-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O9FbZ0/d+qLp37tXUWWmLZg960EV4mzngukWSBelGxynbLS176cpmekw4vP1Dr7K LQnba63SDTBKnr16x4rEMw== 0000950150-98-000250.txt : 19980227 0000950150-98-000250.hdr.sgml : 19980227 ACCESSION NUMBER: 0000950150-98-000250 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19980226 SROS: NYSE SROS: PCX SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER SCIENCES CORP CENTRAL INDEX KEY: 0000023082 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 952043126 STATE OF INCORPORATION: NV FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-06907 FILM NUMBER: 98549755 BUSINESS ADDRESS: STREET 1: 2100 E GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3106150311 MAIL ADDRESS: STREET 1: 2100 EAST GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER SCIENCES CORP CENTRAL INDEX KEY: 0000023082 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 952043126 STATE OF INCORPORATION: NV FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 2100 E GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3106150311 MAIL ADDRESS: STREET 1: 2100 EAST GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 SC 14D9 1 SCHEDULE 14D-9 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ COMPUTER SCIENCES CORPORATION (NAME OF SUBJECT COMPANY) COMPUTER SCIENCES CORPORATION (NAME OF PERSON FILING STATEMENT) ------------------------ COMMON STOCK, PAR VALUE $1.00 PER SHARE SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS (TITLE OF CLASS OF SECURITIES) ------------------------ 20536310-4 (CUSIP NUMBER OF CLASS OF SECURITIES) ------------------------ HAYWARD D. FISK, ESQ. VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY COMPUTER SCIENCES CORPORATION 2100 EAST GRAND AVENUE EL SEGUNDO, CALIFORNIA 90245 (310) 615-0311 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING THIS STATEMENT) ------------------------ Copies to: RONALD S. BEARD, ESQ. GIBSON, DUNN & CRUTCHER LLP 333 SOUTH GRAND AVENUE LOS ANGELES, CA 90071-3197 (213) 229-7000 ================================================================================ 2 INTRODUCTION This Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") relates to an offer by CAI Computer Services Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Computer Associates International, Inc., a Delaware corporation ("Parent"), to purchase all of the issued and outstanding Shares (as hereinafter defined) of Computer Sciences Corporation, a Nevada corporation (the "Company"). ITEM 1. SECURITY AND SUBJECT COMPANY The name of the subject company is Computer Sciences Corporation. The address of the principal executive office of the Company is 2100 East Grand Avenue, El Segundo, California 90245. The title of the class of equity securities to which this Schedule 14D-9 relates is the Company's common stock, par value $1.00 per share, including associated Series A Junior Participating Preferred Stock Purchase Rights (the "Shares"). ITEM 2. TENDER OFFER OF THE BIDDER This Schedule 14D-9 relates to the tender offer disclosed in the Schedule 14D-1, dated February 17, 1998, filed with the Securities and Exchange Commission (the "Commission") by Purchaser (as amended, the "Schedule 14D-1"), relating to an offer by Purchaser to purchase all of the issued and outstanding Shares for an amount equal to $108.00 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated February 17, 1998, and the related Letter of Transmittal (which, together with the Offer to Purchase, as amended or supplemented from time to time, constitute the "Offer"). As set forth in the Schedule 14D-1, the principal executive office of Purchaser and Parent is located at One Computer Associates Plaza, Islandia, NY 11788. ITEM 3. IDENTITY AND BACKGROUND (a) The name and business address of the Company, which is the person filing this Schedule 14D-9, are set forth in Item 1 of this Schedule 14D-9. (b) Reference is made to the information contained under the captions "Election of Directors -- Compensation of Directors," "Proposed 1997 Nonemployee Director Stock Incentive Plan" and "Executive Compensation" in, and in Appendix A to, the Company's proxy statement dated July 2, 1997 relating to the Company's 1997 Annual Meeting of Stockholders (the "1997 Proxy Statement"), the relevant portions of which are filed as Exhibit (c)(1) hereto and are incorporated herein by reference. Except as described herein or incorporated herein by reference, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflicts of interest between the Company or its affiliates and (i) any of the Company's executive officers, directors or affiliates or (ii) Purchaser and its executive officers, directors or affiliates. Supplemental Executive Retirement Plan. Effective as of February 2, 1998, the Company amended and restated its Supplemental Executive Retirement Plan (the "SERP"), which was described in the Company's 1997 Proxy Statement. The following summary of the material amendments to the SERP is qualified in its entirety by reference to the full text of the SERP, as amended and restated, a copy of which is filed as Exhibit (c)(2) to this Schedule 14D-9 and is incorporated herein by reference. Change in Control Provisions. The definition of "Change in Control" in the SERP was expanded to include a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such 2 3 business combination) represent less than 50% of the voting power of the Company immediately following such business combination. The amendments to the SERP redefine "involuntary separation" (the occurrence of which within 36 months following a Change in Control entitles a participant to certain benefits under the SERP) to include voluntary separation for "Good Reason." Voluntary separation for Good Reason is defined in the SERP as the participant's separation from the Company within six months of the occurrence of any of the following without the participant's express written consent: (i) a substantial change in the nature, or diminution in the status, of the participant's duties or position from those in effect immediately prior to the Change in Control; (ii) a reduction in the participant's annual base salary from that in effect or, from any increases approved prior to the Change in Control; (iii) a reduction in the overall benefits provided to the participant by the Company from the amounts in effect on, or, from any increases approved prior to the Change in Control; (iv) a termination of, or reduction in the participant's participation under, any stock option or other incentive compensation plan in effect immediately prior to the Change in Control, where the participant is not offered the opportunity to participate in an alternative incentive plan of reasonably equivalent value; (v) a reduction in the number of paid vacation days per year available to the participant or a material reduction or elimination of any perquisite enjoyed by the participant immediately prior to the Change in Control; (vi) a relocation of the participant's principal place of employment to greater than 35 miles from his previous place of employment; (vii) a material breach by the Company of any stock option or restricted stock agreement; or (viii) conduct by the Company, against the participant's volition, that would cause the participant to commit fraudulent acts or would expose him to criminal liability. For purposes of clauses (ii) through (viii), Good Reason shall not exist if (x) the aggregate value of all compensation received by the participant after the Change in Control is reasonably equivalent to that received or approved to be received prior to the Change in Control or (y) if the reduction in aggregate value is due to reduced performance by the Company, the business unit of the Company for which the participant is responsible, or the participant. The amendments to the SERP provide that, upon a Change in Control, the Company will transfer to an irrevocable grantor trust (as described in Section 671 of the Internal Revenue Code), assets equal in value to all accrued obligations under the SERP as of the date that is one day after a Change in Control. The Company's obligation to establish and fund such a trust does not affect the Company's obligation to provide supplemental pension payments under the SERP to the extent that such benefits are not paid out of the assets of the trust. Amendment and Termination. Prior to the February 2, 1998 amendments, the SERP provided that the amendment, modification, suspension or termination of the SERP following a Change in Control would cause the full vesting of benefits accrued under the SERP to any SERP participant who was a participant prior to the Change in Control. As amended, the SERP provides that it may not be amended, modified, suspended or terminated following a Change in Control without the express written consent of all participants. Claim Review Procedure. The amendments to the SERP establish a procedure for the review of claims relating to benefits allegedly owing under the SERP. Any participant who believes that he is owed benefits under the SERP may, within 90 days after such benefits were to have been received, file a request for review of the claim with one of certain designated officers of the Company. If such a request is filed and the claim is denied, the officer with whom the request was filed must notify the claimant of the specific reasons for the denial of the claim. At such time, the claimant will also be advised of his right to appeal the denial of his claim to the Plan Appeal Committee and of the means by which such an appeal should be made. The Plan Appeal Committee is obligated to act upon any appeal made to it within 90 days unless unusual circumstances exist, in which case the Plan Appeal Committee must respond to the appeal within 180 days. Stock Options and Restricted Stock Effective February 2, 1998, the Company amended the terms of certain outstanding stock options and restricted stock, as described below. 3 4 Amendment of Stock Options. All nonqualified stock options currently held by employees of the Company and its affiliates who are participants in the SERP were amended in the following respects: (a) Minimum three-month exercise period after termination of employment. Each option was amended to provide that it will not terminate, or cease to be exercisable to purchase the underlying shares with respect to which it had vested as of the date of the optionee's termination of employment, prior to the earlier of (i) the expiration date of the option or (ii) three months after the date of termination of employment. (b) Retirement age reduced from 65 to 62. Each option provided that: (i) if the optionee retired, the option would remain exercisable for three years thereafter to purchase the underlying shares with respect to which it had vested as of the date of retirement; and (ii) if the optionee terminated employment prior to retirement age, the option would remain exercisable for three months thereafter to purchase the underlying shares with respect to which it had vested as of the date of termination of employment. Each option was amended to reduce the retirement age from 65 to 62. (c) Certain determinations to be made by continuing members of the Compensation Committee. Each option provided that unless the Compensation Committee of the Board of Directors determined otherwise within 10 business days thereafter, the option would become exercisable in full upon the date that any person became the beneficial owner of 30% or more of the outstanding Common Stock. Each option was amended so that this determination may only be made by vote of a majority of the directors of the Company who are, and immediately prior to such event were, members of the Compensation Committee. (d) Amendment of definition of Change in Control. Each option defined "Change in Control" as the first to occur of the following events: (i) the dissolution or liquidation of the Company; (ii) a sale of substantially all of the property and assets of the Company; (iii) a reorganization, merger or consolidation of the Company the consummation of which results in the outstanding securities of any class then subject to the option being exchanged for or converted into cash, property and/or securities not issued by the Company; (iv) any date upon which the directors of the Company who were nominated by the Board of Directors for election as directors cease to constitute a majority of the directors of the Company or (v) a change of control of the Company of the type required to be disclosed in a proxy statement pursuant to Item 6(e) (or any successor provision) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Each option was amended to add the following additional event (the "Additional Event"): a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding securities of any class then subject to the option being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such business combination) represent less than 50% of the voting power of the Company immediately following such business combination. (e) Acceleration of option upon Change of Control. Each option provided that if the optionee's employment with the Company or any of its subsidiaries were voluntarily or involuntarily terminated within three years after a Change of Control, then (i) the portion of the option that had not vested on or prior to the date of termination of employment would fully vest on such date and (ii) the option would remain exercisable until the earliest of the third anniversary of such date, the expiration date of the option, or, if applicable, the first anniversary of the optionee's death. Each option was amended to provide that upon a Change of Control: (1) the portion of the option that has not vested on or prior thereto will fully vest on such date and (2) the option will remain exercisable until the earliest of the third anniversary of such date, the expiration date of the option, or, if applicable, the first anniversary of the optionee's death. 4 5 All nonqualified stock options which are currently held by employees of the Company and its affiliates who are not participants in the SERP, and which were granted by the Company under its 1978, 1980, 1984, 1987, 1990, 1992 or 1995 Stock Incentive Plans, other than options granted pursuant to Schedules approved by the taxing authorities in the United Kingdom or France, were amended in the same manner as described in clauses (a), (b) and (c) above, and were also amended as described below: (x) Additional event causing acceleration of option. Each option provided that unless the Compensation Committee of the Board of Directors determined otherwise, the option would become exercisable in full upon the approval of any of the following three types of transaction by the Board and the stockholders of the Company: (i) the dissolution or liquidation of the Company, (ii) a sale of substantially all of the property and assets of the Company or (iii) a reorganization, merger of consolidation of the Company the consummation of which would result in the outstanding securities of any class then subject to the option being exchanged for or converted into cash, property and/or securities not issued by the Company. Each option was amended to add the Additional Event described in clause (d) above as a fourth type of transaction the approval of which has the effect described in the preceding sentence. Amendment of Restricted Stock. All restricted stock currently held by employees of the Company and its affiliates who are participants in the SERP was amended in the following respects: (a) Certain determinations to be made by continuing members of the Compensation Committee. All such restricted stock provided that unless the Compensation Committee of the Board of Directors determined otherwise within 10 business days thereafter, all restrictions imposed upon the restricted stock would lapse if any person became the beneficial owner of 30% or more of the outstanding Common Stock. All restricted stock was amended so that this determination may only be made by vote of a majority of the directors of the Company who are, and immediately prior to such event were, members of the Compensation Committee. (b) Lapse of restrictions upon a Change of Control. All such restricted stock provided that if the holder's employment with the Company or any of its subsidiaries were voluntarily or involuntarily terminated within three years after any of the events described in clauses (d)(i), (ii), (iii), (iv) or (v) in Amendment of Stock Options above, then all restrictions imposed upon the restricted stock would lapse. All such restricted stock was amended to add the Additional Event described in such clause (d), and to provide that all restrictions imposed upon the restricted stock would automatically lapse upon the first to occur of such events (rather than upon the termination of the holder's employment within three years thereafter). All restricted stock which is currently held by employees of the Company and its affiliates who are not participants in the SERP, and which was granted by the Company under its 1990 or 1992 Stock Incentive Plans, was amended in the following respects: (x) Certain determinations to be made by continuing members of the Compensation Committee. All such restricted stock provided that all restrictions imposed upon the restricted stock would lapse upon the occurrence of any of the following events: (i) unless the Compensation Committee of the Board of Directors determined otherwise within ten business days thereafter, the first date upon which any person became the beneficial owner of 30% or more of the outstanding Common Stock; (ii) any date upon which the directors of the Company who were nominated by the Board of Directors for election as directors cease to constitute a majority of the directors of the Company, unless, prior to such date, the Board of Directors shall determine otherwise; or (iii) a change in control of the Company of the type required to be disclosed in a proxy statement pursuant to Item 6(e) (or any successor provision) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, unless, prior to such change in control, the Board of Directors shall determine otherwise. All restricted stock was amended so that the determination described in clause (i) above may only be made by vote of a majority of the directors of the Company who are, and immediately prior to such event were, members of the Compensation Committee. 5 6 (y) Lapse of restrictions upon a Change in Control. All such restricted stock provided that unless the Compensation Committee of the Board of Directors determined otherwise, all restrictions imposed upon the restricted stock would lapse upon any of the events described in clauses (d)(i), (ii) or (iii) in Amendment of Stock Options above. All such restricted stock was amended to add the Additional Event described in such clause (d). Deferred Compensation Plan The Company has a Deferred Compensation Plan (as amended and restated to date, the "Deferred Compensation Plan"). The following summary of the material terms of the Deferred Compensation Plan is qualified in its entirety by reference to the full text of the Deferred Compensation Plan, a copy of which is filed as Exhibit (c)(5) hereto and is incorporated herein by reference. The Deferred Compensation Plan permits nonemployee members of the Company's Board of Directors and certain designated officers and employees of the Company to defer into a deferred compensation account some or all of such person's retainer, consulting fees, committee fees and meeting fees (in the case of a nonemployee director) or such person's annual bonus pursuant to the Company's Annual Management Incentive Plan (in the case of officers or employees) pursuant to an election made by such person no later than the last day of the next preceding fiscal year. The annual rate of return credited to each deferred compensation account equals 120% of the 120-month rolling average yield on a ten-year U.S. Treasury Note, calculated as of December 31 of the preceding year. The full value of the deferred compensation account becomes payable upon death, retirement after the person turns 62 or upon termination prior to retirement. Up to the full value may be withdrawn within three years of a Change in Control (in which event a 5% withdrawal penalty applies), in the event of certain hardship events (in which event no penalty applies) or otherwise (in which event a 10% withdrawal penalty applies). "Change in Control" is defined as (a) the acquisition by any person, entity or group (as defined in Section 13(d)(3) of the Exchange Act), as beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Company, (b) a change during any period of two (2) consecutive years of a majority of the Board as constituted as of the beginning of such period, unless the election of each director who was not a director at the beginning of such period was approved by vote of at least two-thirds of the directors then in office who were directors at the beginning of such period, (c) a sale of substantially all of the property and assets of the Company, (d) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which results in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, (e) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such business combination) represent less than 50% of the voting power of the Company immediately following such business combination, or (f) any other event constituting a change in control of the Company for purposes of Schedule 14A of Regulation 14A under the Exchange Act. Upon a Change in Control, the Company will transfer to an irrevocable grantor trust (as described in Section 671 of the Internal Revenue Code), assets equal in value to all accrued obligations under the Deferred Compensation Plan as of the date that is one day after a Change in Control. The Company's obligation to establish and fund such a trust does not affect the Company's obligation to provide benefits payments under the Deferred Compensation Plan to the extent such benefits are not paid out of the assets of the trust. Severance Plan. On February 2, 1998, the Company's Board of Directors adopted the Computer Sciences Corporation Severance Plan for Senior Management and Key Employees (the "Severance Plan"). The following summary of the Severance Plan is qualified in its entirety by reference to the full text of the Severance Plan, a copy of which is filed as Exhibit (c)(3) to this Schedule 14D-9 and is incorporated herein by reference. 