participant or requiring the
Participant to pay cash to the Company in an amount equal to such tax
obligations. In the event that the Committee elects to withhold shares in
order to satisfy the applicable withholding obligation, the number of shares
of Common Stock so withheld shall have an aggregate Fair Market Value on the
applicable date sufficient to satisfy the applicable withholding taxes.
Notwithstanding anything contained in the Plan to the contrary, the
Participants satisfaction of any tax withholding requirements imposed by the
Committee shall be a condition precedent to any payments as may otherwise be
provided hereunder, and the failure of the Participant to satisfy such
requirements with respect to the payment in respect of any Phantom Share
shall cause the applicable Phantom Share to be forfeited.
7.5 Regulations and Approvals
7.5.1 The Committee may make such changes to the Plan as may be
necessary or appropriate to comply with the rules and regulations of any
government authority or to obtain tax benefits applicable to phantom units or
deferred compensation generally.
7.5.2 Each Grant of Phantom Shares (or issuance of shares of Common
Stock in respect thereof) is subject to the requirement that, if at any time
the Committee determines in its discretion, that the listing, registration or
qualification of shares of Common Stock issuable pursuant to the Plan is
<PAGE> 24
required by any securities exchange or under any state or federal law or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with the issuance of Phantom
Shares or shares of Common Stock, no payment shall be made, or Phantom Shares
or shares of Common Stock issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or
obtained free of any conditions in a manner acceptable to the Committee.
7.5.3 In the event that the disposition of shares of Common Stock
acquired pursuant to the Plan is not covered by a then current registration
statement under the Securities Act of 1993, as amended (the Securities
Act), and is not otherwise exempt from such registration, such shares of
Common Stock shall be restricted against transfer to the extent required
under the Securities Act and the Committee may require any individual
receiving shares, to represent to the Company in writing that such shares
will be disposed of only if registered for sale under the Securities Act or
if there is an available exemption for such disposition, and may provide for
a legending of such shares to that effect.
VIII. General Provisions
8.1 Nonassignability. Prior to the time a payment of Common Stock is made
pursuant to Section 5, a Participant shall have no right by way of
anticipation or otherwise to assign or transfer any interest in such Grant
(other than as set forth in Section 5.2 of the Plan).
8.2 Employment Rights/Participation. 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 Participant or any
other individual for the continuation of his or her employment for any Plan
Year or any other period. The Company expressly reserves the right, which may
be exercised at any time and without regard to when, during a Plan Year or
other accounting period, such exercise occurs, to discharge any individual
and/or treat him without regard to the effect which such treatment might have
upon him as a Participant in the Plan.
8.3 No Individual Liability. No member of the Committee or the Board, or any
officer of the Company, shall be liable for any determination, decision or
action made in good faith with respect to the Plan or any award under
the Plan.
8.4 Severability; Governing Law. If any particular provision of this Plan is
found to be invalid or unenforceable, such provision shall not affect the
other provisions of the Plan, but the Plan shall be construed in all respects
as if such invalid provision had been omitted. The provisions of the Plan
shall be governed by and construed in accordance with the laws of the State
of New York.
8.5 Funding. Phantom Shares are solely a device for the measurement and
determination of the amounts to be paid to a Participant under the Plan. Each
Participants right in the Phantom Shares is limited to the right to
receive payment, if any, as may herein be provided. The Phantom Shares do not
constitute Common Stock and shall not be treated as (or as giving rise to)
property or a trust fund of any kind; provided, however, that the
Company may establish a mere bookkeeping reserve to meet its obligation
hereunder, or a trust or other funding vehicle that would not cause the Plan
to be deemed to be funded for tax purposes or for the purposes of Title 1
of the Employee Retirement Income Security Act of 1974, as amended. The right
of any Participant to receive payments by virtue of participation in the Plan
shall be no greater than the right of any unsecured general creditor of the
Company. Nothing contained in the Plan shall be construed to give any
Participant any rights with respect to shares of Common Stock or any
ownership interest in the Company. Without limiting Section VI, no provision
of the Plan shall be interpreted to confer upon any Participant any voting,
dividend or derivative or other similar rights with respect to any Phantom
Share.
8.6 Captions. The captions in the Agreement are for reference only and shall
not affect the interpretation of this Agreement.
