COMPUWARE CORPORATION
_________________________________________________________________COMPUWARE LOGO
Corporate Headquarters
31440 NORTHWESTERN HIGHWAY, FARMINGTON HILLS, MICHIGAN 48334-2564
(248) 737-7300
July 21, 1997
Dear Compuware Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of Compuware Corporation to be held at 3:00 p.m., Eastern Daylight Savings Time
on Tuesday, August 26, 1997. The meeting will be held at Compuware's corporate
offices, 31440 Northwestern Highway, Farmington Hills, Michigan.
The following pages contain the formal Notice of the Annual Meeting and the
Proxy Statement. You may wish to review this material for information concerning
the business to be conducted at the meeting and the nominees for election as
directors.
If your shares are currently held in the name of your broker, bank or other
nominee and you wish to attend the meeting, you should obtain a letter from your
broker, bank or other nominee indicating that you are the beneficial owner of a
stated number of shares of stock as of the July 1, 1997 record date. This will
help facilitate registration at the meeting.
Your vote is important. Whether you plan to attend the meeting or not, we
urge you to complete, sign and return your proxy card as soon as possible. This
will ensure representation of your shares in the event you are unable to attend
the meeting. You may, of course, revoke your proxy and vote in person at the
meeting if you so desire.
Sincerely,
Peter Karmanos, Jr.
Chairman & Chief Executive Officer
<PAGE>
COMPUWARE CORPORATION
31440 Northwestern Highway
Farmington Hills, Michigan 48334-2564
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held August 26, 1997
To the Shareholders:
Please take notice that the Annual Meeting of Shareholders of Compuware
Corporation (the "Company") will be held at the Company's corporate offices at
31440 Northwestern Highway, Farmington Hills, Michigan 48334-2564 on Tuesday,
August 26, 1997 at 3:00 p.m., Eastern Daylight Savings Time, to consider and act
upon the following matters:
(1) The election of nine directors to serve until the next Annual Meeting
of Shareholders and until their successors shall have been elected and
qualified.
(2) The approval of the Fiscal 1998 Stock Option Plan.
(3) The amendment of the Company's Restated Articles of Incorporation to
increase the number of authorized shares of the Company's Common
Stock, $0.01 par value, from 200,000,000 shares to 400,000,000 shares.
(4) Such other business as may properly come before the meeting.
Only shareholders of record at the close of business on July 1, 1997 will
be entitled to vote at the meeting.
Your attention is called to the attached Proxy Statement and the
accompanying proxy card. You are requested to sign and return the proxy card in
the enclosed envelope. If you attend the meeting, you may withdraw your proxy
and vote your shares.
A copy of the Annual Report of the Company for the fiscal year ended March
31, 1997 accompanies this notice.
By Order of the Board of Directors,
Thomas Costello, Jr., Secretary
Farmington Hills, Michigan
July 21, 1997
<PAGE>
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
OF
COMPUWARE CORPORATION
INTRODUCTION
This Proxy Statement, the 1997 Annual Report to Shareholders and the
accompanying proxy card are first being mailed on or about July 21, 1997, to
shareholders of record on July 1, 1997 of Compuware Corporation ("Compuware" or
the "Company") in connection with the solicitation by the Company's Board of
Directors of proxies from holders of Compuware Common Stock, $.01 par value per
share ("Common Stock"), for use at the 1997 Annual Meeting of Shareholders to be
held at 3:00 p.m., Eastern Daylight Savings Time, on August 26, 1997, at
Compuware Corporation, 31440 Northwestern Highway, Farmington Hills, Michigan
48334-2564, and at any adjournment or adjournments thereof.
We urge you to sign, date and mail your proxy card promptly to make certain
that your shares will be voted at the meeting.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted by filing with the Secretary of Compuware a written notice of
revocation bearing a date later than the proxy, by duly executing a subsequent
proxy relating to the same shares and delivering it to the Secretary of
Compuware, or by attending the Annual Meeting and voting in person. Attendance
at the Annual Meeting will not in and of itself operate to revoke a proxy. Any
written notice of revocation should be sent to: Secretary, Compuware
Corporation, 31440 Northwestern Highway, Farmington Hills, Michigan 48334-2564.
The Company effected a two-for-one stock split on April 14, 1997 by means
of a 100% stock dividend payable to holders of record as of April 4, 1997. All
share and share price information in this Proxy Statement is presented on a
post-split basis.
The principal executive offices of Compuware are located at 31440
Northwestern Highway, Farmington Hills, Michigan 48334-2564, and the telephone
number is (248) 737-7300. All references herein to fiscal 1997 mean the twelve
months ended March 31, 1997.
GENERAL INFORMATION
The expense of soliciting proxies, including the cost of preparing,
printing and mailing the Notice of the 1997 Annual Meeting of Shareholders, the
Proxy Statement, the Annual Report and the accompanying proxy card, will be
borne by the Company. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone or telegraph, by directors, officers
and regular employees of the Company, without special compensation therefor. The
Company has also retained Corporate Investor Communications, Inc., 111 Commerce
Road, Carlstadt, New Jersey 07072-2586 to assist in the solicitation of proxies,
for an approximate cost of $4,500, plus reasonable expenses. Brokers and other
persons holding stock in their names, or in the names of nominees, will be
requested to forward proxy material to the beneficial owners of the stock and to
obtain proxies, and the Company will defray reasonable expenses incurred in
forwarding such material.
Holders of shares of Common Stock of record at the close of business on
July 1, 1997 are entitled to notice of, and to vote at the 1997 Annual Meeting
of Shareholders. There were outstanding on July 1, 1997, 86,413,919 shares of
Common Stock, the only class of stock outstanding. Each share is entitled to one
vote.
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All proxies signed and returned to the Company will be voted, if not
otherwise specified thereon, for approval of the directors described herein.
Management of the Company knows of no other matters to come before the 1997
Annual Meeting. If any other matters requiring a shareholder vote properly come
before the meeting, the persons appointed as proxies on the enclosed proxy card
will vote with respect to such matters in accordance with his best judgment.
Meetings of the Board of Directors and Committees
Board of Directors
The Board of Directors is responsible for the overall affairs of the
Company. The Board of Directors held six meetings this past year. All of the
directors attended at least 75% of the meetings of the Board of Directors and
the Committees to which they belong.
Audit Committee
The Audit Committee consists of three directors, Messrs. Grabe, Halling and
Weicker, none of whom has ever been an employee of the Company. The Audit
Committee met twice during this past year. The Audit Committee has the
responsibility to review, with the Company's independent auditors, the Company's
financial statements, the scope and findings of the auditor's examinations, and
the internal accounting controls and practices of the Company.
Compensation Committee
The Compensation Committee currently consists of three independent
directors, Messrs. Goldsmith, Halling and Weicker. Mr. Karmanos and Mr. Romney
each served on the Compensation Committee in fiscal 1997. Mr. Karmanos resigned
from the Compensation Committee on June 11, 1997. Mr. Romney resigned from the
Compensation Committee on January 21, 1997. The Compensation Committee
administers the Company's executive compensation and stock option programs. The
Compensation Committee met one time during the year and held discussions in lieu
of additional meetings. Mr. Karmanos abstained from matters involving his
compensation and position. The Committee makes recommendations to the Board of
Directors on organization, succession and compensation, including stock option
programs and benefit plans, individual salary rates, supplemental compensation
and management special awards, the election of officers, consultantships and
similar matters where Board approval is required.