6 7 The Severance Plan provides for certain payments to covered employees ("Participants") in the event of a change in control of the Company. The payment is a multiple of the Participant's annual base salary plus the average annual incentive bonus over the three years prior to the Participant's termination of employment. The multiple is two for all Participants except Mr. Honeycutt, whose multiple is three. Participants are also entitled to receive medical and similar benefits for a period of years equal to the applicable multiple (two or three). On February 2, a total of 17 Participants (including Mr. Honeycutt) were designated to be eligible for benefits under the Severance Plan. Payments are to be made under the Severance Plan if a Participant has a voluntary employment termination for "Good Reason" within 24 months following a Change in Control (as defined in the SERP) or an involuntary employment termination other than for cause within 36 months following a Change in Control. In addition, Mr. Honeycutt is entitled to payments under the Severance Plan if he has a voluntary employment termination, with or without "Good Reason," during the thirteenth month following a Change in Control. No payments under the Severance Plan are due if a Participant's employment is terminated for cause or because of death or disability. "Good Reason" is defined generally to include a substantial change or diminution in duties or position, a reduction in annual base salary, a reduction in the aggregate value of all other benefits (subject to certain exceptions), or a relocation of the Participant's principal office of more than 35 miles. The Severance Plan further provides that the Company will reimburse Participants for any and all excise taxes which must be paid by the Participants as a consequence of a Change in Control of the Company. On February 18, 1998, the Company's Board of Directors authorized Mr. Honeycutt to designate up to 150 additional employees as Participants entitled to the benefits described above (with the multiple being two). The benefits would be payable to these additional employees, however, only if the Change in Control resulted in Parent directly or indirectly controlling the Company. As of the date hereof, an additional 135 employees have been designated as Participants under the Severance Plan on the basis described in this paragraph. ITEM 4. THE SOLICITATION OR RECOMMENDATION The Board of Directors of the Company presently expects to meet on Friday, February 27, 1998 to consider the Offer. As of the date hereof, the Board has not yet met to consider or act upon the Offer. Accordingly, at this time the Company has not yet made any recommendation to its stockholders regarding the Offer, but as previously disclosed publicly, will do so on or before March 2, 1998. On February 10, 1998, the Company received a widely publicized letter from Parent in which Parent's Chairman proposed that Parent and the Company enter into a consensual merger in which the Company's stockholders would receive $108 per share in cash. The Company scheduled a Board of Directors meeting for February 18, 1998 to consider this proposal. On Sunday, February 15, 1998, an investment banker employed by Parent orally advised the Company's financial advisor that Parent would be prepared to pay $114 per share in cash for the Company's outstanding Shares if a negotiated transaction were completed promptly. Subsequently, the Company received another widely publicized letter from Parent, which made reference to such conversation. Monday, February 16, 1998, was a Federal holiday. On the morning of February 17, 1998, Parent issued a press release in which it stated that it had filed with the SEC a Schedule 14D-1 and a Preliminary Solicitation and Proxy Statement, as part of a tender offer for the Company. In fact, Parent did not file its Schedule 14D-1 and Preliminary Proxy Statement until approximately 5:20 p.m. on Tuesday, February 17, 1998. On February 18, 1998, the Company's Board of Directors met to consider Parent's consensual merger proposal. Neither the Company's Board of Directors nor its financial or legal advisors had, by that time, completed their review of Parent's 181 page Schedule 14D-1 filed the previous night. After receiving the advice of the Company's financial and legal advisors, and after a thorough discussion among members of the Board concerning the advantages, disadvantages, risks and problems associated with Parent's consensual merger proposal, the Board of Directors voted unanimously to reject it. The Board of 7 8 Directors was aware, in taking such action, of the indication by Parent's investment banker that in a negotiated transaction the cash consideration to the Company's stockholders could be $114 per share. On February 19, 1998, the Company issued a press release and released a letter from the Company's Chairman and CEO, Van B. Honeycutt, to Parent's Chairman and CEO. The press release and the letter stated that, in the opinion of the Company's Board, Parent's proposal for a consensual merger did not represent fair value for the Company's stockholders and that any effort to combine the Company and Parent would not make business sense. A copy of the press release is attached hereto as Exhibit (a)(1). A copy of the letter is attached hereto as Exhibit (a)(2). With respect to the value component of the Board's decision, Mr. Honeycutt's letter stated that: "We believe that CSC has far greater near- and long-term prospects than are reflected in your bid. Based on our assessment of CSC's opportunities for growth and revenues and earnings per share, and the potential such growth has to effect significant appreciation in our stock price, we do not believe your offer rewards our shareholders for the true value of their investment. In addition, your offer fails to recognize that CSC shareholders own a unique asset that is impossible to replicate in the information technology marketplace. "CSC is in robust financial condition with a compound annual growth rate of 20.4% in revenue over the past five years and a 26.3% increase in income before special items for the same period. We have larger gains in market share and revenue than our primary competitor in 15 of the last 16 quarters. We have won or implemented $6.7 billion in large outsourcing contracts over the past 12 months and our pipeline of major new business prospects is extremely promising. "CSC is on course to grow our business in all of our markets through strong internal growth and an acquisition strategy designed to enhance our growth in geographical markets, key vertical industries and specialized service segments." With respect to the conclusion of the Board that the combination of the Company and Parent would not make business sense, Mr. Honeycutt's letter stated that: "CSC's strong financial condition, as reflected by our 'A' credit rating, is critical to our ability to secure the large, long-term outsourcing contracts that are key to growth in IT services. A combined CSC and CA would be irresponsibly leveraged and thus have a much lower credit rating and be at a distinct disadvantage in the competition for such business. "CSC's ability to provide independent solutions is a threshold issue for customers who demand platform neutrality. This neutrality would be severely compromised if CSC were to be acquired by CA and, as a result, we would lose substantial credibility in the marketplace. You have already stated publicly that you would redirect the efforts of many CSC employees to sales and service of CA's software products, a prospect that both our customers and employees would find unacceptable. "More than 25% of CSC's total anticipated revenues for fiscal 1999 are derived from outsourcing contracts that contain change in control provisions which would allow customers who are concerned about such issues to move to another services firm. We have already been notified by a number of such clients that they would either exercise such provisions or curtail or reduce the flow of new business to CSC should a CA takeover occur. In addition, software critical to CSC's data centers and other operations is licensed to CSC under contracts which are terminable by the licensor if CA acquires CSC. "The most important asset of Computer Sciences is our people. They create sustainable, competitive advantage and customer satisfaction and revenue generation, and are the best in the business. It is widely recognized that CSC and CA have dramatically different cultures, and it is clear that many of the very assets you are trying to buy -- our employees -- will decline to join your company. "Our Board of Directors and our management are committed to maximizing the value of our stockholders' investment, consistent with the highest standards of responsibility to our customers and 8 9 employees. Consistent with our fiduciary duty to stockholders, we are always prepared to give serious consideration to strategic options which fairly reflect the value of our corporation and which make business sense. Clearly, your offer does neither." ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED Goldman, Sachs & Co. ("Goldman Sachs") and J.P. Morgan Securities Inc. ("J.P. Morgan") have been retained by the Company to act as its financial advisors with respect to the acquisition proposal which Parent has made for the stock of the Company; Goldman Sachs also has been retained as financial advisor to assist the Company in responding to any other acquisition proposals it may receive or any other attempts to acquire control of the Company. Pursuant to the terms of their engagement letters, Goldman Sachs and J.P. Morgan will receive the following fees for their services: (a) a quarterly retainer fee of $2,500,000 for Goldman Sachs and $1,000,000 for J.P Morgan, payable on the first day of each three-month period during which they provide such services; and (b) a fee of $10,000,000 for Goldman Sachs and $4,000,000 for J.P. Morgan (with the quarterly retainer fees paid under clause (a) above credited on a one-time basis against such fees), payable on February 11, 1999 and February 13, 1999, respectively, in the event that Parent has not, directly or indirectly, become the beneficial owner of more than 50% of the outstanding Shares on or prior to such date. The Goldman Sachs engagement letter also provides that in the event that the Company determines to undertake a specific transaction in which all or a majority of the Company is sold to another person or persons, Goldman Sachs will have the right to act on the Company's behalf in connection with such transaction on customary terms and conditions, including customary fee provisions. The J.P. Morgan engagement letter provides that in the event the Company determines to proceed with a sale, merger, consolidation, business combination, or certain other specified transactions, during the term of the engagement the Company will enter into an amendment to the engagement letter providing for fees to J.P. Morgan in an amount to be determined after taking into account the results obtained and the custom and practice among investment bankers acting in similar transactions. The Company has also agreed to reimburse Goldman Sachs and J.P. Morgan for their reasonable out-of-pocket expenses, including fees and expenses of counsel, and to indemnify Goldman Sachs and J.P. Morgan and certain related persons against certain liabilities in connection with their engagement. Goldman Sachs and J.P. Morgan have each in the past been retained by the Company to render investment banking and advisory services, and each has received reasonable and customary compensation for such services. The Company has also retained Bozell Sawyer Miller Group ("BSMG") as a public relations advisor in connection with the Offer, and has retained Morrow & Co., Inc. ("Morrow") to assist the Company in communicating with its stockholders and to provide other services in connection with the Offer. The Company has agreed to pay BSMG and Morrow reasonable and customary compensation for such services, reimburse them for their reasonable out-of-pocket expenses and provide customary indemnities. Except as described above, neither the Company nor any person on its behalf has employed, retained or compensated any person or class of persons to make solicitations or recommendations to security holders concerning the Offer. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES (a) On February 2, 1998, the Board of Directors of the Company declared a 2-for-1 stock split in the form of a 100% stock dividend with respect to its common stock, par value $1.00 per share (the "Common Stock") payable on March 23, 1998 to the holders of record of Common Stock on March 2, 1998. On February 18, 1998, the Board of Directors of the Company authorized and declared a dividend of one preferred stock purchase right (a "New Right") for each share of Common Stock. The dividend is payable on 9 10 February 27, 1998 to the holders of record of Common Stock as of the close of business on such date. The New Rights will be issued pursuant to a Rights Agreement dated as of February 18, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "New Rights Agreement"), a copy of which was included as Exhibit 10.23 to the Form 8-A filed by the Company with the Commission on February 25, 1998. The following summary of the New Rights Agreement is qualified in its entirety by reference to the full text of the New Rights Agreement, a copy of which is filed as Exhibit (c)(4) to this Schedule 14D-9 and is incorporated herein by reference in its entirety. On February 18, 1998, the Board of Directors of the Company also amended the first sentence of Section 3(a) of the Rights Agreement dated as of December 21, 1988, as amended and restated as of August 1, 1996, by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Old Rights Agreement"), in order to add the following additional language at the end of such sentence: "provided, however, that, notwithstanding anything to the contrary in the foregoing definition of the 'Distribution Date,' clause (ii) of the definition does not apply to the tender offer commenced by CAI Computer Services Corp. on February 17, 1998." A copy of the Old Rights Agreement, as amended and restated effective February 18, 1998 is attached as Exhibit (c)(15) hereto and is incorporated herein by reference in its entirety. In addition, the Board of Directors indicated that it will redeem the Old Rights promptly after the dividend of the New Rights has been paid. The following executive officers of the Company effected the following transactions in the Shares during the past 60 days. No other executive officer, director, affiliate or subsidiary of the Company effected any transaction in the Shares during such period. (i) Van B. Honeycutt, Chairman, President and Chief Executive Officer, exercised a stock option and purchased 4,200 Shares for $15.25 per Share on February 20, 1998, the last day prior to the expiration of the option. Mr. Honeycutt retained the Shares acquired upon such exercise. (ii) C. Bruce Plowman, Vice President, Corporate and Marketing Communications, exercised a stock option and purchased 3,000 shares of Common Stock for $39.25 per share on January 6, 1998. Mr. Plowman sold these 3,000 shares for $85.06 per share in an open market sale later that day. (b) To the best knowledge of the Company, all of its executive officers and directors presently intend to hold, and not tender to Purchaser, all of the Shares which they hold of record or beneficially own. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY (a) The Board has not yet met to consider the Offer. Such a Board meeting is presently scheduled for February 27, 1998. No negotiation has been or is being undertaken or is underway by the Company in response to the Offer which relates to or would result in: (1) an extraordinary transaction such as a merger or reorganization, involving the Company or any subsidiary of the Company; (2) a purchase, sale or transfer of a material amount of assets by the Company or any subsidiary of the Company; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the present capitalization or dividend policy of the Company. In light of the fact that the Board has not yet met to consider the Offer, no decision has, as yet, been made whether to undertake such negotiations in the future. (b) Other than the Board resolution adopted at the February 18, 1998 meeting of the Board to declare a dividend of Rights to acquire shares of the Company's Preferred Stock described in Item 6(a) hereof, there is no transaction, Board resolution, agreement in principle, or signed contract in response to the Offer that relates to or would result in one or more of the matters referred to in clauses (1), (2), (3) or (4) of Item 7(a) hereof. 10 11 ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED At a meeting on February 16, 1998, the Board adopted an amendment to the Company's Bylaws "opting out" of the "Control Shares" provisions of the Nevada General Corporation Law. The "Control Shares" provisions deny voting rights to shares acquired by a person, with reference to percentage thresholds stated in the provisions, unless a sufficient number of other shares are voted in favor of restoring such voting rights. At its February 18, 1998 meeting, the Board adopted a number of other amendments to the Company's Bylaws designed to protect against hasty, ill-considered, actions to disrupt, remove or replace the Company's Board of Directors with employees of Parent in advance of the Annual Meeting of Stockholders. The amendments are also intended to assure that within the limits of applicable Nevada law the Board of Directors will retain reasonable discretion in scheduling the Annual Meeting in order to assure adequate time for stockholders to be fully informed concerning the Offer and all other alternatives which may be available to them. In addition, the Bylaw amendments conform the provisions for indemnification of directors and officers to provisions covering the same subject set forth in the Restated Articles of Incorporation, and more generally remove or mitigate certain ambiguities in the Bylaws, as they existed prior to such amendments. A copy of the Amended and Restated Bylaws is attached hereto as Exhibit (c)(6). The following paragraphs are intended to briefly summarize the substantive changes made in the several Bylaw amendments. They are subject in all respects to the exact language of the amended Bylaws, as set forth in Exhibit (c)(6). The amendment of Article II, Section 2 of the Bylaws deletes language from the former provision stating that annual meetings of the stockholders shall be held on the second Monday in August, or at such other time and date as the Board of Directors shall determine. As amended, the reference to the second Monday in August is deleted. The amendment of Article II, Section 3 of the Bylaws removes the ability of holders of a simple majority of the Common Stock to call a special meeting of stockholders, except for a special meeting called to elect directors if an Annual Meeting has not been held for 18 months or if directors were not elected at the last Annual Meeting. The amendment of Article II, Section 6, which states the general majority voting requirement for action by stockholders, conforms the Bylaws to the Nevada General Corporation Law and adds an explicit cross-reference to supermajority provisions elsewhere in the Bylaws. The amendment of Article II, Section 10 increases from 75% to 90% the number of shares required for action by written consent of the stockholders. The amendment of Article II, Section 12 adds a 120-day advance notice requirement for stockholder proposals to be considered at an Annual Meeting. The amendment of Article III, Section 1 removes certain language considered superfluous. The amendment of Article III, Section 2 removes a provision in the Bylaws, as they existed prior to such amendments, pursuant to which the Board could remove any director for cause. The amendment also removes language taken from the Nevada General Corporation Law concerning the 2/3 supermajority of shares required to remove a director of a Nevada corporation. The amendment further provides that, because the Company's charter provides for cumulative voting in the election of directors, the proportion of the outstanding shares required to remove any director must be no less than the proportion equal to (a) one minus (b) the ratio of (x) one divided by (y) the sum of one plus the authorized number of directors. It is the Company's position that such interpretation is consistent with applicable Nevada law, although the Company is aware that Parent has made a contrary assertion in the Nevada federal court lawsuit described in the following paragraph. The amendment of Article III, Section 7 provides that 24 hours' notice is required for special meetings of the Board, if such notice is given orally, or by telegraph, facsimile, or electronic means instead of three days' notice as previously required. The amendment of Article VII revises the indemnification provisions of the Bylaws to mirror the provisions of the Company's Restated Articles of Incorporation. The amendment of Article VIII, Section 1 requires the affirmative vote of more than 80% of the outstanding stock in order to amend or repeal Bylaws by stockholder action. From the time that Parent publicly commenced its efforts to acquire the Company, a number of lawsuits involving the Company have been filed. As noted in response to Item 4, on February 10, 1998, Parent sent and publicly disclosed a letter in which it proposed to acquire the Company. On February 11, 1998 a class action lawsuit was filed in Clark County, Nevada district court seeking to enjoin the proposed merger transaction 11 12 from occurring. Other class action lawsuits were filed in subsequent days by the same counsel seeking contrary relief. On February 17, 1998, the same date on which it filed its Schedule 14D-1 and its Preliminary Solicitation and Proxy Statement, Parent filed suit in the United States District Court for the District of Nevada, captioned Computer Associates International, Inc. v. Computer Sciences Corporation (Case No. CV-S-98-00278-LDG), seeking (i) a declaratory judgment that "Computer Associates Schedule 14D-1 complies with applicable federal law," (ii) to enjoin the Company from amending its Bylaws in certain respects, (iii) to order the Company to redeem its "poison pill" and to make the provisions of the Nevada Business Combination Statute inapplicable to the Offer by approving the Offer, and (iv) a declaration that certain sections of the Bylaws, in conjunction with certain sections of the Nevada General Corporation Law, inter alia permit a vote or consent of holders of a majority of the outstanding shares of the Company to amend the Bylaws, permit Parent, with the vote of two-thirds of the outstanding voting shares of the Company, to remove a sufficient number of directors to designate a majority of the Board, permit a majority of the Company's stockholders to fill vacancies of removed directors or additional seats on the Board by written consent, prohibit the Company from setting the record date for determining stockholders entitled to give written consents and agent solicitations, require that the Company hold its annual meeting on August 10, 1998 and certain other matters. A copy of Parent's Complaint and Parent's Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief are attached hereto as Exhibits (c)(7) and (c)(8), respectively. A copy of Parent's brief in support of such Motion and on the merits of the relief requested is attached hereto as Exhibit (c)(9). On February 23, 1998, the Company filed its Response of Defendant Computer Sciences Corporation to Plaintiff Computer Associates International, Inc.'s Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief. The Response, inter alia, pointed out that the amendments adopted to the Company's Bylaws on February 16, 1998 and February 18, 1998 had rendered moot all of the claims in Parent's Complaint other than Parent's claim that its filings with the Securities and Exchange Commission were in compliance with all applicable federal law. The Response also stated that Parent's positions regarding corporate governance had no merit even under the pre-amendment Bylaws. A copy of the Response is attached hereto as Exhibit (c)(10). Also on February 23, 1998, Parent filed with the United States District Court for the District of Nevada its Supplemental and Amended Complaint. The Supplemental and Amended Complaint seeks emergency delaratory relief to void the amendments to the Company's Bylaws and to determine definitively the legality of Parent's Proxy Solicitation. Parent also sought an injunction against the use of a "poison pill" and other anti-takeover measures and certain other unspecified actions. A copy of the Supplemental and Amended Complaint is attached hereto as Exhibit (c)(11). Also on February 23, 1998, the Company filed a lawsuit in the Superior Court of the State of California for the County of Los Angeles, Central District, captioned Computer Sciences Corporation v. Computer Associates International, Inc., et al.(Case No. BC 186394). This Complaint by the Company included a number of causes of action, including (1) unfair, unlawful, and fraudulent business acts and practices in violation of California Business and Professions Code Sections 17200, et seq., including (a) improper attempt to buy loyalty; (b) attempted economic duress; (c) fraud and deceit; (d) improper intentional interference; and (e) unfair business acts; (2) economic duress; (3) intentional interference with prospective economic advantage and contractual relations; and (4) conspiracy. A copy of the Company's Complaint is attached hereto as Exhibit (c)(12). The information contained in all of the Exhibits referred to in Item 9 below is incorporated herein by reference in its entirety. ITEM 9. MATERIALS TO BE FILED AS EXHIBITS (a)(1) Press release issued by the Company dated February 19, 1998.+ (a)(2) Letter from Van B. Honeycutt to Charles Wang, dated February 19, 1998.+ (c)(1) Excerpts from the Company's Proxy Statement dated July 2, 1997.+ 12 13 (c)(2) The Company's Supplemental Executive Retirement Plan, as amended and restated effective as of February 2, 1998.+ (c)(3) The Company's Severance Plan for Senior Management and Key Employees, as amended and restated effective as of February 18, 1998.