8.7 Notices. All notices under the Plan shall be in writing, and if to the
Company, shall be delivered to or mailed to its principal office, addressed
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to the attention of the President; and if to the Participant, shall be
delivered personally or mailed to the Participant at the address appearing in
the records of the Company. Such addresses may be changed at any time by
written notice to the other party given in accordance with this Section
8.7.
8.8. Securities Exchange Act Requirement. Grants under the Plan are intended
to satisfy the requirements of Rule 16b-3.
IX. Amendment and Termination
9.1 Amendment and Termination. The Committee may prospectively amend or
terminate the Plan at any time and for any reason; provided, however, that
(i)such amendment shall not relieve the Company of its obligation under
Section 9.2 of the Plan and (ii) no amendment may adversely affect a
Participant with respect to Phantom Shares previously granted unless such
amendments are required in order to comply with applicable laws; provided
that the Committee may not make any amendment to the Plan that would, if such
amendment were not approved by the holders of the Common Stock, cause the
Plan to fail to comply with any requirement of applicable law or regulation,
unless and until the approval of the holders of such Common Stock is
obtained.
9.2 Change-of-Control; Tax Gross-Up
9.2.1 Notwithstanding any other provision in the Plan to the contrary,
in the event of a Change-of-Control, all outstanding Grants (other than
portions thereof that had previously been forfeited) shall immediately vest
and no longer be subject to forfeiture and all shares of Common Stock due
with respect to such Grants shall be paid to the applicable Participants (i)
as soon as practicable (but in no event more than 30 days) after such Change-
of-Control or (ii) in the sole discretion of the Committee, within one year
following such Change-of-Control.
9.2.2 If the accelerated vesting provided for in Section 9.2.1 or any
other payment provided for hereunder, either alone or together with other
payments and benefits which a Participant receives or is entitled to
receive from the Company or its affiliates, would constitute an excess
parachute payment within the meaning of Section 280G of the Code, whether or
not under an existing plan, arrangement or other agreement, (each
such parachute payment, a Parachute Payment), and would result in the
imposition on the Participant of an excise tax under Section 4999 of the
Code, then, in addition to any other benefits to which the Participant is
entitled under the Plan or otherwise, the Participant shall be paid an amount
in cash equal to the sum of the excise taxes payable by the Participant by
reason of receiving Parachute Payments plus the money necessary to
place the Participant in the same after-tax position (taking into account any
and all applicable federal, state, and local excise, income or other taxes at
the highest possible applicable rates on such Parachute Payments
(including, without limitation, any payments under this Section 9.2.2), as if
no excise taxes had been imposed with respect to Parachute Payments (the
Parachute Gross-up). Any Parachute Gross-up otherwise required
under this Section 9.2 shall be made whether or not there is a Change-of-
Control, whether or not payments or benefits are payable under the Plan,
whether or not the payments or benefits giving rise to the Parachute Gross-
up are made in respect of a Change-of-Control and whether or not the
Participants employment with the Employer shall have been terminated. Except
as may otherwise be agreed to by the Company and the Participant, the amount
or amounts (if any) payable under this Section 9.2.2 shall be as conclusively
determined by the Companys independent auditors (who served in such capacity
immediately prior to the Change-of-Control), whose determination or
determinations shall be final and binding on all parties. The Participant
shall agree to utilize such determination or determinations, as applicable,
in filing all of the Participants tax returns with respect to the excise tax
imposed by Section 4999 of the Code. If such independent auditors refuse to
make the required determinations, then such determinations shall be made by a
comparable independent accounting firm of national reputation reasonably
selected by the Company. Notwithstanding any other provision
of the Plan to the contrary, as a condition to receiving any Parachute Gross-
up payment, the Participant shall agree, in form and substance acceptable to
the Company, to be bound by and comply with the provisions of this
Section 9.2.2.
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Notice: If you plan on attending the 1998 Annual Meeting,
please cut out and use the admission ticket(s) below.
No admission will be granted without an admission ticket.
Annual Meeting Of Stockholders
August 12, 1998, 10:00 a.m. (Eastern Daylight Time)
Wyndham Wind Watch Hotel
1717 Motor Parkway
Islandia, NY 11788
1-516-232-9800
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 Rte. 454 (Veterans Hwy.) The Wyndham
Wind Watch Hotel is on the left.
Please vote your shares via the telephone or Internet, or sign, date, and
return the proxy card promptly using the enclosed envelope.