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Security Ownership of Management
The following table shows as of July 1, 1997 the beneficial ownership of
Compuware Common Stock by each current director and nominee, by each executive
officer, and by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Beneficial Percent
Name Ownership(1) of Class
- ---- ------------ --------
<S> <C> <C>
Ralph A. Caponigro .................................................. 214,480 (2) *%
Thomas Costello, Jr. ................................................ 39,161 (3) *
Stephen H. Fagan .................................................... 506,209 (4) *
Henry A. Jallos ..................................................... 228,206 (5) *
Peter Karmanos, Jr. ................................................. 12,727,585 (6) 14.3
Denise A. Knobblock ................................................. 11,901 (7) *
Shiela D. McKinnon .................................................. 6,268 (8) *
Joseph A. Nathan .................................................... 599,162 (9) *
W. James Prowse ..................................................... 1,099,460 (10) 1.26
John N. Shevillo .................................................... 165,678 (11) *
Eliot R. Stark ...................................................... 40,000 (12) *
Thomas Thewes ....................................................... 3,391,150 (13) 3.92
Bernard M. Goldsmith ................................................ 57,500 (14) *
William O. Grabe .................................................... 12,500 (15) *
G. Scott Romney ..................................................... 13,200 (16) *
William R. Halling .................................................. 11,000 (17) *
Lowell P. Weicker, Jr. .............................................. 10,600 (18) *
By all executive officers and directors as a group (17 persons) ..... 14,044,288 15.6
AIM Management Company .............................................. 5,490,200 (19) 6.43
American Century Investments ........................................ 4,308,800 (20) 5.05
Massachusetts Financial Services Company ............................ 6,787,108 (21) 7.95
Wisconsin Investment Board .......................................... 4,853,200 (22) 5.69
</TABLE>
- ----------
* Less than one percent.
(1) Except as otherwise noted, each beneficial owner identified in this
table has sole investment power with respect to the shares shown in
the table to be owned by the person or entity.
(2) Includes (i) 7,964 shares held for Mr. Caponigro through the Company's
ESOP; and (ii) 206,516 option shares which are fully vested.
(3) Includes (i) 18,041 shares held for Mr. Costello through the Company's
ESOP; (ii) 200 shares held by Mr. Costello's children; and (iii)
20,920 option shares which are fully vested.
(4) Includes (i) 134 shares held for Mr. Fagan through the Company's ESOP;
(ii) 505,850 option shares which are fully vested; and (iii) 225
option shares vesting within 60 days.
(5) Includes (i) 8,306 shares held for Mr. Jallos through the Company's
ESOP; and (ii) 219,900 option shares which are fully vested.
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(6) Includes (i) 525,535 shares held by Mr. Karmanos's trust; (ii)
3,129,139 shares held by Mr. Karmanos's Stock Limited Partnership;
(iii) 7,265,058 shares Mr. Karmanos is entitled to vote pursuant to
shareholder agreements with certain shareholders; (iii) 94,400 shares
held for Mr. Karmanos through the Company's ESOP; (iv) 421,053 shares
held by Mr. Karmanos's wife (under a voting agreement, dated July 1,
1997) and (v) 1,292,400 option shares which are fully vested. The
shareholder group referenced in (ii) above includes shares
beneficially owned by (a) Thomas Thewes, Michael J. Lobsinger, W.
James Prowse, Joseph A. Nathan, Allen B. Cutting Trust, Joan L.
Cutting Trust, Long Family Trust, Long Family Charitable Remainder
Unitrust, William D. and Kay K. Long Charitable Remainder Unitrust,
Harris Trust and Harris Family Charitable Remainder Unitrust (under a
shareholder agreement, dated November 5, 1992, as amended) and (b)
General Atlantic Partners II, L.P., General Atlantic Partners, LLC,
and GAP-Amsterdam Partners, L.P. (under a shareholder agreement, dated
October 22, 1992).
(7) Includes (i) 112 shares owned directly by Ms. Knobblock; (ii) 5,712
shares held for Ms. Knobblock through the Company's ESOP; and (iii)
6,077 option shares which are fully vested.
(8) Includes (i) 1,418 shares held for Ms. McKinnon through the Company's
ESOP; and (ii) 4,850 option shares which are fully vested.
(9) Includes (i) 7,000 shares owned directly by Mr. Nathan; (ii) 45,762
shares held for Mr. Nathan through the Company's ESOP; and (iii)
546,400 option shares which are fully vested.
(10) Includes (i) 449,000 shares held by Mr. Prowse's trust; (ii) 68,060
shares held for Mr. Prowse through the Company's ESOP; and (iii)
582,400 option shares which are fully vested.
(11) Includes (i) 19,478 shares held for Mr. Shevillo through the Company's
ESOP; and (ii) 146,200 option shares which are fully vested.
(12) Includes 40,000 option shares which are fully vested.
(13) Includes (i) 3,329,580 shares held by Mr. Thewes's trusts; (ii) 59,070
shares held for Mr. Thewes through the Company's ESOP; and (iii) 2,500
option shares which are fully vested.
(14) Includes (i) 15,000 shares owned directly by Mr. Goldsmith; and (ii)
42,500 option shares which are fully vested.
(15) Includes 12,500 option shares which are fully vested.
(16) Includes (i) 200 shares owned directly by Mr. Romney; (ii) 500 shares
owned by Mr. Romney's wife; and (iii) 12,500 option shares which are
fully vested.
(17) Includes (i) 1,000 shares owned directly by Mr. Halling; and (ii)
10,000 option shares vesting within 60 days.
(18) Includes (i) 400 shares owned directly by Mr. Weicker; (ii) 200 shares
owned by Mr. Weicker's wife; and (iii) 10,000 option shares vesting
within 60 days.
(19) The address for AIM Management Group is 11 East Greenway Plaza, Suite
100, Houston, Texas 77046.
(20) The address for American Century Investments is 4500 Main Street,
Kansas City, Missouri 64111.
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(21) The address for Massachusetts Financial Services is 500 Boylston
Street, 19th Floor, Boston, Massachusetts 02116.
(22) The address for Wisconsin Investment Board is 121 E. Wilson Street,
P.O. Box 7842, Madison, Wisconsin 53707.
6
<PAGE>
I. ELECTION OF DIRECTORS
Nominees
Nine directors, constituting the entire Board of Directors, are proposed to
be elected to hold office until the 1998 Annual Meeting and until their
successors are elected and qualified.
All nominees for election have indicated their willingness to serve, but if
any of them should decline or be unable to serve as a director, it is intended
that the enclosed proxy will be voted for the election of such person or persons
as are nominated as replacements by the Board of Directors in accordance with
the Bylaws of the Company.
A brief summary of each nominee's principal occupation and other
information follows:
Peter Karmanos, Jr.
Mr. Karmanos, age 54, a founder of the Company, has served as a director of
the Company since its inception, as Chairman of the Board since November 1978,
and as Chief Executive Officer since July 1987. From January 1992 until October
1994, Mr. Karmanos served as President of the Company.
Thomas Thewes
Mr. Thewes, age 65, a founder of the Company, has served as a director of
the Company since its inception, and has served as Vice Chairman of the Board
since March 1988. Mr. Thewes served as Treasurer from May 1988 until May 1995.
Mr. Thewes served as Senior Vice President from March 1988 until March 1995 and
as Secretary from April 1973 until May 1995.
W. James Prowse
Mr. Prowse, age 54, has served as a director of the Company since December
1986 and as Senior Vice President since January 1992.
Joseph A. Nathan
Mr. Nathan, age 44, has served as a director of the Company since September
1990 and as President and Chief Operating Officer since October 1994. From
December 1990 to October 1994, Mr. Nathan served as Senior Vice President and
Chief Operating Officer-Products Division.