+ (c)(4) Rights Agreement dated as of February 18, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.+ (c)(5) The Company's Deferred Compensation Plan, as amended and restated effective as of February 2, 1998.+ (c)(6) The Company's Bylaws, as amended and restated February 18, 1998.+ (c)(7) Complaint for Injunctive and Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation, case no. CV-S-98-00278-LDG.* (c)(8) Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation.* (c)(9) Brief in Support of Motion for Expedited Hearing on Claims for Declaratory Relief and on the Merits of the Relief Requested in Computer Associates International, Inc. v. Computer Sciences Corporation.* (c)(10) Response of the Company to the Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation.* (c)(11) Supplemental and Amended Complaint in Computer Associates International, Inc. v. Computer Sciences Corporation.* (c)(12) Complaint for (1) Unfair, Unlawful, and Fraudulent Business Acts and Practices in violation of California Business and Professions Code Sections 17200 et seq.; (2) Economic Duress; (3) Intentional Interference with Prospective Economic Advantage and Contractual Relations; and (4) Conspiracy in Computer Sciences Corporation v. Computer Associates International, Inc., case no. BC186394.* (c)(13) Form of Stock Option Agreement.++ (c)(14) Form of Restricted Stock Agreement.++ (c)(15) Amended and Restated Rights Agreement dated as of December 21, 1988, as amended and restated as of February 18, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.+ - ------------------------ + Filed herewith. * Filed in paper form under cover of Form SE pursuant to a Rule 202(d) Continuing Hardship Exemption. ++ To be filed with an amendment to this Schedule 14D-9 13 14 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete, and correct. COMPUTER SCIENCES CORPORATION By: /s/ VAN B. HONEYCUTT ------------------------------------ Van B. Honeycutt Chairman, President and Chief Executive Officer Dated: February 25, 1998 14 15 EXHIBIT INDEX (a)(1) Press release issued by the Company dated February 19, 1998. (a)(2) Letter from Van B. Honeycutt to Charles Wang, dated February 19, 1998. (c)(1) Excerpts from the Company's Proxy Statement dated July 2, 1997. (c)(2) The Company's Supplemental Executive Retirement Plan, as amended and restated effective February 2, 1998. (c)(3) The Company's Severance Plan for Senior Management and Key Employees, dated as of February 2, 1998. (c)(4) Rights Agreement dated as of February 18, 1998 by and between Computer Sciences Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. (c)(5) The Company's Deferred Compensation Plan, as amended and restated effective as of February 2, 1998. (c)(6) The Company's Bylaws, as amended and restated February 18, 1998. (c)(7) Complaint for Injunctive and Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation, case no. CV-S-98-00278-LDG. (c)(8) Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation. (c)(9) Brief in Support of Motion for Expedited Hearing on Claims for Declaratory Relief and on the Merits of the Relief Requested in Computer Associates International, Inc. v. Computer Sciences Corporation. (c)(10) Response of the Company to the Ex Parte Motion for Expedited Hearing on Claims for Declaratory Relief in Computer Associates International, Inc. v. Computer Sciences Corporation. (c)(11) Supplemental and Amended Complaint in Computer Associates International, Inc. v. Computer Sciences Corporation. (c)(12) Complaint for (1) Unfair, Unlawful, and Fraudulent Business Acts and Practices in violation of California Business and Professions Code Sections 17200 et seq.; (2) Economic Duress; (3) Intentional Interference with Prospective Economic Advantage and Contractual Relations; and (4) Conspiracy in Computer Sciences Corporation v. Computer Associates International, Inc., case no. BC186394. (c)(13) Form of Stock Option Agreement (c)(14) Form of Restricted Stock Agreement (c)(15) Amended and Restated Rights Agreement dated as of December 21, 1988, as amended and restated as of February 18, 1998 by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. 15 EX-99.(A)(1) 2 PRESS RELEASE ISSUED BY THE COMPANY, 02/19/1998 1 EXHIBIT (a)(1) COMPUTER SCIENCES CORPORATION BOARD REJECTS COMPUTER ASSOCIATES' UNSOLICITED ACQUISITION OFFER EL SEGUNDO, Calif., Feb. 19 /PRNewswire/ -- Computer Sciences Corporation (NYSE: CSC - news; the "Company") announced today that its Board of Directors voted unanimously to reject an unsolicited acquisition offer from Computer Associates International, Inc. (NYSE: CA - news) and that Computer Sciences will not enter into negotiations with Computer Associates. Computer Sciences said that its Board's action was in response to an unsolicited offer contained in a letter from Computer Associates dated February 10, 1998, and subsequent indications from Computer Associates that it would offer $114 per share for the stock of Computer Sciences in a friendly acquisition. The Company said that its Board is not formally responding to Computer Associates' tender offer, filed February 17, 1998, but rather to all other materials that CSC's Board has seen, read and deliberated on, and that the Company's formal response to the tender offer will be made in a filing with the Securities and Exchange Commission within the requisite ten business days. In a letter from Computer Sciences' Chairman and CEO, Van Honeycutt, to Computer Associates' Chairman and CEO Charles Wang, Computer Sciences said that the terms of Computer Associates' proposal do not represent fair value for CSC shareholders and that any effort to combine Computer Sciences and Computer Associates would not make business sense. CSC also advised CA that the Company has moved to strengthen its protections against CA's attempt to force an acquisition by threatening damage to the value of CSC and that it would use every legal means necessary to defeat that attempt. In his letter to Wang, Honeycutt said: "We believe that CSC has far greater near- and long-term prospects than are reflected in your bid. Based on our assessment of CSC's opportunities for growth in revenues and earnings per share, and the potential such growth has to effect significant appreciation in our stock price, we do not believe your offer rewards our shareholders for the true value of their investment." Computer Sciences said that a combination with Computer Associates does not make business sense because it would result in a lower credit rating for the combined company, compromise CSC's "platform neutrality", and trigger the departure of key CSC employees. "CSC's strong financial condition, as reflected by our 'A' credit rating, is critical to our ability to secure the large, long-term outsourcing contracts that are a key to growth in IT services," said Honeycutt in the letter. "A combined CSC and CA would be irresponsibly leveraged and thus have a much lower credit rating and be at a distinct disadvantage in the competition for such business." In the letter, Honeycutt said that the loss of platform neutrality, or the ability of CSC consultants to recommend a variety of software products to meet customers' individual needs, "would be severely compromised if CSC were to be acquired by CA, and, as a result, we would lose credibility in the marketplace." CSC will be filing today with the Securities and Exchange Commission a periodic report on Form 8-K disclosing specific measures approved by its Board of Directors. CSC provides clients with a wide range of professional services, including management consulting, information systems consulting and integration, and operations support. The company has more than 44,000 employees in nearly 600 offices worldwide. For the 12 months ended December 26, 1997, CSC had $6.3 billion in revenue. More information about CSC, including a copy of the letter to Computer Associates referred to herein, is available at www.csc.com. Computer Sciences Corporation cautions that any statements in this document as to future business results are forward looking statements and by their nature are necessarily subject to uncertainties concerning events beyond the company's control, and no assurances can be given that such results will be achieved. 2 February 19, 1998 Mr. Charles Wang Chairman and Chief Executive Officer Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11788 Dear Charles: Our Board of Directors has met and carefully considered the offer contained in your letter of February 10, 1998 and your subsequent indications that you would offer $114 per share for the stock of Computer Sciences Corporation in a friendly transaction. We have not had the time to review the disclosures in your tender offer and will furnish you our further responses to the tender offer at a later time. Our board voted unanimously to reject your proposal and not to enter into negotiations with Computer Associates on the sale of Computer Sciences. We believe that the terms of your proposal do not represent fair value for our shareholders and that any effort to combine Computer Sciences and Computer Associates does not make business sense. On the advice of counsel, we have moved to strengthen our protections against your ill-considered and unwelcome attempt to force an acquisition by threatening damage to the value of our company. We will utilize every legal means necessary to defeat your attempt and will hold you and your company responsible for any damages we sustain. Our rationale for rejecting a merger of our companies is clear and compelling. Your Offer Does Not Represent Fair Value We believe that CSC has far greater near-and long-term prospects than are reflected in your bid. Based on our assessment of CSC's opportunities for growth in revenues and earnings per share, and the potential such growth has to effect significant appreciation in our stock price, we do not believe your offer rewards our shareholders for the true value of their investment. In addition, your offer fails to recognize that CSC shareholders own a unique asset that is impossible to replicate in the information technology marketplace. CSC is in robust financial condition with a compound annual growth rate of 20.4 percent in revenue over the past five years, and a 26.3 percent increase in income before special items for the same period. We have made larger gains in market share and revenue than our primary competitor in fifteen of the last sixteen quarters. We have won or implemented $6.7 billion in large outsourcing contracts over the past twelve months and our pipeline of major new business prospects is extremely promising. CSC is on course to grow our business in all of our markets through strong internal growth and an acquisition strategy designed to enhance our growth in geographic markets, key vertical industries and specialized service segments. Combining CSC and CA Does Not Make Sense CSC's strong financial condition, as reflected by our 'A' credit rating, is critical to our ability to secure the large, long-term outsourcing contracts that are a key to growth in IT services. A combined CSC and CA would be irresponsibly leveraged and thus have a much lower credit rating and be at a distinct disadvantage in the competition for such business. CSC's ability to provide independent solutions is a threshold issue for customers who demand platform neutrality. This neutrality would be severely compromised if CSC were to be acquired by CA and, as a result, we would lose substantial credibility in the marketplace. You have already stated publicly that you would redirect the efforts of many CSC employees to sales and service of CA's software products, a prospect that both our customers and employees would find unacceptable. More than 25 percent of CSC's total anticipated revenues for fiscal 1999 are derived from outsourcing contracts that contain change in control provisions which would allow customers who are concerned about such issues to move to another services firm. We have already been notified by a number of such clients that they will either exercise such provisions or curtail or reduce the flow of new business to CSC should a CA takeover occur. In addition, software critical to CSC's data centers and other operations is licensed to CSC under contracts which are terminable by the licensor if CA acquires CSC. The most important asset of Computer Sciences is our people. They create sustainable competitive advantage in customer satisfaction and revenue generation, and are the best in the business. It is widely recognized that CSC and CA have dramatically different cultures, and it is clear that many of the very assets you are trying to buy -- our employees -- will decline to join your company. Our Board of Directors and our management are committed to maximizing the value of our stockholders' investment, consistent with the highest standards of responsibility to our customers and employees. Consistent with our fiduciary duty to stockholders, we are always prepared to give serious consideration to strategic options which fairly reflect the value of our corporation and which make business sense. Clearly, your offer does neither. Charles, we respectfully suggest that you withdraw your offer immediately and move on. Sincerely, Van B. Honeycutt cc: Computer Associates Board of Directors EX-99.(A)(2) 3 LETTER FROM VAN B. HONEYCUTT TO CHARLES WANG 1 EXHIBIT (a)(2) February 19, 1998 Mr. Charles Wang Chairman and Chief Executive Officer Computer Associates International, Inc. One Computer Associates Plaza Islandia, new York 11788 Dear Charles: Our Board of Directors has met and carefully considered the offer contained in your letter of February 10, 1998 and your subsequent indications that you would offer $114 per share for the stock of Computer Sciences Corporation in a friendly transaction. We have not had the time to review the disclosures in your tender offer and will furnish you our further responses to the tender offer at a later time. Our board voted unanimously to reject your proposal and not to enter into negotiations with Computer Associates on the sale of Computer Sciences. We believe that the terms of your proposal do not represent fair value for our shareholders and that any effort to combine Computer Sciences and Computer Associates does not make business sense. On the advice of counsel, we have moved to strengthen our protections against your ill-considered and unwelcome attempt to force an acquisition by threatening damage to the value of our company. We will utilize every legal means necessary to defeat your attempt and will hold you and your company responsible for any damages we sustain. Our rationale for rejecting a merger of our companies is clear and compelling. Your Offer Does Not Represent Fair Value We believe that CSC has far greater near- and long-term prospects than are reflected in your bid. Based on our assessment of CSC's opportunities for growth in revenues and earnings per share, and the potential such growth has to effect significant appreciation in our stock price, we do not believe your offer rewards our shareholders for the true value of their investment. In addition, your offer fails to recognize that CSC shareholders own a unique asset that is impossible to replicate in the information technology marketplace. CSC is in robust financial condition with a compound annual growth rate of 20.4 percent in revenue over the past five years, and a 26.3 percent increase in income before special items for the same period. We have made larger gains in market share and revenue than our primary competitor in fifteen of the last sixteen quarters. We have won or implemented $6.7 billion in large outsourcing contracts over the past twelve months and our pipeline of major new business prospects is extremely promising. CSC is on course to grow our business in all of our markets through strong internal growth and an acquisition strategy designed to enhance our growth in geographic markets, key vertical industries and specialized service segments. Combining CSC and CA Does Not Make Sense CSC's strong financial condition, as reflected by our "A" credit rating, is critical to our ability to secure the large, long-term outsourcing contracts that are a key to growth in IT services. A combined CSC and CA would be irresponsibly leveraged and thus have a much lower credit rating and be at a distinct disadvantage in the competition for such business. CSC's ability to provide independent solutions is a threshold issue for customers who demand platform neutrality. This neutrality would be severely compromised if CSC were to be acquired by CA and, as a result, we would lose substantial credibility in the marketplace. You have already stated publicly that you would redirect the efforts of many CSC employees to sales and service of CA's software products, a prospect that both our customers and employees would find unacceptable. More than 25 percent of CSC's total anticipated revenues for fiscal 1999 are derived from outsourcing contracts that contain change in control provisions which would allow customers who are concerned about such issues to move to another services firm. We have already been notified by a number of such clients that they will either exercise such provisions or curtail or reduce the flow of new business to CSC should a CA takeover occur. In addition, software critical to CSC's data centers and other operations is licensed to CSC under contracts which are terminable by the licensor if CA acquires CSC. The most important asset of Computer Sciences is our people. They create sustainable competitive advantage in customer satisfaction and revenue generation, and are the best in the business. It is widely recognized that CSC and CA have dramatically different cultures, and it is clear that many of the very assets you are trying to buy -- our employees -- will decline to join your company. Our Board of Directors and our management are committed to maximizing the value of our stockholders' investment, consistent with the highest standards of responsibility to our customers and employees. Consistent with our fiduciary duty to stockholders, we are always prepared to give serious consideration to strategic options which fairly reflect the value of our corporation and which make business sense. Clearly, your offer does neither. Charles, we respectfully suggest that you withdraw your offer immediately and move on. Sincerely, Van B. Honeycutt cc: Computer Associates Board of Directors EX-99.(C)(1) 4 EXCERPTS FROM THE COMPANY'S PROXY STATEMENT, 7/97 1 EXHIBIT (c)(1) COMPENSATION OF DIRECTORS Cash Compensation Each director who is not an employee of the Company receives an annual retainer of $34,000 per year, and a meeting fee of $1,000 for each day of attendance, in person or telephonically, at a regularly scheduled Board meeting, and for each day of attendance in person at a special Board meeting. Each such director who is a member of the Audit Committee or Compensation Committee receives an additional $5,000 per year. Retirement Plan The 1990 Nonemployee Director Retirement Plan (the "Retirement Plan") provides specified benefits for directors who served as a director prior to December 6, 1996, who retire from the Board of Directors with at least five years of service, and who are not, and have never been, employees of the Company. Pursuant to the Retirement Plan, each such director is entitled to receive an annual benefit equal to the sum of (1) the annual retainer for nonemployee directors in effect as of the date of the director's retirement, plus (2) the daily Board meeting fee in effect as of such date multiplied by the number of regularly scheduled Board meetings held during the year ending on such date. These benefits commence on the later of (i) the director's 65th birthday or (ii) the date upon which he or she retires from the Board. With respect to directors who, at the time of retirement, have served on the Board for more than five but less than ten years, these benefits will be payable for the number of years of service. If such a director dies prior to the payment in full of these benefits, the remaining benefits will be paid to the beneficiary designated by the director for such purpose. With respect to directors who, at the time of retirement, have served on the Board for at least ten years, these benefits will be payable for ten years or until the director's death, if later. If such a director dies prior to the payment of benefits for ten years, the remaining benefits will be paid to the director's beneficiary. Messrs. Allen, Bailey, Lawton, McFarlan and Mellor are currently eligible to receive benefits under the Retirement Plan upon retirement from the Board of Directors. Messrs. Allen and Lawton will reach mandatory retirement age in October 1997 and 8 2 June 1998, respectively, and the other three nonemployee directors will reach mandatory retirement age thereafter. If the 1997 Nonemployee Director Stock Incentive Plan is approved by the stockholders at the Annual Meeting, the Board will amend the Retirement Plan so that no current or future directors other than Messrs. Allen and Lawton will be eligible to receive benefits thereunder. In lieu of such Retirement Plan benefits, all current and future nonemployee directors other than Messrs. Allen and Lawton will receive stock-based incentives of substantially equivalent value, as described below. Stock-Based Incentives 1997 Nonemployee Director Stock Incentive Plan. In order further to align the interests of nonemployee directors with the interests of stockholders generally, and to enable the Company to award stock-based incentives to nonemployee directors in lieu of the Retirement Plan benefits to which they would otherwise be entitled, the Board of Directors adopted the 1997 Nonemployee Director Stock Incentive Plan (the "1997 Plan") on June 16, 1997 and is submitting it to the stockholders for their approval at the Annual Meeting. See "ITEM 2 -- PROPOSED 1997 NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN" below. As described below, the 1997 Plan authorizes the Board to award any type of stock-based incentive to nonemployee directors. If the 1997 Plan is approved by the stockholders at the Annual Meeting, then, immediately thereafter, the Board will take the following actions: (1) The Retirement Plan will be amended so that no current or future directors other than Messrs. Allen and Lawton will be eligible to receive benefits thereunder. (2) Messrs. Bailey, McFarlan and Mellor will each receive an award of Restricted Stock Units, as described below ("RSUs"), in lieu of his currently vested Retirement Plan benefits. The number of RSUs to be awarded to Messrs. Bailey, McFarlan and Mellor will be equal to the number of shares of CSC Common Stock, rounded to the nearest whole share, which have an aggregate market value of $73,000, $127,000 and $149,000, respectively, on August 11, 1997, based on the closing price of CSC Common Stock on that date reported on the Composite Tape for NYSE listed companies. (3) Messrs. Bailey, McDonnell, McFarlan, Mellor and Rutledge will each receive an award of RSUs in lieu of the future Retirement Plan benefits that would otherwise accrue during the next five years. The number of RSUs to be awarded to each director will be equal to the number of shares of CSC Common Stock, rounded to the nearest whole share, which have an aggregate market value of $109,000, on August 11, 1997, based on the closing price of CSC Common Stock on that date reported on the Composite Tape for NYSE listed companies These awards of RSUs are designed to be substantially equivalent in value to the individual Retirement Plan benefits for which they are being substituted. Since Messrs. Bailey, McFarlan and Mellor are different ages and have served as directors for different periods of time, their currently vested Retirement Plan benefits are different. The 9 3 Retirement Plan benefit that would otherwise accrue during the next five years with respect to each of the five nonemployee directors is deemed to have the same value. The Board currently intends to make similar RSU awards in five years to compensate for the Retirement Plan benefits that would otherwise accrue thereafter. Although these future awards may be in the form of stock-based incentives other than RSUs, and the timing of these future awards may be different than as described herein, the value of such stock-based incentives will be substantially equivalent to the value of the Retirement Plan benefits for which they are substituted. The Board of Directors reviews nonemployee director compensation on a periodic basis. Although the Board has no such intention at this time, it may utilize the 1997 Plan to award stock-based incentives to nonemployee directors in addition to the stock-based incentives it will award to them in lieu of Retirement Plan benefits. Restricted Stock Units. The Restricted Stock Units to be awarded under the 1997 Plan, as described above, will be evidenced by written agreements between the Company and the nonemployee directors to whom they are awarded (the "RSU Agreements"). Pursuant to the terms and conditions set forth in the RSU Agreements, the Company will deliver to the director or, after the director's death, the beneficiary designated by the director for such purpose, upon the automatic redemption of the RSUs: (1) shares of CSC Common Stock; and (2) cash in an amount equal to the regular, quarterly cash dividends that would have accrued and been payable with respect to such shares from the date of award of the RSUs through and including the date of redemption of the RSUs, together with interest thereon at the rate accrued on cash bonuses deferred under the Company's Deferred Compensation Plan, as such rate may be reset from time to time (collectively, with respect to each such share, a "Dividend Equivalent"). Each RSU Agreement will set forth the director's irrevocable election with respect to the timing of redemption of the RSUs subject thereto, which election must be made within 30 days after the date of award. At the director's election, the RSUs may be automatically redeemed (1) as an entirety, upon the date he or she ceases to be a director (the "Retirement Date"), or (2) in substantially equal amounts upon the first five, ten or fifteen anniversaries of the Retirement Date. The total number of shares of CSC Common Stock and Dividend Equivalents to be delivered by the Company pursuant to an RSU Agreement will be determined as follows: (i) if the RSUs are awarded in lieu of currently vested Retirement Plan benefits, the total number of shares and Dividend Equivalents to be delivered will be equal to the total number of RSUs subject to the RSU Agreement; and (ii) if the RSUs are awarded in lieu of future Retirement Plan benefits, the total number of shares and Dividend Equivalents to be delivered will be equal to 10 4 the following percentage, multiplied by the total number of RSUs subject to the RSU Agreement:
Number of Full Years of Service as Director Percentage of after Date of RSU Award Total RSUs Awarded ----------------------- ------------------ At least 1, but less than 2 20% At least 2, but less than 3 40% At least 3, but less than 4 60% At least 4, but less than 5 80% At least 5 100%
All RSUs will be nontransferable other than by will or the laws of intestate succession. If the outstanding shares of CSC Common Stock are exchanged for or converted into cash, property and/or a different number or kind of securities, or cash, property and/or securities are distributed in respect of such outstanding shares, in either case as a result of a reorganization, merger, consolidation, recapitalization, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split or the like, or if substantially all of the property and assets of the Company are sold, then the Board of Directors will make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that will thereafter be delivered upon redemption of the RSUs. 11 5 ITEM 2. PROPOSED 1997 NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN In order to continue to attract and retain qualified, independent nonemployee directors, and further align the interests of nonemployee directors with the interests of stockholders generally, the Company believes it is necessary to provide for the award of stock-based incentives to such directors. In connection therewith, the Board of Directors adopted the 1997 Nonemployee Director Stock Incentive Plan on June 16, 1997 and is submitting it to the stockholders for their approval at the Annual Meeting. The following description of the 1997 Plan is qualified in its entirety by reference to the full text of the Plan, a copy of which is attached as Appendix A to this Proxy Statement. GENERAL Each director of the Company who is not an employee of the Company or any of its subsidiaries will be eligible for the grant of awards under the 1997 Plan. The maximum number of shares of CSC Common Stock that may be issued pursuant to awards granted under the 1997 Plan is 50,000, subject to certain adjustments to prevent dilution. The 1997 Plan will be administered by the Board of Directors, which, subject to the provisions of the 1997 Plan, will have full and final authority to grant awards thereunder and determine the terms and conditions of such awards, including the number of shares to be issued pursuant thereto. AWARDS The 1997 Plan authorizes the Board to enter into any type of arrangement with a nonemployee director that, by its terms, involves or might involve the issuance of (1) shares of CSC Common Stock, (2) an option, warrant, convertible security, stock appreciation right or similar right with an exercise or conversion privilege at a price related to the CSC Common Stock, or (3) any other security or benefit with a value derived from the value of the CSC Common Stock. Awards under the 1997 Plan are not restricted to any specified form or structure and may include arrangements such as sales, bonuses and other transfers of stock, restricted stock, stock options, reload stock options, stock purchase warrants, other rights to acquire stock, restricted stock units, other securities convertible into or redeemable for stock, stock appreciation rights, limited stock appreciation rights, phantom stock, dividend equivalents, performance units or performance shares. An award may consist of one such arrangement or two or more such arrangements in tandem or in the alternative. An award may provide for the issuance of CSC Common Stock for any lawful consideration, including services rendered. An award under the 1997 Plan may permit the recipient to pay all or part of the purchase price of the shares or other property issuable pursuant to the award, and/or to pay all or part of the recipient's tax withholding obligations with respect to such issuance, by delivering previously owned shares of capital stock of the Company or other property, or by reducing the amount of shares or other property otherwise issuable pursuant to the award. If an option granted under the 1997 Plan permitted the recipient to pay for the shares issuable pursuant thereto with previously owned shares, the recipient would be able 12 6 to "pyramid" his or her previously owned shares, i.e., to exercise the option in successive transactions, starting with a relatively small number of shares and, by a series of exercises using shares acquired from each transaction to pay the purchase price of the shares acquired in the following transaction, to exercise the option for a larger number of shares with no more investment than the original share or shares delivered. If the 1997 Plan is approved by the stockholders at the Annual Meeting, then, immediately thereafter, the Board will award Restricted Stock Units to nonemployee directors as described in "ITEM 1 -- ELECTION OF DIRECTORS; Compensation of Directors," above. PLAN DURATION The 1997 Plan became effective upon its adoption by the Board of Directors on June 16, 1997, but no shares of CSC Common Stock may be issued or sold under the 1997 Plan until it has been approved by the Company's stockholders. No awards may be granted under the 1997 Plan after June 16, 2007. AMENDMENTS The Board of Directors may amend or terminate the 1997 Plan at any time and in any manner, subject to the following: (1) the recipient of any award may not, without his or her consent, be deprived thereof or of any of his or her rights thereunder or with respect thereto as a result of such amendment or termination; and (2) if any national securities exchange upon which any of the Company's securities are listed requires that any such amendment be approved by the Company's stockholders, then such amendment will not be effective until it has been approved by the Company's stockholders. EFFECT OF SECTION 16(b) OF THE SECURITIES EXCHANGE ACT OF 1934 The acquisition and disposition of CSC Common Stock by directors is subject to Section 16(b) of the Securities Exchange Act of 1934. Pursuant to Section 16(b), a purchase of CSC Common Stock by a director within six months before or after a sale of CSC Common Stock by the director could result in recovery by the Company of all or a portion of any amount by which the sale proceeds exceed the purchase price. Directors are required to file reports of changes in beneficial ownership under Section 16(a) of the Securities Exchange Act of 1934 upon acquisitions and dispositions of shares. Rule 16b-3 provides an exemption from Section 16(b) liability for certain transactions pursuant to certain benefit plans. The 1997 Plan is designed to comply with Rule 16b-3. FEDERAL INCOME TAX TREATMENT The following is a brief description of the federal income tax treatment that will generally apply to awards granted under the 1997 Plan, based on federal income tax laws in effect on the date hereof. The exact federal income tax treatment of awards will depend on the specific nature of the award. An award may be taxable as an option, as 13 7 restricted or unrestricted stock, as a Restricted Stock Unit, as a cash payment, or otherwise. 14 8 Stock Options The grant to a nonemployee director of an option or other similar right to acquire CSC Common Stock is generally not a taxable event for the director. Upon exercise of the option, the director will generally recognize ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price, and the Company will be entitled to a deduction equal to such amount. If the director exercises the option within six months of the date of grant, he or she will generally not recognize ordinary income until the date of sale of the shares or, if earlier, six months after the date of grant of the option. Special rules apply to a director who exercises an option having an exercise price greater than the fair market value of the underlying shares on the date of exercise. A subsequent sale of the shares generally will give rise to capital gain or loss equal to the difference between the sales price and the sum of the exercise price paid with respect to such shares plus the ordinary income recognized with respect to such shares. Restricted Stock and Restricted Stock Units Awards to nonemployee directors under the 1997 Plan may include sales, bonuses or other grants of shares, or Restricted Stock Units or other convertible or redeemable securities, which are subject to restrictions or vesting schedules. The director will generally not be taxed until such shares or other securities vest, or the restrictions thereon expire or are removed. At such time, the director will recognize ordinary income, and the Company will be entitled to a deduction, in an amount equal to the excess of the fair market value of the shares or other vested benefit on that date over the purchase price. For example, each of the nonemployee directors who receives one of the awards of Restricted Stock Units described in "ITEM 1 -- ELECTION OF DIRECTORS; Compensation of Directors" above will recognize ordinary income, and the Company will be entitled to a deduction, on the date or dates upon which such RSUs are automatically redeemed. If a nonemployee director makes an election under Section 83(b) of the Internal Revenue Code within 30 days after receiving restricted shares, he or she will recognize ordinary income, and the Company will be entitled to a deduction, on the date of receipt of the restricted shares, equal to the excess of the fair market value of the shares on that date over the purchase price. Miscellaneous Tax Issues Awards may be granted under the 1997 Plan that do not fall clearly into the categories described above. The federal income tax treatment of these awards will depend upon their specific terms. BOARD RECOMMENDATION THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE PROPOSED 1997 NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN. A majority of the votes cast at the Annual Meeting is necessary for the approval of this proposal. 15 9 16 10 EXECUTIVE COMPENSATION REPORT OF COMPENSATION COMMITTEE ON ANNUAL COMPENSATION OF EXECUTIVE OFFICERS General The Company's executive compensation program is designed to provide competitive levels of cash compensation and long-term incentives based on the Company's performance, and includes base salary, annual cash incentive awards and stock option grants. In addition, the Company has adopted various employee benefit plans, including retirement plans, health plans, insurance plans and others, in which executive officers are eligible to participate. Executive compensation levels and the mix of pay components (base salary and short-term and long-term incentives) are determined by the Compensation Committee. An executive's base salary and stock option awards are based primarily on his or her position and long-term contribution to the Company. The annual cash incentive award is based primarily on the performance of the executive's business unit compared to prior year performance and established annual goals. Performance factors include revenue, operating margin, net income and cash flow, as well as specific individual achievements. In determining these pay components, the Compensation Committee also considers executive compensation data from comparable companies, which is provided by Hewitt Associates, a recognized international compensation consulting firm. The comparator group used in determining fiscal year 1997 compensation was comprised of 17 publicly-held and 2 privately-owned companies in the information technology and services industries. The Company's executive compensation program takes into account any potential limitations on the deductibility of compensation in excess of $1,000,000 per year imposed by Internal Revenue Code Section 162(m), but does not require that all compensation qualify for exemption from such limitation. The Company will deduct all compensation paid to executive officers for fiscal year 1997. The Compensation Committee believes that the Company's executive compensation program allows the Company to attract and retain outstanding executives in the information technology field and is well structured to align management's and stockholders' interest in the enhancement of stockholder value through stock ownership programs and incentive programs based on performance and stock value. Relationship of Company Performance to Executive Compensation Fiscal year 1997 compensation was determined on an individual basis in accordance with the above policies and programs. The Company's performance substantially met its financial goals. Fiscal year 1997 revenue was $5.6 billion, representing growth of 18.5% over the prior fiscal year; operating margin was 7.6%, compared to 7.2%; net income was $228 million, representing growth of 33.0% (before the effect of special charges); and free cash flow was $54,000,000, up 49%. These results were considered strong and compared quite favorably to the results of the Company's comparator group. 17 11 Fiscal Year 1997 Stock Option Grants The Company granted stock options to various executive officers during fiscal year 1997, including each of the five Named Executive Officers, as shown in the Options Granted in Last Fiscal Year table on page [17]. Chief Executive Officer Compensation Mr. Honeycutt's base salary for fiscal year 1997 reflected an increase of $89,616, or 14.3%, over his base salary for fiscal year 1996. In determining Mr. Honeycutt's base salary for fiscal year 1997, the Committee compared his base salary to the base salaries of chief executive officers at the comparator companies. The Committee also considered the Company's financial performance for fiscal year 1996, Mr. Honeycutt's individual performance during that year and his long-term contributions to the success of the Company. During fiscal year 1996 (before restatement to reflect an acquisition accounted for as a pooling of interests), revenue growth of 25.8%, operating margin of 7.1%, net income growth of 28.0% and free cash flow of approximately $27,000,000 were considered strong results. For fiscal year 1997, Mr. Honeycutt received an award of 25,000 stock options, and an annual cash incentive award of $652,500, which he elected to defer pursuant to the Company's Deferred Compensation Plan. These pay components reflect the following: (1) the Company substantially met its fiscal 1997 financial goals, (2) record new business was announced during the year and (3) the Company acquired and integrated The Continuum Company, Inc., the largest acquisition in the Company's history. As of June 10, 1997, Mr. Honeycutt had options to purchase an aggregate of 413,563 shares of CSC Common Stock and beneficially owned 221,848 shares of CSC Common Stock, including 188,190 shares underlying options which will be exercisable on or prior to August 20, 1997. Conclusion The Committee believes that this executive compensation program serves the interests of stockholders and the Company effectively. The various pay vehicles offered are appropriately balanced to motivate executives to contribute to the Company's overall future successes, thereby enhancing the value of the Company for the stockholders. We will continue to address the effectiveness of the Company's total compensation program to meet the needs of the Company and serve the interests of its stockholders. Howard P. Allen Irving W. Bailey, II James R. Mellor 18 12 SUMMARY COMPENSATION TABLE The following table sets forth information concerning the compensation of the Chief Executive Officer and the four other most highly compensated executive officers of the Company (collectively, the "Named Executive Officers") for services rendered to the Company in all capacities during the fiscal years ended March 28, 1997, March 29, 1996, and March 31, 1995.
LONG-TERM ANNUAL COMPENSATION COMPENSATION ---------------------- ----------- ALL OTHER SALARY(2) BONUS(3) OPTIONS(4) COMPENSATION (5) NAME AND PRINCIPAL POSITION (1) YEAR ($) ($) (#) ($) -------------------------------- ---- -------- ------- ---------- ----------------- Van B. Honeycutt ........................... 1997 714,616 652,500 25,000 2,492 Chairman, President and ................ 1996 625,000 (6) 11,758(6) 1,548 Chief Executive Officer ................ 1995 490,385 (6) 113,605(6) 2,637 Thomas R. Madison, Jr ...................... 1997 409,404 288,400 15,000 2,194 Corporate Vice President and ........... 1996 379,231 269,500 10,000 2,492 President, Financial Services Group .... 1995 n/a n/a n/a n/a Ronald W. Mackintosh ....................... 1997 376,193 272,541 15,000 31,866 Corporate Vice President and ........... 1996 335,607 236,633 10,000 31,473 President, European Group .............. 1995 311,266 124,506 23,967 Leon J. Level .............................. 1997 361,637 217,980 10,000 2,320 Corporate Vice President and ........... 1996 343,789 173,000 5,000 2,343 Chief Financial Officer ................ 1995 321,269 162,000 2,272 Milton E. Cooper ........................... 1997 326,827 231,000 15,000 2,383 Corporate Vice President and ........... 1996 295,173 207,900 10,000 2,327 President, Systems Group ............... 1995 276,750 195,000 2,249
- ---------- (1) During fiscal year 1997, Mr. Honeycutt served as President and Chief Executive Officer of the Company. Effective March 29, 1997, he assumed the additional title of Chairman. During fiscal year 1997, Mr. Madison served as Corporate Vice President and President, Integrated Business Services. Since May 1, 1997, he has served as Corporate Vice President and President, Financial Services Group. Mr. Madison was appointed an executive officer of the Company effective August 14, 1995. Although he served as an executive officer for only a portion of fiscal year 1996, the amounts shown reflect his compensation for the entire fiscal year. (2) The amounts shown reflect all salary earned during the covered fiscal year. (3) Cash bonuses earned during any fiscal year are determined and paid in the following fiscal year pursuant to the Company's Annual Incentive Plan. Payment of such bonuses may be deferred pursuant to the Company's Deferred Compensation Plan. The amounts shown reflect all cash bonuses earned during the covered fiscal year, whether or not the payment thereof was deferred. (4) The amounts shown reflect the aggregate number of shares underlying stock options granted during the covered fiscal year. (5) The amounts shown for Messrs. Honeycutt, Madison, Level, and Cooper reflect contributions by the Company to the Matched Asset Plan, a defined contribution plan. The amount shown for Mr. Mackintosh reflects contributions by the Company to a defined contribution plan in the United Kingdom. The amounts shown for Mr. Madison in fiscal years 1997 and 1996 do not include aggregate incremental expenses of $216,565 incurred by the Company during those years in connection with his relocation from Georgia to Virginia. See "Certain Relationships and Related Transactions" on page [19]. (6) The amounts shown in the Options column for Mr. Honeycutt in fiscal years 1996 and 1995 include 11,758 and 13,605 shares, respectively, underlying stock options granted in lieu of the cash bonuses he earned during fiscal years 1996 and 1995. These stock options, which were granted approximately one month after fiscal year-end, have exercise prices of $17.72 and $12.25 per share, respectively (25% of the market value per share on the date of grant), and will become exercisable to purchase one-third of the underlying shares on each of the first three anniversaries of the option grant date. 19 13 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth information concerning stock options granted to the Named Executive Officers during the fiscal year ended March 28, 1997. No stock appreciation rights were granted in such fiscal year.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE -------------------------------------------------------- AT ASSUMED ANNUAL RATES OF PERCENT OF STOCK PRICE APPRECIATION TOTAL OPTIONS FOR OPTION TERM (1) OPTIONS GRANTED TO EXERCISE OR -------------------------- GRANTED EMPLOYEES IN BASE PRICE EXPIRATION 5% 10% NAME (#) FISCAL YEAR ($)/SH. DATE ($) ($) ---- ------- ------------ ----------- ---------- --------- --------- Van B. Honeycutt ................ 11,758(2) 0.75% 17.72 5/9/06 1,149,085 1,953,139 25,000(3) 1.59% 70.88 5/9/06 1,114,323 2,823,912 Thomas R. Madison, Jr ........... 15,000(3) 0.95% 70.88 5/9/06 668,594 1,694,347 Ronald W. Mackintosh ............ 15,000(3) 0.95% 70.88 5/9/06 668,594 1,694,347 Leon J. Level ................... 10,000(3) 0.64% 70.88 5/9/06 445,729 1,129,565 Milton E. Cooper ................ 15,000(3) 0.95% 70.88 5/9/06 668,594 1,694,347
- ---------- (1) Amounts shown reflect the potential realizable value of each grant of stock options, assuming that the market price of the underlying shares appreciates in value from the date of grant to the expiration date at an annualized rate of 5% or 10%. These potential values are reported in order to comply with Securities and Exchange Commission requirements, and the Company cannot predict whether these values will be achieved. (2) This nonqualified stock option was granted to Mr. Honeycutt in lieu of a cash bonus for fiscal year 1996. (See Note (6) to the Summary Compensation Table on page [16]) The option has an exercise price equal to 25% of the market value of the underlying shares on the date of grant, will become exercisable to purchase one-third of the underlying shares on each of the first three anniversaries of the date of grant of the option. (3) These nonqualified stock options granted, which have an exercise price equal to the market value of the underlying shares on the date of grant, will become exercisable to purchase 20% of the underlying shares on each of the first five anniversaries of the date of grant of the option. FISCAL YEAR END OPTION VALUES The following table sets forth information concerning the value of unexercised in-the-money stock options held by the Named Executive Officers on March 28, 1997.