William O. Grabe
Mr. Grabe, age 59, has served as a director of the Company since April
1992. Mr. Grabe is a General Partner of General Atlantic Partners and has been
affiliated with General Atlantic Partners since April 1992. From 1984 until
March 1992, Mr. Grabe was a Vice President of IBM. Mr. Grabe is also a director
of Centura Software, a public company, Gartner Group, a public company and
several other companies in the computer software and services industry, in which
General Atlantic Partners, or one of its affiliates, is an investor.
Bernard M. Goldsmith
Mr. Goldsmith, age 53, has served as a director of the Company since July
1992. Mr. Goldsmith has been the Managing Director of The Updata Group, Inc., an
investment banking firm, since 1986.
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<PAGE>
G. Scott Romney
Mr. Romney, age 56, has served as a director of the Company since January
1996. Mr. Romney has been a partner at Honigman Miller Schwartz and Cohn, a law
firm, since 1977. The law firm serves as counsel to the Company.
William R. Halling
Mr. Halling, age 58, has served as a director of the Company since October
1996. Mr. Halling was with KPMG Peat Marwick from 1961-1993, where he served as
a Managing Partner and member of the Board of Directors.
Lowell P. Weicker, Jr.
Mr. Weicker, age 66, has served as a director of the Company since October
1996. Mr. Weicker previously served as a Connecticut State Representative
(1962-1968), as U.S. Senator from that state (1970-1988), and as Connecticut's
Governor (1990-1994). He is presently a visiting professor at the University of
Virginia in Charlottesville. Mr. Weicker currently serves on the Board of
Directors of Duty Free International, HPSC, Inc., UST Corporation, and Phoenix
Duff & Phelps Mutual Funds.
The Board of Directors recommends a vote FOR these nominees.
8
<PAGE>
II. FISCAL 1998 STOCK OPTION PLAN
The Company's Fiscal 1996 Stock Option Plan was approved by the Company's
shareholders on August 22, 1995. Under the 1996 Plan, options to purchase
7,150,000 shares of the Company's Common Stock were authorized for grant to
executive or management employees of the Company or its subsidiaries. As of June
30, 1997, only 806,789 shares remained reserved for grants under the 1996 Plan.
The Board of Directors will present to the meeting a proposal to approve
the adoption of a new stock option plan entitled the Fiscal 1998 Stock Option
Plan (the "1998 Plan").
The Board of Directors believes that it will be advantageous to the Company
and its shareholders to institute a new stock option plan for its officers and
key employees. The purpose of the 1998 Plan is to provide such employees with a
proprietary interest in the Company through the granting of options which will
increase the interest in the Company's welfare of those employees who share the
primary responsibility for the management, growth and protection of the business
of the Company, furnish incentive to such employees to continue their services
to the Company and provide a means by which the Company may attract and retain
persons of outstanding competence.
The 1998 Plan is substantially similar to the 1996 Plan. Under the 1998
Plan, options to purchase Common Stock of the Company may be granted to present
and prospective employees of the Company or its subsidiaries up to an aggregate
of common shares. The Board of Directors approved the 1998 Plan on
June 24, 1997, subject to approval by the Company's shareholders.
The full text of the 1998 Plan is set forth in Appendix A to this Proxy
Statement. The major features of the 1998 Plan are summarized below, but this
summary is qualified in its entirety by reference to the actual text.
Capitalized terms not otherwise defined have the meanings given them in the 1998
Plan.
Administration
The 1998 Plan is administered by a committee (the "Committee") meeting the
standards of Rule 16b-3 of the Securities Exchange Act of 1934, as amended,
appointed by the Board of Directors. No member of the Committee shall be
eligible to receive an option under the 1998 Plan. The Committee may from time
to time grant options to officers and other key employees of the Company and its
subsidiaries ("Participants"). The Committee may only grant options
("Nonqualified Options") that are not qualified under Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). Shares covered by
canceled or expired options under the 1998 Plan are again available for option
and sale thereunder.
Within the limitations contained in the 1998 Plan, the Committee determines
the persons eligible to participate in the 1998 Plan, the participants to whom
options are to be granted, the number of shares covered, the option exercise
price, and any other terms it deems appropriate.
Plan Participants
The selection of persons who are eligible to participate in the 1998 Plan
is determined by the Committee. No individual may be granted options to purchase
more than 1,000,000 shares of the Company's Common Stock in any one year.
Grant and Exercise of Stock Options
Any option granted under the 1998 Plan will have an exercise price not less
than the fair market value of the shares on the date on which such option is
granted. Each option becomes exercisable at such time or times as the
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Committee may determine. At the time of the exercise of any option granted
pursuant to the 1998 Plan, the Participant must pay to the Company the full
option price for all shares purchased. No stock option granted under the 1998
Plan may remain outstanding for more than 8 years from the date of grant. Upon
the termination of employment or retirement of a Participant the Committee may,
in its discretion, permit any options outstanding to be exercised by the
Participant or by the Participant's personal representative following the
termination of employment, provided that no option may be exercised subsequent
to its expiration date.
Sequential Exercise
Successive stock options may be granted to the same Participant whether or
not any stock option previously granted to such Participant remains unexercised.
An option may be exercised even though stock options previously granted to such
Participant remain unexercised.
Non-Transferability of Stock Options
Except as otherwise described below, or to the extent determined by the
Committee in its sole discretion (either by resolution or by a provision in, or
amendment to, the option), (i) no option granted under the 1998 Option Plan to a
Participant shall be transferable by such Participant otherwise than by will, or
by the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined in the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, and (ii) each option is
exercisable, during the lifetime of the Participant, only by the Participant.
The Committee may, in its sole discretion, authorize all or a portion of
the options granted to an optionee to be transferred by such optionee to, and to
be exercisable by, (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, (iii) a partnership in which such Immediate
Family Members are the only partners, or (iv) such other persons or entities as
determined by the Committee, in its sole discretion, on such terms and
conditions as the Committee, in its dole discretion, may determine. Subsequent
transfers of transferred options are prohibited except for transfers the
original optionee would be permitted to make (if he or she were still the owner
of the option), in accordance with the 1998 Option Plan.
Following transfer, any such options shall continue to be subject to the
same terms and conditions as were applicable immediately before transfer,
provided that for some purposes under the 1998 Option Plan (generally relating
to exercise of the option) the term "Participant" shall be deemed to refer to
the transferee. Following the termination of employment of the original
optionee, the options are exercisable by the transferee only to the extent, and
for the period, permitted by the Committee. The Company has no obligation to
provide any notice to any transferee, including, without limitation, notice of
any termination of the option as a result of termination of the original
optionee's employment with the Company.
Amendment or Termination of the Plan
The Board of Directors may terminate or amend the 1998 Plan at any time;
provided, that without shareholder approval, the Board may not amend the 1998
Plan so as to increase the maximum number of shares in the aggregate which are
subject to the 1998 Plan, modify the requirements as to eligibility for
participation under the 1998 Plan or materially increase the benefits accruing
to the participants under the 1998 Plan, and, without the consent of the holder,
the Board may not change the stock option price or alter any stock option which
has been previously granted under the 1998 Plan. In the event of a change in the
Common Stock through stock dividend, recapitalization, reorganization or the
like, the Committee is authorized to make appropriate adjustments, including
adjustments to the number and price of shares of Common Stock covered by each
option and the total number of shares subject to options under the 1998 Plan.
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Unless sooner terminated by the Board of Directors, the 1998 Plan will
terminate on August 26, 2007. The termination of the 1998 Plan will not affect
the validity of any stock option outstanding on the date of termination.