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1) ACQUIRED ON --------------------------- --------------------------- EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME (#) ($) (#) (#) ($) ($) ---- ---------- -------------- ----------- ------------- ----------- ------------- Van B. Honeycutt ................... none n/a 147,735 165,828 5,300,992 3,937,312 Thomas R. Madison, Jr............... none n/a 20,000 50,000 500,750 816,125 Ronald W. Mackintosh ............... 2,500 172,708 42,200 36,800 1,780,000 645,625 Leon J. Level ...................... 10,000 654,875 59,400 29,000 2,559,025 632,875 Milton E. Cooper ................... none n/a 89,000 29,000 3,835,000 343,750
- ---------- (1) The amounts shown reflect the spread between the exercise price and the market value of the underlying shares of CSC Common Stock on March 28, 1997 (based on the $62.375 closing price of the CSC Common Stock on that date reported on the Composite Tape for NYSE listed companies). 20 14 DEFINED BENEFIT PLANS Messrs. Honeycutt, Madison, Level and Cooper participate in the Pension Plan and the Supplemental Executive Retirement Plan (the "SERP"). Mr. Mackintosh does not participate in either Plan. Pension Plan The Pension Plan is a contributory, career average defined benefit plan. Benefits are determined based on the participant's average base salary during all years of participation. There is no deduction for Social Security or other offset amounts, and base salary does not include any bonus, overtime or shift differential compensation. At age 65, Messrs. Honeycutt, Madison, Level and Cooper will have participated in the Pension Plan for 24, 16, 16 and 19 years, respectively, and, assuming no increase in base salary, will have received an average base salary during all years of Pension Plan participation of $524,811, $401,974, $327,415 and $238,839, respectively. Pursuant to Internal Revenue Code requirements, the maximum base salary covered by the Pension Plan is limited each year. For calendar year 1997, the maximum base salary is $160,000. The excess benefit that would be payable under the Pension Plan absent these limitations (the "Excess Benefit"), is paid under the SERP to persons who participate in both Plans, as described in the following section. The table below shows the estimated annual benefit, on a single life annuity basis, payable under the Pension Plan and the Excess Benefit restoration provision of the SERP to a person who retires at age 65 and participates in both Plans.
Average Annual Years of Service Base ----------------------------------------------------------- Compensation 5 10 15 20 25 30 -------------- ------- ------- ------- ------- ------- -------- $150,000 $16,875 $ 33,750 $ 50,625 $ 67,500 $ 84,375 $101,250 250,000 28,125 56,250 84,375 112,500 140,625 168,750 350,000 39,375 78,750 118,125 157,500 196,875 236,250 450,000 50,625 101,250 151,875 202,500 253,125 303,750 550,000 61,875 123,750 185,625 247,500 309,375 371,250
Supplemental Executive Retirement Plan The SERP provides retirement benefits to certain designated officers and key executives of the Company who satisfy its minimum service requirements. It provides two types of benefits: (1) as described above, an Excess Benefit restoration, which restores the shortfall of Pension Plan benefits resulting from Internal Revenue Code limits on the base salary used to compute those benefits ($160,000 in calendar year 1997), is provided for SERP participants who also participate in the Pension Plan, and (2) an Additional Benefit is provided for all SERP participants. The Additional Benefit is equal to 50% of the average of the participant's highest three (of the last five) annual base salaries, with a deduction of 100% of the amount of 21 15 primary Social Security benefits payable at the time of determination. Upon the death of the participant, a spousal benefit of 50% of the participant's benefit is generally payable for the spouse's lifetime. In the event of a change-in-control of the Company, a SERP participant would become entitled to accelerated benefit entitlement under the SERP if his or her employment with the Company were involuntarily terminated within 36 months thereafter, or voluntarily terminated more than 12 but within 36 months thereafter. For the fiscal year ended March 28, 1997, the base salary covered by the SERP for Messrs. Honeycutt, Madison, Level and Cooper was $714,616, $409,404, $361,637 and $326,827, respectively. Assuming no increase in base salary, the estimated annual Additional Benefit, on a single life annuity basis, payable to Messrs. Honeycutt, Madison, Level and Cooper upon retirement at age 65 is $340,988, $188,286, $164,451 and $146,950, respectively. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to its executive relocation program, the Company purchased Thomas R. Madison's home for $375,000 in fiscal year 1996, and Edward P. Boykin's home for $595,000 in fiscal year 1997. In each case, the purchase price was equal to the average of two independent appraisals. Both residences were sold at a loss during fiscal year 1997. DST Systems, Inc. provides data processing and consulting services and licenses certain software products to the Company. During fiscal year 1997, the Company incurred aggregate expenses of $22,788,000 related thereto. DST Systems, Inc. beneficially owns 5.6% of the outstanding CSC Common Stock, and Thomas A McDonnell, President, Chief Executive Officer and Director of DST Systems, Inc., is a Director of the Company. 22 16 APPENDIX A COMPUTER SCIENCES CORPORATION 1997 NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN SECTION 1: PURPOSE OF PLAN The purpose of this 1997 Nonemployee Director Stock Incentive Plan ("Plan") of Computer Sciences Corporation, a Nevada corporation (the "Company"), is to enable the Company and its subsidiaries to attract, retain and motivate their nonemployee directors by providing for or increasing the proprietary interests of such directors in the Company. SECTION 2: PERSONS ELIGIBLE UNDER PLAN Any director of the Company who is not and has never been an employee of the Company or any of its subsidiaries (a "Director") shall be eligible to be considered for the grant of Awards (as hereinafter defined) hereunder. SECTION 3: AWARDS (a) The Board of Directors of the Company (the "Board"), on behalf of the Company, is authorized under this Plan to enter into any type of arrangement with a Director that is not inconsistent with the provisions of this Plan and that by its terms, involves or might involve the issuance of (i) shares of common stock, par value $1.00 per share, of the Company ("Common Shares"), or (ii) a Derivative Security (as such term is defined in Rule 16a-1 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such Rule may be amended from time to time) with an exercise or conversion privilege at a price related to the Common Shares or with a value derived from the value of the Common Shares. The entering into of any such arrangement is referred to herein as the "grant" of an "Award." (b) Awards are not restricted to any specified form or structure and may include, but are not limited to, sales, bonuses and other transfers of stock, restricted stock, stock options, reload stock options, stock purchase warrants, other rights to acquire stock, restricted stock units, other securities convertible into or redeemable for stock, stock appreciation rights, limited stock appreciation rights, phantom stock or dividend equivalents, and an Award may consist of one such security or benefit, or two or more of them in tandem or in the alternative. (c) Common Shares may be issued pursuant to an Award for any lawful consideration as determined by the Board, including, without limitation, services rendered by the recipient of such Award. (d) Subject to the provisions of this Plan, the Board, in its sole and absolute discretion, shall determine all of the terms and conditions of each Award granted hereunder, which terms and conditions may include, among other things, a provision permitting the recipient of such Award to pay the purchase price of the Common Shares or other property issuable pursuant to such Award, in whole or in part, by delivering previously owned shares of capital stock of the Company (including "pyramiding") or other A-1 17 property, and/or by reducing the amount of Common Shares or other property otherwise issuable pursuant to such Award. SECTION 4: STOCK SUBJECT TO PLAN (a) At any time, the aggregate number of Common Shares issued and issuable pursuant to all Awards granted under this Plan shall not exceed 50,000, subject to adjustment as provided in Section 7 hereof. (b) For purposes of Section 4(a) hereof, the aggregate number of Common Shares issued and issuable pursuant to Awards granted under this Plan shall at any time be deemed to be equal to the sum of the following: (i) the number of Common Shares which were issued prior to such time pursuant to Awards granted under this Plan, other than Common Shares which were subsequently reacquired by the Company pursuant to the terms and conditions of such Awards and with respect to which the holder thereof received no benefits of ownership such as dividends; plus (ii) the number of Common Shares which were otherwise issuable prior to such time pursuant to Awards granted under this Plan, but which were withheld by the Company as payment of the purchase price of the Common Shares issued pursuant to such Awards; plus (iii) the maximum number of Common Shares which are or may be issuable at or after such time pursuant to Awards granted under this Plan. SECTION 5: DURATION OF PLAN No Awards may be granted under this Plan after June 16, 2007. SECTION 6: ADMINISTRATION OF PLAN This Plan shall be administered by the Board, which shall be authorized and empowered to do all things necessary or desirable in connection with the administration of this Plan, including, without limitation, the following: (a) adopt, amend and rescind rules and regulations relating to this Plan; (b) determine which persons are Directors, and to which of such Directors, if any, Awards shall be granted hereunder; (c) grant Awards to Directors and determine the terms and conditions thereof, including the number of Common Shares issuable pursuant thereto; (d) determine whether, and the extent to which adjustments are required pursuant to Section 7 hereof; and (e) interpret and construe this Plan and the terms and conditions of all Awards granted hereunder. A-2 18 SECTION 7: ADJUSTMENTS If the outstanding securities of the class then subject to this Plan are increased, decreased or exchanged for or converted into cash, property and/or a different number or kind of securities, or if cash, property and/or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, restructuring, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split or the like, or if substantially all of the property and assets of the Company are sold, then, unless the terms of such transaction shall provide otherwise, the Board shall make appropriate and proportionate adjustments in: (a) the number and type of shares or other securities or cash or other property that may be acquired pursuant to Awards theretofore granted under this Plan; (b) the maximum number and type of shares or other securities that may be issued pursuant to Awards thereafter granted under this Plan; and (c) the maximum number of Common Shares with respect to which options or rights may thereafter be granted under this Plan to any Director during any fiscal year. SECTION 8: AMENDMENT AND TERMINATION OF PLAN The Board may amend or terminate this Plan at any time and in any manner, subject to the following: (a) no recipient of any Award shall, without his or her consent, be deprived thereof or of any of his or her rights thereunder or with respect thereto as a result of such amendment or termination; and (b) if any rule, regulation or procedure of any national securities exchange upon which any securities of the Company are listed, or any listing agreement with any such securities exchange, requires that any such amendment be approved by the stockholders of the Company, then such amendment shall not be effective unless and until it is approved by the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of the stockholders of the Company. SECTION 9: EFFECTIVE DATE OF PLAN This Plan shall be effective as of June 16, 1997, the date upon which it was approved by the Board; provided, however, that no Common Shares may be issued under this Plan until it has been approved by the affirmative votes of the holders of a majority of the securities of the Company present, and entitled to vote at a meeting of the stockholders of the Company at which a quorum is present. A-3 EX-99.(C)(2) 5 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1 EXHIBIT (c)(2) COMPUTER SCIENCES CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I Purpose The purpose of this Supplemental Executive Retirement Plan ("Supplemental Plan") is to provide retirement benefits to designated officers and key executives of Computer Sciences Corporation (the "Company") in addition to retirement benefits that may be payable under the Computer Sciences Corporation Employee Pension Plan, and in addition to any other retirement plan (other than the social security system to the extent provided herein) under which benefits may be payable with respect to such person. It is intended that this Supplemental Plan be a plan "for a select group of management or highly compensated employees" as set forth in Section 201(2) of the Employee Retirement Income Security Act of 1974. Subject to Article X hereof, benefits under this Supplemental Plan shall be payable solely from the general assets of the Company and no Participant or other person shall be entitled to look to any source for payment of such benefits other than the general assets of the Company. ARTICLE II Effective Date/Restatement Date The Supplemental Plan was effective as of September 1, 1985. It is hereby amended and restated effective February 2, 1998. ARTICLE III Participants No person shall be a Participant in this Supplemental Plan unless (a) such individual is specifically designated as such in a written instrument executed by the Chief Executive Officer of the Company (the "Chief Executive Officer"), and (b) such individual has consented to be governed by the terms of this Supplemental Plan by execution of a written instrument in form satisfactory to the Company. A person shall cease to be a Participant in this Supplemental Plan in the event of (a) a Plan amendment having such effect, or (b) the occurrence of an event described in this Supplemental Plan which terminates such participation, or 2 (c) prior to a Change in Control (as hereinafter defined), the Chief Executive Officer notifies such person, in writing, of the discontinuance of such person's participation pursuant to Article XVIII of this Supplemental Plan. In determining whether any person shall commence or cease to be a Participant herein, the Chief Executive Officer, acting in such capacity, shall have complete and unfettered discretion. ARTICLE IV Retirement Benefits The amount of retirement benefit payable to each Participant upon Separation from Service (as defined in paragraph (d) below) shall be as determined in this Article IV. (a) A Participant who is entitled to receive a benefit under the Computer Sciences Corporation Employee Pension Plan ("Pension Plan"), shall be entitled to receive his Excess Benefit under this Supplemental Plan. The Excess Benefit is the additional monthly amount which the Participant would otherwise be entitled to receive under the Pension Plan as if the Participant had elected the normal form of life annuity payment option under the Pension Plan except for the limitations imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code, as amended. In addition to the benefit described in this paragraph (a), a benefit as described in paragraph (b) following shall be payable to the Participant. (b) Each Participant, upon Separation from Service on or after attainment of age sixty-two (62) (the "Retirement Date"), shall receive an amount as determined under this paragraph (b) which is payable monthly in the form of a life annuity. The amount payable shall be equal to one-twelfth (1/12) of fifty percent (50%) of the Participant's Average Base Salary Rate (as defined in paragraph (d) below) reduced by the amount determined under paragraph (c) below and, as applicable, paragraph (e) below. (c) The amount determined under this paragraph (c) shall generally be equal to the primary social security benefit paid or payable to the Participant at the time benefits commence under this Supplemental Plan, whether or not the Participant is denied social security benefits because of other income or voluntarily forgoes social security income. However, where a Participant commences to receive benefits under this Supplemental Plan prior to attaining the minimum age (the "Minimum Social Security Age") at which he will be entitled to commence receiving social security benefits (currently age sixty-two (62)), his benefits under this Plan shall be reduced by the amount of social security benefits it is estimated he would be entitled to receive monthly. The estimated social security benefit will be calculated based on the Participant's compensation through his Separation from Service date as though he were the Minimum Social Security Age on such date, 2 3 and in accordance with social security rules in effect at the time of his Separation from Service. (d) The term "Base Salary Rate" means the annual salary rate of a Participant exclusive of overtime, bonus, incentive or any other type of special compensation. The term "Average Base Salary Rate" means the average of the highest three (3) of the last five (5) Base Salary Rates of a Participant which are the Base Salary Rates in effect on his Retirement Date and on the same day and month for each of the four (4) years (or the period of Continuous Service if fewer than four (4) years) immediately preceding the Retirement Date. Unless otherwise determined in writing with respect to a Participant by the Chief Executive Officer, the term "Continuous Service" means the period of service without interruption of a person commencing as of the date of hire of such person by the Company or an Affiliate and ending on the date of separation from service for any reason from the Company and all Affiliates ("Separation from Service"). The term "Affiliate" means a corporation or other entity of which fifty-one percent (51%) or more of the capital stock or capital or profits interest (in the case of a noncorporate entity) is directly or indirectly owned by the Company. A medical leave of absence not exceeding twelve (12) months authorized by a Company written policy or any other leave of absence authorized by a Company written policy or approved in writing by the Chief Executive Officer shall not be deemed an interruption in Continuous Service or a Separation from Service. In the event the Company acquires a corporation or other entity ("Acquisition"), and any employee of the Acquisition, by written determination of the Chief Executive Officer of the Company, becomes a Participant in the Supplemental Plan, such Participant's period of Continuous Service shall commence no sooner than the date the Acquisition becomes an Affiliate of the Company unless the Company's Chief Executive Officer otherwise determines and so confirms in writing. (e) If upon Separation from Service on or after attaining age sixty-two (62), or upon the granting of a special early separation benefit pursuant to paragraph (b) of Article V, a Participant has fewer than twelve (12) years of Continuous Service, the benefit otherwise payable under this Supplemental Plan shall be proportionately reduced, except for the benefit payable under paragraph (a) of this Article IV which shall not be reduced. By way of example, if a Participant otherwise entitled to benefits hereunder commencing at age sixty-two (62) has completed only ten (10) years of Continuous Service upon attainment of age sixty-two (62), such Participant's benefit shall be 10/12, or 83.33%, of the benefit otherwise payable hereunder. Unless expressly determined to the contrary in writing by the Chief Executive Officer, no period of service completed by a person after attainment 3 4 of age sixty-five (65) and no adjustment to any person's Base Salary Rate which occurs after attainment of age sixty-five (65) shall be taken into account in computing benefits hereunder. ARTICLE V Eligibility for Benefits (a) Participants shall become eligible to commence receiving retirement benefits under this Supplemental Plan after Separation from Service on or after attaining age sixty-two (62) and such benefits shall be calculated in accordance with the provisions of Article IV. Except as otherwise provided in paragraph (a) of Article IV and in Articles VII, IX and X, no Participant in this Supplemental Plan shall have any vested interest in or right to receive a benefit hereunder until attainment of the age of sixty-two (62). Unless otherwise determined in writing by the Chief Executive Officer, any interruption in the Continuous Service of a Participant herein prior to the attainment of age sixty-two (62) shall terminate the participation in this Supplemental Plan of such Participant, and no benefit shall be payable to or with respect to such Participant. (b) In the sole and unfettered discretion of the Chief Executive Officer, a Participant whose Separation from Service occurs prior to attainment of age sixty-two (62) may qualify for a special early separation benefit, payable monthly as calculated in accordance with the provisions of Article IV, except as follows: (i) For purposes of determining the Participant's Base Salary Rate, the Average Base Salary Rate and the number of years of Continuous Service completed by the Participant, the Participant's date of Separation from Service shall apply instead of the date of the Participant's attainment of age sixty-two (62); and (ii) For each twelve (12) month period by which the date of commencement of the Participant's benefit precedes the Participant's sixty-second (62nd) birthday, the benefit otherwise payable shall be reduced by five percent (5%), except for the benefit payable under paragraph (a) of Article IV which shall not be reduced. Proportionate fractional reduction shall be used for periods of fewer than twelve (12) months. ARTICLE VI Form of Benefit Payments (a) Except as provided in Article VII, benefits payable based on the calculations in Article IV of this Supplemental Plan shall be paid monthly for the 4 5 life-time of the Participant (unless an optional form is selected under paragraphs (b) or (c) of this Article VI). Upon the death of the Participant, benefits shall continue to be paid to the Participant's spouse for the lifetime of such spouse at the rate of fifty percent (50%) of Participant's benefit, provided certain conditions are met. The conditions of such Spousal Benefit are (1) that the spouse shall be married to the Participant as of the date of the Participant's Separation from Service and (2) the spouse shall be no more than five years younger than the Participant. In the event the spouse is more than five years younger than the Participant, the Participant may elect to receive benefit payments in the form of a joint and survivor option as described in paragraph (c) following. (b) Any Participant, who before September 1, 1993 has commenced to receive benefits and has not made a written election to receive an annuity pursuant to paragraph (a) preceding or paragraph (c) following, shall be entitled to one hundred twenty (120) monthly benefit payments in the amount specified in paragraph (b) of Article IV preceding and a life annuity of the Excess Benefit as defined in paragraph (a) of Article IV preceding. If a Participant, who before September 1, 1993, has commenced to receive benefits and has not made a written election to receive an annuity pursuant to paragraph (a) preceding or paragraph (c) following, dies after Separation from Service and before receiving one hundred and twenty (120) monthly benefit payments, the remainder of the one hundred and twenty (120) monthly benefit payments shall be made to the Participant's designated beneficiary or, if no such beneficiary is then living or no such beneficiary can be located, to the Participant's estate. In the event a Participant has made a written election, prior to September 1, 1993, to receive an annuity pursuant to paragraph (a) preceding or paragraph (c) following, no benefit shall be payable under this paragraph (b), except that any Excess Benefit under the Pension Plan, as provided in paragraph (a) of Article IV, shall be payable at the rate of fifty percent (50%) thereof to the Participant's spouse. (c) In the event that the Participant's spouse is more than five years younger than Participant, at any time prior to the later of September 1, 1993 or the commencement of benefits under this Supplemental Plan, a Participant may, in lieu of receiving benefits in the form described in paragraph (a) of this Article VI, elect to receive benefit payments under this Supplemental Plan in the form of a joint and survivor option providing monthly benefits for the lifetime of the Participant with a stipulated percentage of such amount continued after the Participant's death to the spouse to whom the Participant is married as of the date of the Participant's Separation from Service, for the lifetime of such spouse. The amount of monthly payments available under this option shall be determined by reference to factors such as the Participant's life expectancy, the life expectancy of the Participant's spouse, prior benefits received under the Supplemental Plan, and the percentage of the Participant's monthly benefit which is continued after the Participant's death to the Participant's spouse, so that the value of the joint 5 6 and survivor option is the actuarial equivalent of the benefits otherwise payable under paragraph (a) (or paragraph (b) if the Participant has elected coverage under paragraph (b) preceding) of this Article VI inclusive of the Participant and the spousal fifty percent (50%) survivor benefits, which shall be calculated assuming the Participant's spouse was exactly five years younger than Participant. In determining the monthly amount payable under the joint and survivor option with respect to any Participant, the Company may rely upon such information as it, in its sole discretion, deems reliable, including but not limited to, the opinion of an enrolled actuary or annuity purchase rates quoted by an insurance company licensed to conduct an insurance business in the State of California. The election of a joint and survivor option is irrevocable after benefit payments have commenced, and the monthly amount payable during the lifetime of the Participant shall in no event be adjusted by reason of the death of the Participant's spouse prior to the death of the Participant, or by reason of the dissolution of the marriage between the Participant and such spouse, or for any other reason. ARTICLE VII Pre-retirement Death Benefits In the event of the death of a Participant hereunder during a period of Continuous Service and participation in this Supplemental Plan, the beneficiary or the spouse of the Participant shall be entitled to benefits as provided below in paragraphs (a) and (b): (a) Participant's spouse shall be entitled to a fifty percent (50%) or the actuarial equivalent spousal benefit (as determined pursuant to Article VI, paragraphs (a) or (c), as applicable), attributable to Participant's Excess Benefit under the Pension Plan provided the Participant is entitled to receive a benefit under the Pension Plan. (b) At the written election of the Participant, either a benefit under paragraph (i) below or a benefit under paragraph (ii) below shall be paid by the Company. Such election shall be signed by the Participant and notarized and, if the Participant is married at the time of election, the election must also be signed by the Participant's spouse and notarized. The latest election on file in the Company's records shall be controlling. (i) A lump sum death benefit shall be payable by the Company to the Participant's designated beneficiary or, if no such beneficiary is then living or no such beneficiary can be located, to the Participant's estate. The amount of such death benefit shall be two (2) times the Participant's Base Salary Rate in effect on the date of the Participant's death. On the written request of a beneficiary but subject to the approval in writing of the Chief Executive Officer, the 6 7 amount payable under this paragraph (b)(i) may be paid to a beneficiary in monthly or other installments over a period not exceeding one hundred and twenty (120) months. (ii) Participant's spouse shall receive a spousal fifty percent (50%) or the actuarial equivalent spousal benefit (as determined pursuant to Article Vl, paragraphs (a) or (c), as applicable), as provided for in paragraph (a) preceding and in Article IV and Article Vl. In the event a Participant is not married at the time of Participant's death and the Participant has elected the fifty percent (50%) spousal benefit, a lump sum death benefit shall be payable in accordance with paragraph (b)(i) preceding. No benefits shall be payable under this Article Vll if the Participant's death occurs as a result of an act of suicide within twenty-five (25) months after commencement of participation in this Supplemental Plan. ARTICLE VIII No Disability Benefits No disability benefit is payable under this Supplemental Plan. ARTICLE IX Right to Amend, Modify, Suspend or Terminate Plan By action of the Company's Board of Directors, the Company may amend, modify, suspend or terminate this Supplemental Plan without further liability to any employee or former employee or any other person. Notwithstanding the preceding sentence: (a) this Supplemental Plan may not be amended, modified, suspended or terminated as to a Participant whose Separation from Service has occurred and who is entitled to receive or has commenced to receive benefits under this Supplemental Plan, without the express written consent of such Participant or, if deceased, such Participant's designated beneficiary or, if no beneficiary is then living or if no beneficiary can be located, such Participant's legal representative; and (b) following a Change in Control (as defined in Article X), this Supplemental Plan may not be amended, modified, suspended or terminated as to any Participant who was a Participant prior to such Change in Control, without the express written consent of such Participant. ARTICLE X 7 8 Change in Control The term "Change in Control" means, after the effective date of this Supplemental Plan, (a) the acquisition by any person, entity or group (as defined in Section 13(d)3 of the Securities Exchange Act of 1934, as amended) as beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Company, (b) a change during any period of two (2) consecutive years of a majority of the Board of Directors as constituted as of the beginning of such period, unless the election of each director who was not a director at the beginning of such period was approved by vote of at least two-thirds of the directors then in office who were directors at the beginning of such period, (c) a sale of substantially all of the property and assets of the Company, (d) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which results in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, (e) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such business combination) represent less than 50% of the voting power of the Company immediately following such business combination, or (f) any other event constituting a change in control of the Company for purposes of Schedule 14A of Regulation 14A under the Securities Exchange Act of 1934. In the event a Participant who was a Participant as of the date of a Change in Control either (a) has an involuntary Separation from Service for any reason (which, for purposes of this Article X, shall include a voluntary Separation from Service for Good Reason, as hereinafter defined) within thirty-six full calendar months following such Change in Control, or (b) has a voluntary Separation from Service for any reason other than Good Reason (including the death of the Participant) more than twelve (12) full calendar months after, but within thirty-six (36) full calendar months following, such Change in Control, such Participant shall be entitled to receive immediately upon such Separation from Service benefits hereunder in accordance with Articles IV, Vl and Vll, as applicable, without regard to approval by the Chief Executive Officer or any other person(s). Such benefits shall be calculated as if, on the date of such Separation from Service, the Participant (i) had completed a number of years of Continuous Service equal to the greater of twelve (12) or the actual number of years of his or her Continuous 8 9 Service, and (ii) had attained an age equal to the greater of sixty-two (62) or his or her actual age. For purposes of this Supplemental Plan, a Participant's voluntary Separation from Service shall be deemed to be for "Good Reason" if it occurs within six months of any of the following without the Participant's express written consent: (a) a substantial change in the nature, or diminution in the status, of the Participant's duties or position from those in effect immediately prior to the Change in Control; (b) a reduction by the Company in the Participant's annual base salary as in effect on the date of a Change in Control or as in effect thereafter if such compensation has been increased and such increase was approved prior to the Change in Control; (c) a reduction by the Company in the overall value of benefits provided to the Participant, as in effect on the date of a Change in Control or as in effect thereafter if such benefits have been increased and such increase was approved prior to the Change in Control (as used herein, "benefits" shall include all profit sharing, retirement, pension, health, medical, dental, disability, insurance, automobile, and similar benefits); (d) a failure to continue in effect any stock option or other equity-based or non-equity based incentive compensation plan in effect immediately prior to the Change in Control, or a reduction in the Participant's participation in any such plan, unless the Participant is afforded the opportunity to participate in an alternative incentive compensation plan of reasonably equivalent value; (e) a failure to provide the Participant the same number of paid vacation days per year available to him prior to the Change in Control, or any material reduction or the elimination of any material benefit or perquisite enjoyed by the Participant immediately prior to the Change in Control; (f) relocation of the Participant's principal place of employment to any place more than 35 miles from the Participant's previous principal place of employment; (g) any material breach by the Company of any stock option or restricted stock agreement; or (h) conduct by the Company, against the Participant's volition, that would cause the Participant to commit fraudulent acts or would expose the Participant to criminal liability; 9 10 provided that for purposes of clauses (b) through (e) above, "Good Reason" shall not exist (A) if the aggregate value of all salary, benefits, incentive compensation arrangements, perquisites and other compensation is reasonably equivalent to the aggregate value of salary, benefits, incentive compensation arrangements, perquisites and other compensation as in effect immediately prior to the Change in Control, or as in effect thereafter if the aggregate value of such items has been increased and such increase was approved prior to the Change in Control, or (B) if the reduction in aggregate value is due to reduced performance by the Company, the business unit of the Company for which the Participant is responsible, or the Participant, in each case applying standards reasonably equivalent to those utilized by the Company prior to the Change in Control. Not later than the occurrence of a Change in Control, the Company shall cause to be transferred to a grantor trust described in Section 671 of the Internal Revenue Code, assets equal in value to all accrued obligations under this Supplemental Plan as of one day following a Change in Control, in respect of both active employees of the Company and retirees as of that date. Such trust by its terms shall, among other things, be irrevocable. The value of liabilities and assets transferred to the trust shall be determined by one or more nationally recognized firms qualified to provide actuarial services as described in Section 4 of the Computer Sciences Corporation Severance Plan for Senior Management and Key Employees. The establishment and funding of such trust shall not affect the obligation of the Company to provide supplemental pension payments under the terms of this Supplemental Plan to the extent such benefits are not paid from the trust. ARTICLE XI No Assignment Benefits under this Supplemental Plan may not be assigned or alienated and shall not be subject to the claims of any creditor. ARTICLE XII Administration This Supplemental Plan shall be administered by the Chief Executive Officer or by such other person or persons to whom the Chief Executive Officer may delegate functions hereunder. With respect to all matters pertaining to this Supplemental Plan, the determination of the Chief Executive Officer or his designated delegate shall be conclusive and binding. The Chief Executive Officer shall be eligible to participate in this Supplemental Plan in the same manner as any other employee; provided, however, that the designation of the Chief Executive Officer as a Participant and any other action provided herein with respect to the 10 11 Chief Executive Officer's participation shall be taken by the Compensation Committee of the Board of Directors of the Company. ARTICLE XIII Release In connection with any benefit or benefit payment under this Supplemental Plan, or the designation of any beneficiary or any election or other action taken or to be taken under the Supplemental Plan by any Participant or any other person, the Company, acting through its Chief Executive Officer or his delegate, may require such consents or releases as are reasonable under the circumstances, and further may require any such designation, election or other action to be in writing and in form reasonably satisfactory to the Chief Executive Officer or his delegate. ARTICLE XIV No Waiver The failure of the Company, the Chief Executive Officer or any other person acting on behalf thereof to demand a Participant or other person claiming rights with respect to a Participant to perform any act which such person is or may be required to perform hereunder shall not constitute a waiver of such requirement or a waiver of the right to require such act. The exercise of or failure to exercise any discretion reserved to the Company, its Chief Executive Officer or his delegate, to grant or deny any benefit to any Participant or other person under this Supplemental Plan shall in no way require the Company, its Chief Executive Officer or his delegate to similarly exercise or fail to exercise such discretion with respect to any other Participant. ARTICLE XV No Contract This Supplemental Plan is strictly a voluntary undertaking on the part of the Company and, except with respect to the obligations of the Company upon and following a Change in Control, which shall be absolute and unconditional, shall not be deemed to constitute a contract or part of a contract between the Company (or an Affiliate) and any employee or other person, nor shall it be deemed to give any employee the right to be retained for any specified period of time in the employ of the Company (or an Affiliate) or to interfere with the right of the Company (or an Affiliate) to discharge or retire any employee at any time, nor shall this Supplemental Plan interfere with the right of the Company (or an Affiliate) to establish the terms and conditions of employment of any employee. ARTICLE XVI 11 12 Indemnification The Company shall defend, indemnify and hold harmless the Officers and Directors of the Company acting in their capacity as such (and not as Participants herein) from any and all claims, expenses and liabilities arising out of their actions or failure to act hereunder, excluding fraud or willful misconduct. 12 13 ARTICLE XVII Claim Review Procedure Benefits will be provided to each Participant or beneficiary as specified in this Supplemental Plan. If such person (a "Claimant") believes that he has not been provided with benefits due under this Supplemental Plan, then he may file a request for review under this procedure with the Company's Vice President of Human Resources or Chief Financial Officer, as the Claimant may elect, within ninety (90) days after the date he should have received such benefits. If the Claimant files such a request with the Company's Vice President of Human Resources or Chief Financial Officer and that claim is denied, in whole or in part, then, within thirty (30) calendar days after making that request, the Company's officer with whom the Claimant shall have filed a request for review shall notify the Claimant of the specific reasons for the denial with specific references to pertinent Supplemental Plan provisions on which the denial is based. At that time the Claimant will be advised of his right to appeal that determination and given a description of any additional material or information necessary for the Claimant to perfect an appeal, an explanation of why such material or information is necessary, and an explanation of the Supplemental Plan's review and appeal procedure. A Claimant may appeal from a denial by submitting a written statement to the Plan Appeal Committee within sixty-five (65) calendar days after receiving the notice of denial: (a) requesting a review by the Plan Appeal Committee of the claim; (b) setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and (c) setting forth any issues or comments which the Claimant deems relevant to the claim. The Plan Appeal Committee shall be the Board of Directors of the Company or its Compensation Committee or any other duly authorized committee thereof, or any committee appointed by any such committee. The Plan Appeal Committee shall act upon an appeal within ninety (90) days or one hundred eighty (180) days in unusual circumstances, if the Plan Appeal Committee in its reasonable discretion finds that such unusual circumstances exist, after the later of its receipt of the appeal or its receipt of all additional material reasonably requested by the Plan Appeal Committee. The Plan Appeal Committee shall review the claim and all written materials submitted by the Claimant, and may require him to submit, within (10) days of its written notice, such additional facts, 13 14 documents, or other evidence as the Plan Appeal Committee in its sole discretion deems necessary or advisable in making such a review. On the basis of its review, the Plan Appeal Committee shall make an independent good faith determination with respect to the Claimant's claim. If the Plan Appeal Committee denies a claim in whole or in part, the Committee shall give the Claimant written notice of its decision setting forth the specific reasons for the denial and specific references to the pertinent Supplemental Plan provisions on which its decision was based. ARTICLE XVIII Termination of Benefits and Participation Prior, but only prior to a Change in Control, the retirement benefits payable to any Participant under this Supplemental Plan, and the participation of such Participant in this Supplemental Plan, may be terminated if in the judgment of the Chief Executive Officer, upon the advice of counsel, such Participant, directly or indirectly: (a) breaches any obligation to the Company under any agreement relating to assignment of inventions, disclosure of information or data, or similar matters; or (b) competes with the Company, or renders competitive services (as a director, officer, employee, consultant or otherwise) to, or owns more than a 5% interest in, any person or entity that competes with the Company; or (c) solicits, diverts or takes away any person who is an employee of the Company or advises or induces any employee to terminate his or her employment with the Company; or (d) solicits, diverts or takes away any person or entity that is a customer of the Company, or advises or induces any customer or potential customer not to do business with the Company; or (e) discloses to any person or entity other than the Company, or makes any use of, any information relating to the technology, know-how, products, business or data of the Company or its subsidiaries, suppliers, licensors or customers, including but not limited to the names, addresses and special requirements of the customers of the Company. 14 EX-99.(C)(3) 6 SEVERANCE PLAN FOR SR. MANAGEMENT & KEY EMPLOYEES 1 EXHIBIT (c)(3) COMPUTER SCIENCES CORPORATION SEVERANCE PLAN FOR SENIOR MANAGEMENT AND KEY EMPLOYEES AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 18, 1998 This Severance Plan (the "Plan") shall become effective with respect to any particular Designated Employee (as defined below) as of the date a Senior Management and Key Employee Severance Agreement, incorporating all or any portion of the terms hereof, is executed between such Designated Employee and Computer Sciences Corporation (the "Company"). 1. PURPOSE The principal purposes of the Plan are to (i) provide an incentive to the Designated Employees to remain in the employ of the Company, notwithstanding any uncertainty and job insecurity which may be created by an actual or prospective Change of Control, (ii) encourage the Designated Employee's full attention and dedication to the Company currently and in the event of any actual or prospective Change of Control, and (iii) provide an incentive for the Designated Employees to be objective concerning any potential Change of Control and to fully support any Change of Control transaction approved by the Board of Directors. 