Federal Income Tax Consequences
The rules governing the tax treatment of options and stock acquired upon
the exercise of options are quite technical. Therefore, the description of tax
consequences set forth below is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are subject to change, as
are their interpretations, and their application may vary in individual
circumstances. Finally, the tax consequences under applicable state and local
income tax laws may not be the same as under the federal income tax laws. The
federal income tax consequences of the grant and exercise of options under the
1998 Plan and the subsequent disposition of shares of Common Stock acquired
thereby may be summarized as set forth below.
A Participant who is granted a Nonqualified Option generally will not
realize any taxable income upon the grant of the option. Upon exercise of the
option, the amount by which the fair market value of the shares at the time of
exercise (or in some cases on the date six months after the date of exercise)
exceeds the option price, is treated as compensation (ordinary income) received
by the Participant. The Company will ordinarily be entitled to a corresponding
tax deduction at the time that the Participant realizes compensation income.
Upon subsequent disposition by sale of any the shares acquired, the Participant
recognizes a long-term or short-term capital gain or loss equal to the
difference between any amount realized and the Participant's basis in the
shares.
Limitation on Compensation Deduction
Publicly-held corporations are precluded from deducting compensation paid
to certain of their executive officers in excess of $1 million. The employees
covered by the $1 million limitation on deductibility of compensation include
the chief executive officer and those employees whose annual compensation is
required to be reported to the Securities and Exchange Commission because the
employee is one of the company's four highest compensated employees for the
taxable year (other than the chief executive officer).
Compensation attributable to stock options generally is included in an
employee's compensation for purposes of the $1 million limitation on
deductibility of compensation. However, there is an exception to the $l million
deduction limitation for compensation (including compensation attributable to
stock options) paid pursuant to a qualified performance-based compensation plan.
Compensation attributable to a stock option is deemed to satisfy the qualified
performance-based compensation exception if (i) the grant is made by a
compensation committee comprised of outside directors, (ii) the plan under which
the options may be granted states the maximum number of shares with respect to
which options may be granted during a specified period to any employee, (iii)
under the terms of the option, the amount of compensation the employee would
receive is based solely on an increase in the value of the shares after the date
of the grant (e.g., the option is granted at fair market value as of the date of
the grant), and (iv) the individuals eligible to receive grants, the maximum
number of shares for which grants may be made to any employee, the exercise
price of the options and other disclosures required by SEC proxy rules are
disclosed to, and subsequently approved by, shareholders.
In order to satisfy the shareholder approval requirements applicable to
qualified performance-based compensation plans, there must be a separate
shareholder vote in which a majority of the votes cast on the issue are cast in
favor of approval. The 1998 Option Plan is being submitted to shareholders at
the meeting in part, to satisfy this requirement. If the shareholder approval
and the other requirements applicable to qualified performance-based
compensation plans are satisfied (including grant by a committee of outside
directors), the $1 million compensation deduction limitation will not apply to
stock options with an exercise price equal to a greater than the fair market
value of the underlying shares on the date of grant.
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The approval of the 1998 Stock Option Plan requires the affirmative vote of
the holders, as of the record date, of a majority of the votes cast at the
meeting. Abstentions, broker non-votes and withheld votes will not be deemed
votes cast at the meeting, but will be counted in determining whether a quorum
is present.
The Board of Directors recommends a vote FOR approval of the 1998 Stock
Option Plan.
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III. PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
Article III (1) of the Company's Restated Articles of Incorporation
presently provides for an authorized capitalization of the Company of
200,000,000 shares of Common Stock, $0.01 par value per share, and 5,000,000
shares of Class A Preferred Stock, no par value. As of July 1, 1997, none of the
shares of Class A Preferred Stock were issued and outstanding, and 86,413,919
shares of Common Stock were issued and outstanding with a total of 1,289,553
additional shares of Common Stock reserved for issuance of stock options under
the Company's stock option plans. During fiscal 1997, the Company adopted the
Global Employee Stock Purchase Plan under which it is authorized to grant
2,000,000 shares of Common Stock.
The Board of Directors of the Company has proposed an amendment to Article
III (1) of the Company's Restated Articles of Incorporation to increase, from
200,000,000 to 400,000,000, the number of authorized shares of Common Stock. A
copy of Article III(1) showing the proposed amendment is set forth in Appendix
B.
If the proposal is approved by the shareholders of the Company, the
additional 200,000,000 shares of Common Stock so authorized will be available
for issuance by the Board of Directors of the Company for stock splits or stock
dividends, acquisitions, raising additional capital, stock options or other
corporate purposes. The Company has no definitive plans to issue any additional
shares at this time.
The Company does not anticipate that it would seek authorization from the
shareholders for issuance of any other additional shares in the future unless
required by applicable law or regulations. Any additional shares, when issued,
would have the same rights and preferences as the shares of Common Stock
presently outstanding. There are not preemptive rights available to shareholders
in connection with the issuance of any such shares.
One of the effects of the amendment, if adopted, may be to enable the Board
to render it more difficult to, or discourage an attempt to, obtain control of
the Company by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of present management. The Board would, unless
prohibited by applicable law, have additional shares of Common Stock available
to effect transactions (including private placements) in which the number of the
Company's outstanding shares would be increased and would thereby dilute the
interest of any party attempting to gain control of the Company. Such action,
however, could discourage an acquisition of the Company which shareholders might
view as desirable. In addition, since the Company's shareholders have no
preemptive rights to purchase additional shares of Common Stock issued, the
issuance of such shares could dilute the interest of current shareholders of the
Company.
The approval of this proposal to amend the Company's Restated Articles of
Incorporation to increase the number of authorized shares of Common Stock
requires the affirmative vote of the holders, as of the record date, of the
majority of the outstanding shares of Common Stock. Abstentions and broker
non-votes will not be deemed affirmative votes, and will have the same effect as
a negative vote on the proposal. Such votes, however, will be counted in
determining whether a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO ARTICLE III(1) OF THE COMPANY'S ARTICLES OF INCORPORATION.
13
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended March 31, 1997, 1996 and 1995 concerning the compensation of Compuware's
Chief Executive Officer and of each of Compuware's other five most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
----------------
Securities Annual Compensation
- --------------------------------------------------------------------------------------------------------------------------
Securities
Underlying
Fiscal All Other Option Awards
Name and Principal Positions Year Salary Bonus Compensation(2)
- ----------------------------------------------------------------- ------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Peter Karmanos, Jr. (1) 1997 $500,000 1,330,000 0 532,000
Chairman of the Board and 1996 636,000 0 2,657 (2) 40,000
Chief Executive Officer 1995 618,000 0 3,109 (2) 0
Joseph A. Nathan 1997 400,000 1,064,000 0 425,600
President and Chief 1996 530,000 0 2,657 (2) 200,000
Operating Officer 1995 515,000 0 3,109 (2) 0
Stephen H. Fagan 1997 300,000 798,000 0 319,200
Senior Vice President 1996 350,000 0 1,550 (2) 110,000
Professional Services 1995 299,000 293,000 0 900
W. James Prowse 1997 320,000 445,600 0 178,240
Senior Vice President 1996 320,000 0 2,657 (2) 50,000
Marketing and Communications 1995 412,000 0 3,109 (2) 0
John N. Shevillo 1997 300,000 798,000 0 319,200
Senior Vice President 1996 424,000 0 2,657 (2) 80,000
Enterprise Solutions 1995 412,000 0 3,109 (2) 0
Henry A. Jallos 1997 300,000 798,000 0 319,200
Senior Vice President 1996 320,000 0 2,657 (2) 120,000
Worldwide Sales 1995 310,000 0 3,109 (2) 0
</TABLE>
(1) In fiscal 1997, 1996 and 1995, Compuware paid premiums of approximately
$185,000 in each year in connection with a split dollar life insurance
arrangement maintained on the life of Mr. Karmanos. In connection with that
arrangement, the insurance premiums paid with respect to term life
insurance and a portion of the whole life insurance were paid by Mr.
Karmanos's children or trusts for their benefit. The premiums paid by
Compuware will be repaid to it upon the earliest to occur of Mr. Karmanos's
death or retirement, the cancellation of the policies or the transfer of
the policies to Mr. Karmanos's children or trusts for their benefit. It is
currently anticipated that such premiums will be repaid to Compuware in
approximately 6 years, when the policies, if still outstanding, will be
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<PAGE>
transferred to Mr. Karmanos's children or trusts for their benefit. At that
time, the cash surrender value of the policies is expected to be equal to
the aggregate premiums to be repaid to Compuware.
(2) The amounts shown for fiscal 1996 and 1995 represent the value of the stock
allocation, valued at $2,657 and $3,109, respectively, under the provisions
of the Compuware Employee Stock Ownership Plan (ESOP) a qualified
contribution plan open to all Compuware employees after the completion of
one year of service. Each executive officer, excluding Mr. Fagan, received
an allocation of 231.08 and 168.04 common shares on March 31, 1996 and
1995, respectively. Mr. Fagan received an allocation of 134.80 common
shares on March 31, 1996 valued at $1,550. The amount shown is based on the
closing price of Compuware's Common Stock on The Nasdaq Stock Market, Inc.
on March 31, 1996 and 1995 of $11.50 and $18.50 respectively. The executive
officers elected not to receive an ESOP allocation for fiscal 1997.
Option Grants in Last Fiscal Year
The following table sets forth information concerning the number of options
granted, exercise price and potential realized value at assumed annual rates of
stock price appreciation for the option term for grants to each of the executive
officers named in the Summary Compensation Table above as of March 31, 1997:
Individual Grants
<TABLE>
<CAPTION>
Potential Realized Value
Percentage of at Assumed Annual Rates
Total Options of Stock Price Appreciation
Granted to for Option Term
Options Employees in Exercise Expiration ------------------------------
Name Granted Fiscal 1997 Price Date 5%($) 10%($)
- ------------------- ---------- ------------------ ------------ ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Peter Karmanos, Jr. 532,000 . 12.36% $31.375 3/31/07 $10,497,194 $26,601,952
Joseph A. Nathan 425,600 9.89% 31.375 3/31/07 8,397,755 21,281,561
W. James Prowse 8,000 0.19% 12.500 4/15/06 62,889 159,374
170,240 3.96% 31.375 3/31/07 3,359,102 8,512,624
John N. Shevillo 319,200 7.42% 31.375 3/31/07 6,298,316 15,961,171
Stephen H. Fagan 319,200 7.42% 31.375 3/31/07 6,298,316 15,961,171
Henry A. Jallos 319,200 7.42% 31.375 3/31/07 6,298,316 15,961,171
</TABLE>
15
<PAGE>
Aggregated Option Exercises and Fiscal 1997 Option Value Table
The following table sets forth information concerning the number of options
exercised, value realized (market price less the exercise price) and the value
of unexercised in-the-money stock options held by each of the executive officers
named in the Summary Compensation Table above as of March 31, 1997:
Aggregated Option Exercises in Fiscal 1997
and Option Values at March 31, 1997
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARS at Options/SARS at
March 31, 1997 (#) March 31, 1997 ($)
-------------------------- --------------------------
Shares
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable/(1)
- -------------------- ------------------ ---------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Peter Karmanos, Jr. N/A N/A 1,292,400 $33,270,210
572,000 $815,000
Joseph A. Nathan 27,200 $762,933 570,400 13,540,300
625,600 4,075,000
W. James Prowse N/A N/A 632,400 16,559,430
228,240 1,169,750
John N. Shevillo 47,800 942,855 166,200 4,027,605
399,200 1,630,000
Stephen H. Fagan N/A N/A 560,850 13,518,639
429,650 2,246,509
Henry A. Jallos N/A N/A 219,900 5,281,523
439,200 2,445,000
</TABLE>
(1) Represents the amount by which the market price of the Company's common
stock exceeded the exercise price of the outstanding options on March 31,
1997. Market price is based on the closing price on The Nasdaq Stock
Market, Inc. on that date of $31.375.
16
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has issued the
following report on executive compensation:
Objectives and Policies
The Compensation Committee works with senior management of the Company to
develop and implement compensation policies, plans and programs designed to
provide strong incentives for the achievement of corporate and individual
performance goals. The Compensation Committee seeks to:
o provide rewards which are closely linked to Company and individual
performance;
o align the interests of the Company's employees with those of its
shareholders through potential stock ownership; and
o ensure that compensation and benefits are at levels which enable the
Company to attract and retain the high quality employees it needs.
Consistent with these objectives and in keeping with the long-term focus
required for the Company's business, it is the policy of the Compensation
Committee to make a high proportion of executive officer compensation and awards
under stock ownership programs dependent on long-term performance and enhancing
shareholder value.
The Company employs a formal system for developing measures of and
evaluating executive officer performance. Executive officer base salary and
individual bonus awards are determined with reference to Company-wide,
divisional and individual performance for the previous fiscal year, based on a
wide range of quantitative and qualitative measures which permit comparisons
with competitors' performance and internal targets set before the start of each
fiscal year. Quantitative measures include earnings and revenue growth. In
addition to Company-wide measures of performance, the Company considers
subjective performance factors particular to each executive officer, such as
individual managerial accomplishments and the performance of the division or
divisions for which such officer had management responsibility.
Within the total number of shares authorized by shareholders, the
Compensation Committee aims to provide stock option awards broadly and deeply
throughout the organization. Individual executive officer stock option awards
are based on level of position, individual contribution and the Company's stock
ownership objectives for executives. The Company's long-term performance
ultimately determines compensation from stock options, since stock option value
is entirely dependent on the long-term growth of the Company's stock price.
Current Executive Compensation
Executive compensation agreements expired on December 31, 1995. Upon
expiration of the revised agreements, the Company reviewed the compensation
packages for each of the executive officers. Each executive officer executed an
employment agreement with the Company. The agreements contain certain provisions
which prohibit the executive officers from competing with the Company or
soliciting the Company's employees upon the officer's termination of employment.
The employment agreements also prohibit the use of the Company's confidential
information upon termination of employment.
17
<PAGE>
Messrs. Karmanos, Nathan and Prowse executed employment agreements which
expire on March 31, 2000. Messrs. Jallos and Shevillo executed employment
agreements which expire on March 31, 1998. Under the current agreements,
executive base salary was restructured. Executive base salary for each of the
executive officers for fiscal 1998 is as follows: Mr. Karmanos, $600,000; Mr.
Nathan, $500,000; Mr. Prowse $350,000; Mr. Jallos, $330,000; Mr. Fagan,
$315,000; and Mr. Shevillo, $300,000. Further, under the current agreements
incentive goals were increased by altering the bonus structure from one based on
a fraction of the executive's salary to one based on a multiple of the
executive's salary. The executive officers are now eligible to receive an annual
bonus only if earnings per share and performance targets for the Company as a
whole are achieved. Bonuses were paid to the executive officers in fiscal 1997.
Executive officers were granted option shares in October 1995 and March
1997. Fifty percent of the option shares will vest under the terms of the plan
on the third anniversary date of the grant; twenty-five percent of the option
shares will vest under the terms of the plan on the fourth and fifth anniversary
dates of the grant.
COMPENSATION COMMITTEE
Bernard M. Goldsmith
William R. Halling
Lowell P. Weicker, Jr.