2. DEFINITIONS Certain terms not otherwise defined in this Plan shall have the meanings set forth in this Section 2. (a) "CA Control Event" shall mean a Change of Control (as hereinafter defined), as a consequence of which Computer Associates International, Inc., or any of its Affiliates or Associates, acquires Control (as such three capitalized terms are defined in Rule 405, as presently in effect, promulgated under the Securities Act of 1933, as amended) of the Company. (b) Compensation. "Compensation" shall mean the sum of: (i) the Designated Employee's annual base salary as in effect immediately prior to the date the Notice of Termination provided for in Section 3(c) of the Plan is given or in effect immediately prior to the date of the Change of Control, whichever is greater, and (ii) the average annual cash "short-term incentive compensation bonus," as defined below, for the Designated Employee, whether pursuant to a then existing plan of the Company or otherwise, (x) over the three most recent fiscal years preceding the year in which the 2 Date of Termination occurs for which a "short-term incentive compensation bonus" was paid or deferred or for which the amount of "short-term incentive compensation bonus," if any, was finally determined; or (y) for a Designated Employee employed by the Company for less than the three fiscal years to which reference is made in (i), over the most recent complete fiscal year or years prior to the Date of Termination during which such Designated Employee was employed and for which a "short-term incentive compensation bonus" was paid or for which the amount of "short-term incentive compensation bonus," if any, was finally determined; or (z) for a Designated Employee employed by the Company for less than a single complete fiscal year prior to the year in which the Date of Termination occurs, the average annual cash "short-term incentive compensation bonus" shall be based on the target annual bonus for the fiscal year during which the Date of Termination occurs. (c) Short-Term Incentive Compensation Bonus. For purposes of this Plan, a "short-term incentive compensation bonus" shall mean a lump sum cash amount or other form of payment including payment in kind, whether contingent or fixed, determined on an annual basis under the Company's Annual Management Incentive Plan dated April 2, 1983 or such successor plan or plans as shall be in effect for the whole or partial fiscal year or years applicable under Section 2(a) of this Plan. (d) Change of Control. The term "Change of Control" shall have the same meaning that the term "Change in Control" has in the SERP (as defined in Section 4, below), as such definition may be amended or modified from time to time; provided, however, that such amendment or modification shall only be effective for purposes of this Plan if made prior to the Change of Control to which such amended or modified definition is sought to be applied. (e) Designated Employees. "Designated Employees" shall refer to those employees of the Company and its subsidiaries who are parties to agreements with the Company, substantially in the form of Exhibit A (with respect to employees in Group A, Group B or Group C) or Exhibit B (with respect to employees in Group D) attached hereto (with such changes as may be approved by the Board of Directors or the Compensation Committee or other duly authorized committee thereof), incorporating the terms and provisions of this Plan. Each such agreement shall indicate whether the particular Designated Employee is in one or more of Group A, Group B, Group C or Group D, or such other Group as may hereafter be duly defined by amendment of this Plan. (f) Good Reason. A Designated Employee's termination of employment with the Company shall be deemed for "Good Reason" if it 2 3 occurs within six months of any of the following without the Designated Employee's express written consent: (i) A substantial change in the nature, or diminution in the status, of the Designated Employee's duties or position from those in effect immediately prior to the Change of Control; (ii) A reduction by the Company in the Designated Employee's annual base salary as in effect on the date of a Change of Control or as in effect thereafter if such compensation has been increased and such increase was approved prior to the Change of Control; (iii) A reduction by the Company in the overall value of benefits provided to the Designated Employee, as in effect on the date of a Change of Control or as in effect thereafter if such benefits have been increased and such increase was approved prior to the Change of Control. As used herein, "benefits" shall include all profit sharing, retirement, pension, health, medical, dental, disability, insurance, automobile, and similar benefits; (iv) A failure to continue in effect any stock option or other equity-based or non-equity based incentive compensation plan in effect immediately prior to the Change of Control, or a reduction in the Designated Employee's participation in any such plan, unless the Designated Employee is afforded the opportunity to participate in an alternative incentive compensation plan of reasonably equivalent value; (v) A failure to provide the Designated Employee the same number of paid vacation days per year available to him or her prior to the Change of Control, or any material reduction or the elimination of any material benefit or perquisite enjoyed by the Designated Employee immediately prior to the Change of Control; (vi) Relocation of the Designated Employee's principal place of employment to any place more than 35 miles from the Designated Employee's previous principal place of employment; (vii) Any material breach by the Company of any provision of the Plan or of any agreement entered into pursuant to the Plan or any stock option or restricted stock agreement; (viii) Conduct by the Company, against the Designated Employee's volition, that would cause the Designated Employee to commit fraudulent acts or would expose the Designated Employee to criminal liability; or 3 4 (ix) Any failure by the Company to obtain the assumption of the Plan or any agreement entered into pursuant to the Plan by any successor or assign of the Company; provided that for purposes of clauses (ii) through (v) above, "Good Reason" shall not exist (A) if the aggregate value of all salary, benefits, incentive compensation arrangements, perquisites and other compensation is reasonably equivalent to the aggregate value of salary, benefits, incentive compensation arrangements, perquisites and other compensation as in effect immediately prior to the Change of Control, or as in effect thereafter if the aggregate value of such items has been increased and such increase was approved prior to the Change of Control, or (B) if the reduction in aggregate value is due to reduced performance by the Company, the business unit of the Company for which the Designated Employee is responsible, or the Designated Employee, in each case applying standards reasonably equivalent to those utilized by the Company prior to the Change of Control. (g) Cause. For purposes of this Plan and any agreements entered into pursuant to the Plan only, Cause shall mean: (i) fraud, misappropriation, embezzlement or other act of material misconduct against the Company or any of its affiliates; (ii) conviction of a felony involving a crime of moral turpitude; (iii) willful and knowing violation of any rules or regulations of any governmental or regulatory body material to the business of the Company; or (iv) substantial and willful failure to render services in accordance with the terms of this Agreement (other than as a result of illness, accident or other physical or mental incapacity), provided that (A) a demand for performance of services has been delivered to the Designated Employee in writing by or on behalf of the Board of Directors of the Company at least 60 days prior to termination identifying the manner in which such Board of Directors believes that the Designated Employee has failed to perform and (B) the Designated Employee has thereafter failed to remedy such failure to perform. 3. TERMINATION FOLLOWING CHANGE OF CONTROL (a) Termination of Employment. (i) In the event a Designated Employee in Group A, Group B or Group C, following the date of a Change of Control, either (A) has a voluntary employment termination for Good Reason within twenty-four 4 5 (24) full calendar months following such Change of Control, (B) has a voluntary termination of employment with or without Good Reason more than twelve (12) full calendar months after, but within thirteen (13) full calendar months following, such Change of Control, or (C) has an involuntary employment termination for any reason other than for Cause within thirty-six full calendar months following such Change of Control, such Designated Employee shall be entitled to receive immediately upon such employment termination such payments and benefits hereunder as such Designated Employee shall be entitled to receive upon such employment termination in accordance with Sections 2(e) and 5 of this Plan. (ii) In the event a Designated Employee in Group D, following the date of a CA Control Event, either (A) has a voluntary employment termination for Good Reason within twenty-four (24) full calendar months following such CA Control Event or (B) has an involuntary employment termination for any reason other than for Cause within thirty-six full calendar months following such CA Control Event, such Designated Employee shall be entitled to receive immediately upon such employment termination such payments and benefits hereunder as such Designated Employee shall be entitled to receive upon such employment termination in accordance with Sections 2(e) and 5 of this Plan. (iii) Notwithstanding any other provision of this Plan, no payments shall be made under or measured by this Plan in the event that the Designated Employee's employment is terminated by his Disability or by his death or for Cause. (b) Disability. If, as a result of the Designated Employee's incapacity due to physical or mental illness, accident or other incapacity (as determined by the Board in good faith, after consideration of such medical opinion and advice as may be available to the Board from medical doctors selected by the Designated Employee or by the Board or both separately or jointly), the Designated Employee shall have been absent from his duties with the Company on a full-time basis for six consecutive months and, within 30 days after written Notice of Termination thereafter given by the Company, the Designated Employee shall not have returned to the full-time performance of the Designated Employee's duties, the Company may terminate the Designated Employee's employment for "Disability". (c) Notice of Termination. Any purported termination of the Designated Employee's employment by the Company or the Designated Employee hereunder shall be communicated by a Notice of Termination to the other party in accordance with the terms of the agreement entered into pursuant to the Plan. For purposes of the Plan and any agreement entered 5 6 into pursuant hereto, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in the Plan applicable to the termination and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for application of the provisions so indicated. (d) Date of Termination. "Date of Termination" shall mean (i) if the Designated Employee is terminated by the Company for Disability, thirty (30) days after Notice of Termination is given to the Designated Employee (provided that the Designated Employee shall not have returned to the performance of the Designated Employee's duties on a full-time basis during such thirty (30) day period) or (ii) if the Designated Employee's employment is terminated by the Company for any other reason or by the Designated Employee, the date on which a Notice of Termination is given. 4. FUNDING OF SERP OBLIGATIONS UPON CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company shall fund that portion, if any, of the obligations of the Company to each Designated Employee, under any supplemental executive retirement plan ("SERP") that may then cover the Designated Employee, that is not then irrevocably funded by establishing and irrevocably funding a trust for the benefit of the Designated Employee. Such trust shall be a grantor trust described in Internal Revenue Code Section 671. The trust shall provide for distribution of amounts to Designated Employee in order to pay taxes, if any, that become due prior to payment of supplemental pension benefit amounts pursuant to the trust. The amount of such fund shall equal the then present value of the supplemental pension obligation due as determined by a nationally recognized firm qualified to provide actuarial services which has not rendered services to the Company during the two years preceding such determination. The actuary shall be selected by the Company, subject to approval by the Designated Employee (which approval shall not unreasonably be withheld), and paid by the Company. The establishment and funding of such trust shall not affect the obligation of the Company to provide supplemental pension payments under the terms of the applicable SERP. 5. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT If the employment with the Company of a Designated Employee in Group A, Group B or Group C shall be terminated following a Change of Control as set forth in Section 3 of the Plan, or the employment with the Company of a Designated Employee in Group D shall be terminated following a CA Control Event as set forth in Section 3 of the Plan, then the Company shall pay and provide as follows to such Designated Employee: (a) For a Designated Employee in Group A or Group B, upon voluntary termination for Good Reason within twenty-four (24) full calendar 6 7 months following a Change of Control, or upon involuntary employment termination for any reason other than for Cause within thirty-six (36) full calendar months following such Change of Control, the Company shall: (i) Pay to the Designated Employee as severance pay in a lump sum, in cash, on or before the tenth business day following the Date of Termination, an amount equal to the multiple specified on Exhibit C and made applicable to such Designated Employee by this Plan and such Designated Employee's agreement hereunder, multiplied by the Designated Employee's Compensation; and (ii) Provide the Designated Employee, for the number of years calculated for such Designated Employee pursuant to Section 5(a)(i) of this Plan (or such shorter period as the Designated Employee may elect) with disability, health, life and accidental death and dismemberment benefits substantially similar to those benefits which the Designated Employee is receiving immediately prior to the Change of Control or, if greater, immediately prior to the Notice of Termination (followed by the period of COBRA continuation if COBRA benefits are elected by the Designated Employee at such Designated Employee's expense). Benefits otherwise receivable by the Designated Employee pursuant to this Section 5(a)(ii) shall be reduced to the extent comparable benefits are actually received by the Designated Employee during such period as the result of his or her employment with another person. (b) For a Designated Employee in Group C: A Designated Employee in Group C shall receive severance pay under Section 5(a)(i) and the benefits under Section 5(a)(ii) as shown on Exhibit C in the circumstance of voluntary termination with or without Good Reason more than twelve (12) full calendar months after, but within thirteen (13) full calendar months following, a Change of Control, as such Designated Employee's exclusive entitlement to payment and benefits in such circumstance under this Plan. (c) For a Designated Employee in Group D, upon voluntary termination for Good Reason within twenty-four (24) full calendar months following a CA Control Event, or upon involuntary employment termination for any reason other than for Cause within thirty-six (36) full calendar months following such CA Control Event, the Company shall: (i) Pay to the Designated Employee as severance pay in a lump sum, in cash, on or before the tenth business day following the Date of Termination, an amount equal to the multiple specified on Exhibit C and made applicable to such Designated Employee by this 7 8 Plan and such Designated Employee's agreement hereunder, multiplied by the Designated Employee's Compensation; and (ii) Provide the Designated Employee, for the number of years calculated for such Designated Employee pursuant to Section 5(c)(i) of this Plan (or such shorter period as the Designated Employee may elect) with disability, health, life and accidental death and dismemberment benefits substantially similar to those benefits which the Designated Employee is receiving immediately prior to the CA Control Event or, if greater, immediately prior to the Notice of Termination (followed by the period of COBRA continuation if COBRA benefits are elected by the Designated Employee at such Designated Employee's expense). Benefits otherwise receivable by the Designated Employee pursuant to this Section 5(c)(ii) shall be reduced to the extent comparable benefits are actually received by the Designated Employee during such period as the result of his or her employment with another person. 6. CERTAIN FURTHER PAYMENTS BY THE COMPANY The Company shall be obligated to make certain further payments or contributions to or for the benefit of the Designated Employees as set forth in this Section 6. With respect to a Designated Employee in Group A, Group B or Group C, such obligations of the Company shall arise upon a Change of Control. With respect to a Designated Employee in Group D, such obligations of the Company shall arise upon a CA Control Event. (a) Tax Reimbursement Payment. In the event that any amount or benefit that may be paid, distributed or otherwise provided to the Designated Employee by the Company or any affiliated company, whether pursuant to this Plan or otherwise (collectively, the "Covered Payments"), is or may become subject to the tax imposed under Section 4999 of the Code (the "Excise Tax") or any similar tax that may hereafter be imposed, the Company shall either pay to the Designated Employee or irrevocably contribute for the benefit of the Designated Employee to a trust conforming with the requirements of Section 4 above (and may be part of that trust) established by the Company prior to the Change of Control giving rise to the Excise Tax, at the time specified in Section 6(e) below, the Tax Reimbursement Payment (as defined below). The Tax Reimbursement Payment is defined as an amount, which when reduced by any Excise Tax on the Covered Payments and any Federal, state and local income taxes, employment and excise taxes (including the Excise Tax) on the Tax Reimbursement Payment (but without reduction for any Federal, state or local income or employment taxes on such Covered Payments), shall be equal to the product of any deductions disallowed for Federal, state or local income tax purposes because of the inclusion of the Tax Reimbursement Payment in Designated Employee's 8 9 adjusted gross income and the highest applicable marginal rate of Federal, state and local income taxation, respectively, for the calendar year in which the Tax Reimbursement Payment is to be made. (b) Determining Excise Tax. For purposes of determining whether any of the Covered Payments shall be subject to the Excise Tax and the amount of such Excise Tax: (i) such Covered Payments shall be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the opinion of the "Accountants" (as defined below), such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. For the purposes of this Section 6 the "Accountants" shall mean the Company's independent certified public accountants serving immediately prior to the Change of Control. In the event that such Accountants decline to serve as the Accountants for purposes of this Section 6 or are serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Designated Employee shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accountants hereunder). All fees and expenses of the Accountants in connection with matters relating to this Section 6 shall be paid by the Company. (c) Applicable Tax Rates and Deductions. For purposes of determining the amount of the Tax Reimbursement Payment, the Designated Employee shall be deemed: (i) to pay Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made; and (ii) to pay any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the 9 10 maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Designated Employee's adjusted gross income.) (d) Subsequent Events. (i) In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Designated Employee shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that has been paid to the Designated Employee or to Federal, state or local tax authorities on the Designated Employee's behalf and that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Designated Employee, and interest payable to the Company shall not exceed interest received or credited to the Designated Employee by such tax authority for the period it held such portion. (ii) In the event that the Excise Tax is later determined by the Accountants to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess which Tax Reimbursement Payment shall include any interest or penalty (any such payment in respect of interest or penalty to be subject to the gross-up principles set forth in this Section 6) payable with respect to such excess, at the time that the amount of such excess is finally determined. For purposes of this Section 6(d)(ii), if a final determination as to the Excise Tax applicable to a Covered Payment is made by the Internal Revenue Service, or a court with jurisdiction, such determination shall be deemed to be determined by the Accountants. (iii) In the event it is later determined by the Accountants that Designated Employee owes additional Federal, state or local income or employment taxes with respect to any Tax Reimbursement Payment, 10 11 the Company shall promptly pay him the difference between (A) the Tax Reimbursement Payment determined based on the Federal, state and local income and employment taxes due in respect of the Tax Reimbursement Payment as so determined by the Accountants and (B) the Tax Reimbursement Payment that had been previously paid to him or for his benefit. For purposes of this Section 6(d)(iii), determination by the Accountants shall include a final determination by the Internal Revenue Service, a state or local government or tax agency or a court with jurisdiction. (e) Date of Payment. The portion of the Tax Reimbursement Payment attributable to a Covered Payment shall be paid to the Designated Employee or remitted to the appropriate tax authority or irrevocably contributed for the benefit of the Designated Employee to a trust as described in Section 4 above within ten (10) business days following the payment, distribution or other provision of the Covered Payment. If the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment, distribution or provision is due, the Company shall either pay to the Designated Employee or contribute for the benefit of the Designated Employee to the trust described in the preceding sentence, an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (which Tax Reimbursement Payment shall include interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than forty-five (45) calendar days after payment, distribution or other provision of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall be repaid or refunded pursuant to the provisions of Section 6(d)(i) above. (f) The establishment and funding of the trust described in Section 4 above shall not affect the obligations of the Company to provide the benefits subject to this Section 6. 