PERFORMANCE GRAPH
The following line graph compares (i) the cumulative total shareholder
return on the Company's Common Stock, with (ii) the Total Return Index for The
Nasdaq Stock Market, Inc., and with (iii) the Total Return Index for Nasdaq
Computer and Data Processing Services Stocks for the periods ended March 31,
1994, March 31, 1995, March 31, 1996, and March 31, 1997, using the Company's
initial public offering date of December 15, 1992 as the starting date of $100
invested in Compuware Common Stock and each of the two Nasdaq indexes.
The graph displayed below is presented in accordance with SEC requirements.
Shareholders are cautioned against drawing any conclusions from the data
contained therein, as past results are not necessarily indicative of future
performance. This graph does not necessarily reflect the Company's forecast of
future financial performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
Period Ending March 31, 1997
Nasdaq
Measurement Period Nasdaq Stock
(Fiscal Year Covered) Compuware Industry Index Market Index
3/31/93 135.00 109.00 106.00
3/31/94 192.00 112.00 122.00
3/31/95 168.00 151.00 130.00
3/31/96 105.00 214.00 175.00
18
<PAGE>
Compensation of Directors
Under the Non-Employee Director Stock Option Plan, Mr. Goldsmith was
granted options to purchase 30,000 shares of Common Stock, which are exercisable
over a four year period at 7,500 shares per year beginning July 8, 1993. All
directors, including Mr. Goldsmith, are also entitled to reimbursement for
out-of-pocket expenses incurred in connection with attendance at Board of
Directors and Committee meetings. In accordance with the new fee arrangement
approved by the Compensation Committee for non-employee directors, non-employee
directors received a fee of $2,000 for each Board and/or Committee meeting
attended in fiscal 1997. Also, in accordance with the new fee arrangement, new
non-employee directors will receive a one-time grant of 40,000 option shares,
and each non-employee director will receive an annual grant of 10,000 option
shares.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended March 31, 1997, Messrs. Karmanos, Goldsmith,
Halling, Romney and Weicker served as members of the Company's Compensation
Committee. Mr. Karmanos resigned from the Compensation Committee on June 11,
1997. Mr. Romney resigned from the Compensation Committee on January 21, 1997.
Mr. Karmanos has served as the Company's Chairman of the Board since November
1978, Chief Executive Officer since July 1987 and served as President from
January 1992 until October 1994. Mr. Goldsmith is a director of the Company and
of The Updata Group, Inc., an investment banking firm whose services have been
used occasionally by the Company. Mr. Romney is a director of the Company and a
partner at Honigman Miller Schwartz and Cohn, a law firm whose services have
been used by the Company. Messrs. Halling and Weicker have never been officers
or employees of the Company or any of its subsidiaries.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
10% shareholders are required by Commission regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the two fiscal years ended March 31, 1997 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
Related Transactions
George Karmanos, the brother of Peter Karmanos, Jr., owns Karmanos Printing
and Graphics, which provides certain printing services to the Company, including
the printing of Company brochures, stationery, envelopes, business cards,
invoices and other office supplies. For fiscal 1997 the Company paid $759,000 to
such company for printing costs. The Company believes that such printing
services were provided to the Company on terms that were no less favorable to
the Company than could have been obtained from unaffiliated third parties.
Peter Karmanos, Jr. owns 50% of the common stock of Compuware Sports
Corporation ("CSC"), which operates an amateur hockey program. Thomas Thewes, a
director of the Company, owns 50% of the common stock of CSC. One of CSC's
teams, the Plymouth Whalers, plays in the Ontario Hockey League and supplies
players to the National Hockey League ("NHL"); the other team, the Compuware
Junior Ambassadors, plays in the North American Junior Hockey League ("NAJHL"),
which primarily supplies players to leading college hockey programs.
19
<PAGE>
On September 8, 1992, Compuware entered into a Promotion Agreement with CSC to
promote and sponsor Compuware's business. The Promotion Agreement is renewable
on an annual basis. For the year ended March 31, 1997, the Company paid an
aggregate of $600,000 pursuant to this Promotion Agreement. As of March 31,
1997, the Company has a $300,000 note receivable from CSC. The note matures in
fiscal 1999 and bears interest at the rate of 5.53%.
The Company's sponsorship of CSC provides promotional benefits to the
Company primarily in Southeastern Michigan and Ontario, Canada and, to a lesser
extent, in other parts of North America by increasing potential customers'
awareness of the Company's software products and professional services. The CSC
hockey teams prominently display the Compuware name on their promotional
material. The Company believes that its support of the CSC hockey programs
generates benefits including local advertising, significant local recognition
for the Compuware name in the geographic markets where the team competes, name
recognition with other corporate sponsors of amateur and professional hockey and
name recognition for the Company more generally in markets where NHL teams are
popular. In addition, the Company believes that its ability to attract qualified
candidates is enhanced by the name recognition that Compuware has in the
marketplace as a result of its sponsorship of the hockey programs. The Plymouth
Whalers play home games before audiences which have average attendance in excess
of 6,000 per game. In addition, the Plymouth Whalers play away games in fourteen
Midwestern and Northeastern markets, including Windsor, and Niagara Falls,
Ontario where attendance averages 3,000 per game. As the Company has grown,
sales representatives and management continue to find that major corporate
clients and potential clients recognize Compuware as a major hockey supporter.
Peter Karmanos, Jr. and Thomas Thewes, both directors of the Company, are
the major stockholders of the Carolina Hurricanes Hockey Club of the National
Hockey League. Prior to the Club's relocation to North Carolina in 1997, the
Club was known as the Hartford Whalers Hockey Club. The Company provided
approximately $286,000 in computer programming services to the Club in fiscal
1997.
Bernard Goldsmith, a director of the Company, is the managing director of
The Updata Group, Inc. ("Updata"). Updata received approximately $295,000 from
the Company upon the completion of the acquisition in May 1996 of Adams &
Reynolds & Company for services rendered to the Company in connection with the
acquisition.
G. Scott Romney, a director of the Company, is a partner in the law firm of
Honigman Miller Schwartz & Cohn ("Honigman"). Honigman was engaged by the
Company to perform legal services in fiscal 1997, and it is anticipated that
Honigman will continue to be so engaged in fiscal 1998.
SHAREHOLDER PROPOSALS
Shareholders may submit proposals to be considered for shareholder action
at the 1998 Annual Meeting if they do so in accordance with the appropriate
regulations of the Securities and Exchange Commission. Any such proposals must
be submitted to the Company's Secretary no later than March 27, 1998.
20
<PAGE>
APPENDIX A
COMPUWARE CORPORATION
Fiscal 1998 Stock Option Plan
1. Definitions: As used herein, the following definitions shall apply:
(a) "Plan" shall mean this Compuware Corporation Fiscal 1998 Stock Option
Plan.
(b) "Corporation" shall mean Compuware Corporation, a Michigan corporation,
or any successor thereof.
(c) "Committee" shall mean a committee meeting the standards of Rule 16b-3
of the Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any similar successor rule, appointed by the
Board of Directors of the Corporation to administer the Plan or, if no such
committee is appointed, the Board of Directors as a whole.
(d) "Participant" shall mean any individual designated by the Committee
under Paragraph 6, for participation in the Plan.
(e) "Nonqualified Option" shall mean an option to purchase Common Stock of
the Corporation which meets the requirements set forth in the Plan but does not
meet the definition of an incentive stock option set forth in Section 422A of
the Internal Revenue Code of 1986, as amended.
2. Purpose of Plan: The purpose of the Plan is (a) to provide employees,
including officers of the Corporation and its subsidiaries, with an increased
incentive to make significant and extraordinary contributions to the long-term
performance and growth of the Corporation and its subsidiaries, (b) to join the
interests of the employees with the interests of the shareholders of the
Corporation and (c) to facilitate attracting and retaining employees of
exceptional ability. For purposes of the Plan, a "subsidiary" is any corporation
in which the Corporation owns, directly or indirectly, stock possessing more
than fifty percent (50%) of the combined voting power of all classes of stock.
3. Administration: The Plan shall be administered by the Committee. Subject
to the provisions of the Plan, the Committee shall determine, from those
eligible to be Participants under the Plan, the persons to be granted stock
options, the number of shares of stock subject to options granted to each such
person, and the terms and conditions of any stock options. Subject to the
provisions of the Plan, the Committee is authorized to interpret the Plan, to
promulgate, amend and rescind rules and regulations relating to the Plan and to
make all other determinations necessary or advisable for its administration.
Interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive. Acts approved by a majority of the members
present at any meeting at which a quorum is present, or acts unanimously
approved in writing by the Committee, shall be the acts of the Committee.
4. Indemnification of Committee Members: In addition to such other rights
of indemnification as they may have, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by the Board of
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<PAGE>
Directors of the Corporation) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such Committee
member has acted in bad faith; provided, however, that within sixty (60) days
after receipt of notice of institution of any such action, suit or proceeding a
Committee member shall offer the Corporation in writing the opportunity, at its
own cost, to handle and defend the same.
5. Maximum Number of Shares Subject to Plan: The maximum number of shares
with respect to which stock options may be granted under the Plan shall be
4,000,000 shares in the aggregate of Common Stock of the Corporation, which may
consist in whole or in part of the authorized and unissued or reacquired Common
Stock of the Corporation. If a stock option terminates for any reason without
having been fully exercised, the number of shares with respect to which the
stock option was not exercised at the time of its expiration or termination
shall again become available for the grant of stock options under the Plan,
unless the Plan shall have been terminated.
The number of shares subject to each outstanding stock option, the option
price with respect to outstanding stock options, and the aggregate number of
shares remaining available under the Plan shall be subject to such adjustment as
the Committee, in its discretion, deems appropriate to reflect such events as
stock dividends, stock splits, recapitalizations, mergers, consolidations or
reorganizations of or by the Corporation; provided, however, that no fractional
shares shall be issued pursuant to the Plan, no rights may be granted under the
Plan with respect to fractional shares and any fractional shares resulting from
such adjustments shall be eliminated from any outstanding stock option.
6. Participants. The Committee shall determine and designate from time to
time, in its sole discretion, those employees, including officers of the
Corporation or any subsidiary, to whom stock options are to be granted or
awarded and who thereby become Participants under the Plan.
7. Written Agreement: Each stock option shall be evidenced by a written
agreement between the Corporation and the Participant and shall contain such
provisions as may be approved by the Committee. Such agreements shall constitute
binding contracts between the Corporation and the Participant, and every
Participant, upon acceptance of such agreement, shall be bound by the terms and
restrictions of the Plan and of such agreement. The terms of each such agreement
shall be in accordance with the Plan, but the agreements may include such
additional provisions and restrictions as are determined by the Committee,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan.
8. Allotment of Shares. The Committee shall determine and fix the number of
shares of stock with respect to which each Participant may be granted stock
options; provided, that no optionee shall be granted options to purchase more
than 1,000,000 shares under the Plan during any year.
9. Stock Options: Each option granted under the Plan shall be a
Nonqualified Option.
10. Stock Option Price: Subject to the rules set forth in this Paragraph
10, at the time any stock option is granted, the Committee shall establish the
price per share for which the shares covered by the option may be purchased;
provided, that the option price shall not be less than 100% of the fair market
value of the stock on the date such option is granted. Fair market value of a
share shall be determined by the Committee and may be determined by taking the
closing selling price of the Corporation's stock on any exchange or other market
on which the shares of Common Stock of the Corporation shall be traded on such
date. The option price will be subject to adjustment in accordance with the
provisions of Paragraph 5 of the Plan.
11. Payment of Stock Option Price: At the time of the exercise in whole or
in part of any stock option granted hereunder, payment of the option price in
full in cash or, with the consent of the Committee, in Common Stock of the
Corporation or by a promissory note payable to the order of the Corporation
which is acceptable to the Committee, shall be made by the Participant for all
shares so purchased. Such payment may, with
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<PAGE>
the consent of the Committee, also consist of a cash down payment and delivery
of such a promissory note in the amount of the unpaid exercise price. No
Participant shall have the rights of a shareholder of the Corporation under any
stock option until the actual issuance of shares to said Participant, and prior
to such issuance no adjustment shall be made for dividends, distributions or
other rights in respect of such shares, except as provided in Paragraph 5.
12. Granting and Exercise of Stock Options: Each stock option granted
hereunder shall be exercisable at any such time or times or in any such
installments as may be determined by the Committee at the time of the grant.
A Participant may exercise a stock option, if then exercisable, in whole or
in part by delivery to the Corporation of written notice of the exercise, in
such form as the Committee may prescribe, accompanied by full payment for the
shares with respect to which the stock option is exercised. Except as provided
in Paragraph 16, stock options may be exercised only while the Participant is an
employee of the Corporation or a subsidiary.
Successive stock options may be granted to the same Participant, whether or
not the stock option(s) previously granted to such Participant remain
unexercised. A Participant may exercise a stock option, if then exercisable,
notwithstanding that stock options previously granted to such Participant remain
unexercised.
13. Transferability of Stock Options: Except as otherwise provided in this
Paragraph 13 or to the extent determined by the Committee in its sole discretion
(either by resolution or by a provision in, or amendment to, the option), (a) no
option granted under the Plan to a Participant shall be transferable by such
Participant otherwise than (1) by will, or (2) by the laws of descent and
distribution or, (3) pursuant to a qualified domestic relations order as defined
in the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder, and (b) such option shall be exercisable, during the lifetime
of the Participant, only by the Participant.
The Committee may, in its sole discretion, authorize all or a portion of
the options granted to an optionee to be transferred by such optionee to, and to
be exercised by, (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, (iii) a partnership in which such Immediate
Family Members are the only partners, or (iv) such other persons or entities as
determined by the Committee, in its sole discretion, on such terms and
conditions as the Committee, in its sole discretion, may determine; provided
that (y) the stock option agreement pursuant to which such options are granted
must be approved by the Committee and must expressly provide for transferability
in a manner consistent with this Paragraph 13, and (z) subsequent transfers of
transferred options shall be prohibited except for transfers the original
optionee would be permitted to make (if he or she were still the owner of the
option) in accordance with this Paragraph 13.
Following transfer, any such options shall continue to be subject to the
same terms and conditions as were applicable immediately before transfer,
provided that for purposes of Paragraphs 11, 12, 17, 18 and 22 the term
"Participant" shall be deemed to refer to the transferee. The events of
termination of employment of Paragraph 16 shall continue to be applied with
respect to the original optionee, following which the options shall be
exercisable by the transferee only to the extent, and for the periods, specified
in Paragraph 16. The original optionee shall remain subject to withholding taxes
and related requirements upon exercise provided in Paragraph 20. The Company
shall have no obligation to provide any notice to any transferee, including,
without limitation, notice of any termination of the option as a result of
termination of the original optionee's employment with, or other service to, the
Company.
14. Term of Stock Options: If not sooner terminated, each stock option
granted hereunder shall expire not more than 10 years from the date of the
granting thereof.
15. Continuation of Employment: The Committee may require, in its
discretion, that any Participant under the Plan to whom a stock option shall be
granted shall agree in writing as a condition of the
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<PAGE>
granting of such stock option to remain in the employ of the Corporation or a
subsidiary for a designated minimum period from the date of the granting of such
stock option as shall be fixed by the Committee.
16. Termination of Employment. If the employment of a Participant by the
Corporation or a subsidiary shall be terminated, the Committee may, in its
discretion, permit the exercise of stock options granted to such Participant for
a period not to extend beyond the expiration date with respect to such
Nonqualified Options. In no event, however, shall a stock option be exercisable
subsequent to its expiration date. Furthermore, except for (i) the Participant's
death or disability, or (ii) special circumstances approved by the Committee, a
stock option may only be exercised after termination of a Participant's
employment to the extent exercisable on the date of termination of employment.
17. Accelerated Vesting: In the event that the Corporation is acquired by a
third party, regardless of the form of the acquisition (the "Acquisition"), the
options granted under this Plan shall automatically vest to any Participant
under the Plan who is employed by the Corporation or a subsidiary on the
effective date of the Acquisition. The "effective date" shall be deemed to be
the closing date of the Corporation's Acquisition. The value per share of each
such stock option to the Participant shall be the fair market value of the
Corporation's Common Stock on the effective date of the Acquisition (less the
exercise price).
18. Investment Purpose: If the Committee in its discretion determines that
as a matter of law such procedure is or may be desirable, it may require a
Participant upon any acquisition of stock hereunder by reason of the exercise of
stock options and as a condition to the Corporation's obligation to deliver
certificates representing such shares, to execute and deliver to the Corporation
a written statement, in a form satisfactory to the Committee, representing and
warranting that the Participant's acquisition of shares of stock shall be for
such person's own account, for investment and not with a view to the resale or
distribution thereof and that any subsequent offer for sale or sale of any such
shares shall be made either pursuant to (a) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), which Registration Statement has become effective and is current with
respect to the shares being offered and sold, or (b) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption the Participant shall, prior to any offer for sale or sale of such
shares, obtain a favorable written opinion from counsel for or approved by the
Corporation as to the availability of such exemption. The Corporation may
endorse an appropriate legend referring to the foregoing restriction upon the
certificate or certificates representing any shares issued or transferred to the
Participant under this Plan.
19. Rights to Continued Employment. Nothing contained in the Plan or in any
stock option granted or awarded pursuant to the Plan, nor any action taken by
the Committee hereunder, shall confer upon any Participant any right with
respect to continuation of employment by the Corporation or a subsidiary as an
employee nor interfere in any way with the right of the Corporation or a
subsidiary to terminate such person's employment as an employee at any time with
or without cause.
20. Withholding Payments: If upon the exercise of a Nonqualified Option
there shall be payable by the Corporation or a subsidiary any amount for income
tax withholding, in the Committee's sole discretion, either the Corporation
shall appropriately reduce the amount of stock or cash to be paid to the
Participant or the Participant shall pay such amount to the Corporation or
subsidiary to reimburse it for such income tax withholding. The Committee may in
its sole discretion, permit Participants to satisfy such withholding obligations
in whole or in part, by electing to have the amount of Common Stock delivered or
deliverable by the Corporation upon exercise of a stock option appropriately
reduced, or by electing to tender Common Stock back to the Corporation
subsequent to exercise of a stock option, to reimburse the Corporation for such
income tax withholding, subject to such rules and regulations as the Committee
may adopt. The Committee may make such other arrangements with respect to income
tax withholding as it shall determine.
A-4
<PAGE>
21. Effectiveness of Plan: The Plan shall be effective as of August 26,
1997; provided that the shareholders of the Corporation approve the Plan within
12 months of that date. Stock options may be granted or awarded prior to
shareholder approval of the Plan, but each such stock option grant or award
shall be subject to shareholder approval of the Plan. No stock option may be
exercised prior to shareholder approval.
22. Termination, Duration and Amendments of Plan: The Plan may be abandoned
or terminated at any time by the Board of Directors of the Corporation. Unless
sooner terminated, the Plan shall terminate on the date ten years after its
adoption by the Board of Directors and no stock options may be granted or
awarded thereafter. The termination of the Plan shall not affect the validity of
any stock option outstanding on the date of termination.
For the purpose of conforming to any changes in applicable law or
governmental regulations, or for any other lawful purpose, the Board of
Directors shall have the right, with or without approval of the shareholders of
the Corporation, to amend or revise the terms of the Plan at any time; provided,
however, that no such amendment or revision shall (i) increase the maximum
number of shares in the aggregate which are subject to the Plan (subject,
however, to the provisions of Paragraph 5), change the class of persons eligible
to be Participants under the Plan or materially increase the benefits accruing
to Participants under the Plan, without approval or ratification of the
shareholders of the Corporation; or (ii) change the stock option price (except
as contemplated by Paragraph 5) or alter or impair any stock option which shall
have been previously granted or awarded under the Plan, without the consent of
the holder thereof.
As adopted by the Shareholders on _______________, 1997, effective as of
________________, 1997.
A-5
<PAGE>
APPENDIX B
AMENDMENT TO ARTICLE III(1)
OF THE ARTICLES OF INCORPORATION
OF COMPUWARE CORPORATION
1. The total authorized capital stock is:
Common Shares: 400,000,000 shares, Common Stock, $0.01 Par Value;
Preferred Shares: 5,000,000 shares, Class A Preferred Stock, No Par Value
<PAGE>
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------------------------------------------------------------
COMPUWARE CORPORATION
- --------------------------------------------------------------------------------
COMMON
Mark box at right if an address change or comment has been noted / /
on the reverse side of this card.
RECORD DATE SHARES:
1. Election of Directors.
Bernard M. Goldsmith W. James Prowse
William O. Grabe G. Scott Romney For All With- For All
William R. Halling Thomas Thewes Nominees hold Except
Peter Karamanos, Jr. Lowell P. Weicher, Jr. / / / / / /
Joseph A. Nathan
NOTE: If you do not wish your shares voted "For" a particular nominee, mark the
"For All Except" box and strike a line through the nominee's(s') name(s). Your
shares will be voted for the remaining nominee(s).
2. The approval of the Fiscal For Against Abstain
1998 Stock Option Plan. / / / / / /
3. The amendment of the Company's Restated For Against Abstain
Articles of Incorporation to increase the / / / / / /
number of authorized shares of the Company's
Common Stock, $0.01 par value, from
200,000,000 shares to 400,000,000 shares.
4. Such other business as may properly come before the meeting.
--------------------------------
Please be sure to sign and date this Proxy. Date
- --------------------------------------------------------------------------------
- ------Shareholder sign here--------------------Co-owner sign here---------------
- --------------------------------------------------------------------------------
DETACH CARD DETACH CARD
COMPUWARE CORPORATION
Dear Shareholder,
The enclosed proxy card relates to the 1997 Annual Meeting of Shareholders of
Compuware Corporation. Also enclosed is a Notice of Meeting, a Proxy Statement
and a 1997 Annual Report of Compuware Corporation.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders on August
26, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Compuware Corporation
<PAGE>
COMMON COMMON
COMPUWARE CORPORATION
The undersigned hereby appoints as Proxies, Thomas Costello, Jr. or W. James
Prowse, with Power of Substitution, to vote the shares of Common Stock which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of
Compuware Corporation, to be held on August 26, 1997, and at any adjournments
thereof.
The Proxy will vote your shares in accordance with your directions on this card.
If you do not indicate your choices on this card, the Proxy will vote your
shares FOR the proposal on the reverse side.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_________________________________ ___________________________________
_________________________________ ___________________________________
_________________________________ ___________________________________
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