7. DISPUTE RESOLUTION; CLAIMS PROCEDURE; ARBITRATION (a) Claims Procedure. (i) Benefits will be provided to each Designated Employee as specified in this Plan. If a Designated Employee believes that he has not been provided with benefits due under the Plan, then the Designated Employee may file a request for review under this procedure with the Company's Vice President of Human Resources or Chief Financial Officer, as the Designated Employee may elect, within ninety (90) days after the date he 11 12 should have received such benefits. Alternatively, such Designated Employee may elect the arbitration procedure in Section 7(b) of this Plan. If such Designated Employee elects to proceed under this Section 7(a) and files such a request for a benefit under the Plan with the Company's Vice President of Human Resources or Chief Financial Officer and that claim is denied, in whole or in part, then within thirty (30) calendar days after making that request, the Company's Officer with whom the Designated Employee shall have filed a request for review under this Section 7(a)(i) shall notify the Designated Employee of the specific reasons for the denial with specific references to pertinent Plan provisions on which the denial is based. At that time the Designated Employee will be advised of his right to appeal that determination and given a description of any additional material or information necessary for the Designated Employee to perfect an appeal, an explanation of why such material or information is necessary, and an explanation of the Plan's review and appeal procedure. (ii) A Designated Employee may appeal from a determination or denial under Section 7(a)(1) by submitting to the Plan Appeal Committee within sixty-five (65) calendar days after receiving the notice of determination or denial a written statement: (x) requesting a review by the Plan Appeal Committee of the claim; (y) setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and (z) setting forth any issues or comments which the Designated Employee deems relevant to the claim. (iii) The Plan Appeal Committee shall be the Board of Directors of the Company or its Compensation Committee or any other duly authorized committee thereof, or any committee appointed by any such committee. (iv) The Plan Appeal Committee shall act upon the appeal within ninety (90) days or one hundred eighty (180) days in unusual circumstances, if the Plan Appeal Committee in its reasonable discretion finds that such unusual circumstances exist, after the later of its receipt of the appeal or its receipt of all additional materials reasonably requested by the Plan Appeal Committee. The Plan Appeal Committee shall review the claim and all written materials submitted by the Designated Employee, and may require him to submit, within ten (10) days of its written notice, such additional facts, documents, or other evidence as the Plan Appeal Committee in its sole discretion deems necessary or advisable in making such a review. On the basis of its review, the Plan Appeal Committee shall make an independent good faith determination with respect to the Designated Employee's claim. 12 13 (v) If the Plan Appeal Committee denies a claim in whole or in part, the Committee shall give the Designated Employee written notice of its decision setting forth the specific reasons for the denial and specific references to the pertinent Plan provisions on which its decision was based. The Designated Employee may then either pursue his claim in a judicial forum or invoke the arbitration provisions of Section 7(b) of this Plan. (b) Arbitration (i) In the event of any dispute between the parties concerning the validity, interpretation, enforcement or breach of this Agreement or in any way related to the Designated Employee's employment or any termination of such employment (including any claims involving any officers, managers, directors, employees, shareholders or agents of the Company) excepting only any rights the parties may have to seek injunctive relief, the dispute shall be resolved by final and binding arbitration administered by JAMS/Endispute in Los Angeles, California in accordance with the then existing JAMS/Endispute Arbitration Rules and Procedures for Employment Disputes. Resolution by arbitration, either in lieu of or after exhausting the procedures of Section 7(a) of this Plan, shall be at the election of the Designated Employee with respect to any claim to which Section 7(a) shall apply. In the event of such an arbitration proceeding, the parties shall select a mutually acceptable neutral arbitrator from among the JAMS/Endispute panel of arbitrators. In the event the parties cannot agree on an arbitrator, the Administrator of JAMS/Endispute shall appoint an arbitrator. Neither party nor the arbitrator shall disclose the existence, content, or results of any arbitration hereunder without the prior written consent of all parties, except as may be compelled by court order. Except as provided herein, the Federal Arbitration Act shall govern the interpretation and enforcement of such arbitration and all proceedings. The arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the State of California, or Federal law, or both, as applicable and the arbitrator is without jurisdiction to apply any different substantive law. The arbitrator shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. The arbitrator shall render an award and a written, reasoned opinion in support thereof. Judgment upon the award may be entered in any court having jurisdiction thereof. The parties intend this arbitration provision to be valid, enforceable, irrevocable and construed as broadly as possible. Pending the resolution of any dispute between the parties, the Company shall continue prompt payment of all amounts due the Designated Employee under this Agreement and prompt provision of all benefits to which the Designated Employee is otherwise entitled. (ii) Costs of arbitration, including reasonable attorney fees and costs and the reasonable fees and costs of any experts incurred by the 13 14 Designated Employee, shall be borne and paid by the Company if the Designated Employee prevails on any portion of his claims. Such fees and costs shall be paid by the Company in advance of the final disposition of such claims, as such fees are incurred, upon receipt of an undertaking by the Designated Employee to repay such amounts if it is ultimately determined that he did not prevail on any portion of his claims. Not later than the occurrence of a Change of Control, the Company shall deposit not less than $5 million in a grantor trust, as described in Internal Revenue Code Section 671, which shall provide for distribution of amounts to Designated Employees in fulfillment of the Company's obligations to pay their fees and costs as provided in the preceding sentence. The funding of such trust shall be maintained at not less than $5 million by further deposits by the Company as such payments of fees and costs are made by the trustee or trustees of the trust. The arbitrator shall make such interim awards respecting the funding of the trust and payment of the fees and costs as shall be necessary and appropriate to assure the prompt, regular interim payment of fees and costs as provided in this Section 7(b)(ii). Judgments upon any such interim awards may be entered in any court having jurisdiction thereof. Such trust by its terms shall be irrevocable but shall terminate upon the later of (x) the expiration of three years following a Change of Control or (y) the disposition of all then pending claims under the Plan by final arbitration award and final judgment, all time for appeals having expired, in any judicial proceedings respecting any such claims. Immediately after termination of the trust, any funds remaining in the trust and accumulated interest thereon shall revert to the Company. (iii) Notwithstanding the foregoing provisions of this Section 7, the Designated Employee and the Company agree that the Designated Employee or the Company may seek and obtain otherwise available injunctive relief in Court for any violation of obligations concerning confidential information or trade secrets that cannot adequately be remedied at law or in arbitration. 8. MITIGATION OF DAMAGES; EFFECT OF PLAN (a) The Designated Employee shall not be required to mitigate damages or the amount of any payment provided for under the Plan by seeking other employment or otherwise, nor shall the amount of any payment provided for under the Plan, including without limitation Section 5 of the Plan, be reduced by any compensation earned by the Designated Employee as a result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise except as expressly provided herein. (b) Except as provided in Section 10, the provisions of the Plan, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Designated Employee's 14 15 existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, employment agreement or other contract, plan or arrangement. 9. TERM; AMENDMENTS; NO EFFECT ON EMPLOYMENT PRIOR TO CHANGE OF CONTROL (a) The Plan shall have an initial term of two years, which shall be automatically extended by one year beginning on the first anniversary of the date of adoption of the Plan and on each anniversary thereafter. The Plan with respect to all Designated Employees or any particular Designated Employee may be terminated or amended by the Board of Directors of the Company or by its Compensation Committee or any other duly authorized Committee thereof; provided that a termination or any amendment that reduces the benefits to the Designated Employee provided hereunder or otherwise adversely affects the rights of the Designated Employee, without the Designated Employee's prior written consent: (i) may only be approved after the completion of the initial two year term and prior to a Change of Control, and (ii) may not be effected prior to the provision of 24 months' advance notice thereof to the Designated Employee. Termination or amendment of the Plan shall not affect any obligation of the Company under the Plan which has accrued and is unpaid as of the effective date of the termination or amendment. Notwithstanding the foregoing, the Company may change the definition of "Change of Control" as provided in Section 2(d), above, subject to the limitations therein stated. (b) Nothing in the Plan or any agreement entered into pursuant to the Plan shall confer upon the Designated Employee any right to continue in the employ of the Company prior to (or, subject to the terms of the Plan, following) a Change of Control of the Company or shall interfere with or restrict in any way the rights of the Company, which are hereby expressly reserved except as may otherwise be provided under any other written agreement between the Designated Employee and the Company, to discharge the Designated Employee at any time prior to (or, subject to the terms of the Plan, following) the date of a Change of Control of the Company for any reason whatsoever, with or without cause. The Designated Employee and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Designated Employee and the Company, the employment of the Designated Employee by the Company is "at will," and if, prior to a Change Of Control, the Designated Employee's employment with the Company terminates for any reason or for no reason, then the Designated Employee shall have no further rights under this Plan. (c) The Company may withhold from any amounts payable under this Plan such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. 15 16 (d) The Designated Employee's or the Company's failure to insist upon strict compliance with any provision hereof or the failure to assert any right the Designated Employee or the Company may have hereunder, including, without limitation, the right of the Designated Employee to terminate employment for Good Reason, as defined herein, shall not be deemed to be a waiver of such provision or right or any other provision or right under this Plan. 10. EFFECT OF OTHER AGREEMENTS Notwithstanding anything to the contrary provided in the Plan, (i) any amounts payable to a Designated Employee pursuant to Section 5 of the Plan shall be reduced by any amounts actually paid to such Designated Employee following a termination of employment either pursuant to applicable law or under any contract between the Designated Employee and the Company, in either case that provides for or requires the payment of compensation or severance benefits following a termination of employment and (ii) any benefits that may be provided to a Designated Employee for three years or another period following a termination of employment pursuant to Section 5 of the Plan shall be reduced to the extent that substantially identical benefits are actually received by the Designated Employee during such three year or other period under an existing severance agreement or requirement. It is expressly understood, however, that no amounts payable hereunder shall be reduced by amounts payable under the Company's pension or deferred compensation plans or the SERP (as defined in Section 4, above) or by amounts payable as accrued vacation or because of the acceleration of the benefits under the Company's stock option and restricted stock plans. 16 17 EXHIBIT A COMPUTER SCIENCES CORPORATION SENIOR MANAGEMENT AND KEY EMPLOYEE SEVERANCE AGREEMENT This SENIOR MANAGEMENT AND KEY EMPLOYEE SEVERANCE AGREEMENT (this "Agreement"), dated as of _______________ is made and entered into by and between Computer Sciences Corporation, a Nevada corporation (the "Company"), and _____________________ (the "Executive"). R E C I T A L S This Agreement is being entered into in accordance with the Severance Plan attached hereto as Annex 1 (the "Plan") in order to set forth the specific severance compensation which the Company agrees that it will pay to the Executive if the Executive's employment with the Company terminates under certain circumstances described in the Plan. A G R E E M E N T NOW, THEREFORE, in consideration of the continued service of the Executive as an employee of the Company, the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Agreement to Provide Plan Benefits. The Plan (as it may hereafter be amended or modified in accordance with the terms thereof) is hereby incorporated into this Agreement in full and made a part hereof as though set forth in full in this Agreement. The Executive is hereby designated a member of Group(s) ___________ under the Plan and shall be entitled to all of the rights and benefits applicable to employees of the Company in such Group(s) under the Plan. The Company agrees to be bound by the Plan and to provide to the Executive all of the benefits provided to employees of the Company who are members of Group(s) __________ under the Plan subject to the terms and conditions of the Plan. Terms not otherwise defined in this Agreement shall have the meanings set forth in the Plan. 2. Heirs and Successors. (a) Successors of the Company. The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession transaction shall be a 18 breach of this Agreement and shall entitle the Executive to terminate his or her employment with the Company within six months thereafter for Good Reason and to receive the benefits provided under the Plan in the event of termination for Good Reason following a Change of Control. As used in this Agreement, "Company" shall mean the Company as defined above and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 2 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) Heirs of the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. If the Executive should die after the conditions to payment of benefits set forth in Section 5 of the Plan have been met and any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's beneficiary, successor, devisee, legatee or other designee or, if there be no such designee, to the Executive's estate. Until a contrary designation is made to the Company, the Executive hereby designates as his beneficiary under this Agreement the person whose name appears below his signature on page 3 of this Agreement. 3. Notice. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: if to the Company -- Computer Sciences Corporation, 2100 East Grand Avenue, El Segundo, California 90245 Attention: Vice President, General Counsel and Secretary; and if to the Designated Employee at the address specified at the end of this Agreement. Notice may also be given at such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 4. Miscellaneous. No provisions of this Agreement or the Plan may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Designated Employee and the Company, except as provided in Section 9(a) of the Plan. No waiver by any party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 5. Validity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 2 19 6. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 7. Gender. In this Agreement (unless the context requires otherwise), use of' any masculine term shall include the feminine. 8. Rescission. The Company agrees that this Agreement and the right to receive payments pursuant to the Plan and this Agreement may be rescinded at any time by the Executive giving written notice to such effect to the Company in accordance with Section 3 above. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPUTER SCIENCES CORPORATION EXECUTIVE By: -------------------------- ----------------------------------------- (Signature) ----------------------------------------- (Name) ----------------------------------------- (Address for Notice) ----------------------------------------- (Designated Beneficiary) ----------------------------------------- (Address for Beneficiary) 3 20 EXHIBIT B COMPUTER SCIENCES CORPORATION SENIOR MANAGEMENT AND KEY EMPLOYEE SEVERANCE AGREEMENT This SENIOR MANAGEMENT AND KEY EMPLOYEE SEVERANCE AGREEMENT (this "Agreement"), dated as of _______________ is made and entered into by and between Computer Sciences Corporation, a Nevada corporation (the "Company"), and _____________________ (the "Executive"). R E C I T A L S This Agreement is being entered into in accordance with the Severance Plan attached hereto as Annex 1 (the "Plan") in order to set forth the specific severance compensation which the Company agrees that it will pay to the Executive if the Executive's employment with the Company terminates under certain circumstances described in the Plan. A G R E E M E N T NOW, THEREFORE, in consideration of the continued service of the Executive as an employee of the Company, the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Agreement to Provide Plan Benefits. The Plan (as it may hereafter be amended or modified in accordance with the terms thereof) is hereby incorporated into this Agreement in full and made a part hereof as though set forth in full in this Agreement. The Executive is hereby designated a member of Group D under the Plan and shall be entitled to all of the rights and benefits applicable to employees of the Company in such Group under the Plan. The Company agrees to be bound by the Plan and to provide to the Executive all of the benefits provided to employees of the Company who are members of Group D under the Plan subject to the terms and conditions of the Plan. Terms not otherwise defined in this Agreement shall have the meanings set forth in the Plan. 2. Heirs and Successors. (a) Successors of the Company. The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession transaction shall be a 21 breach of this Agreement and shall entitle the Executive to terminate his or her employment with the Company within six months thereafter for Good Reason and to receive the benefits provided under the Plan in the event of termination for Good Reason following a CA Control Event. As used in this Agreement, "Company" shall mean the Company as defined above and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 2 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) Heirs of the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. If the Executive should die after the conditions to payment of benefits set forth in Section 5 of the Plan have been met and any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's beneficiary, successor, devisee, legatee or other designee or, if there be no such designee, to the Executive's estate. Until a contrary designation is made to the Company, the Executive hereby designates as his beneficiary under this Agreement the person whose name appears below his signature on page 3 of this Agreement. 3. Notice. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: if to the Company -- Computer Sciences Corporation, 2100 East Grand Avenue, El Segundo, California 90245 Attention: Vice President, General Counsel and Secretary; and if to the Designated Employee at the address specified at the end of this Agreement. Notice may also be given at such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 4. Miscellaneous. No provisions of this Agreement or the Plan may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Designated Employee and the Company, except as provided in Section 9(a) of the Plan. No waiver by any party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 5. Validity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 2 22 6. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 7. Gender. In this Agreement (unless the context requires otherwise), use of' any masculine term shall include the feminine. 8. Rescission. The Company agrees that this Agreement and the right to receive payments pursuant to the Plan and this Agreement may be rescinded at any time by the Executive giving written notice to such effect to the Company in accordance with Section 3 above. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPUTER SCIENCES CORPORATION EXECUTIVE By: -------------------------- ----------------------------------------- (Signature) ----------------------------------------- (Name) ----------------------------------------- (Address for Notice) ----------------------------------------- (Designated Beneficiary) ----------------------------------------- (Address for Beneficiary) 3 23 EXHIBIT C
GROUP ------------------- A B C D - - - - Multiple of compensation 3 2 3 2 under Sections 3 and 5
24 SPECIAL EXHIBIT TO COMPUTER SCIENCES CORPORATION SEVERANCE PLAN FOR SENIOR MANAGEMENT AND KEY EMPLOYEES On February 2, 1998, the following employees were selected as Group A, Group B and/or Group C Designated Employees under the Plan: Groups A and C: Van B. Honeycutt Chairman, President and Chief Executive Officer Group B: Edward P. Boykin Vice President Milton E. Cooper Vice President and President, Systems Group Gerard E. Dube President, Integrated Business Services Hayward D. Fisk Vice President, General Counsel and Secretary J. Douglas Gray Chief Executive Officer, CSC Index Leon J. Level Vice President, Chief Financial Officer and Treasurer Ronald W. Mackintosh Vice President and President, European Group Thomas R. Madison Jr. Vice President and President, Financial Services Group C. Bruce Plowman Vice President, Corporate and Marketing Communications Thomas C. Robinson President, Technology Management Group James P. Saviano President, Consulting Group Arthur H. Spiegel III President, Healthcare Group Carl D. Thorne Vice President, Finance and Administration, Technology Management Group Paul T. Tucker Vice President, Corporate Development W. Brinson Weeks Vice President, Office of the Chairman, President and Chief Executive Officer Thomas Williams Vice President and President, Chemical, Oil and Gas Group
On February 18, 1998, the Board of Directors authorized Van B. Honeycutt, Chairman, President and Chief Executive Officer, to select up to 150 employees as Class D Designated Employees under in the Plan. On February 25, 1998, 135 employees were selected as Class D Designated Employees under the Plan. EX-99.(C)(4) 7 RIGHTS AGREEMENT, 02/18/98 1 EXHIBIT (c)(4) RIGHTS AGREEMENT dated as of February 18, 1998 by and between COMPUTER SCIENCES CORPORATION and CHASEMELLON SHAREHOLDER SERVICES, L.L.C., as Rights Agent 2 TABLE OF CONTENTS Page ---- Section 1. Certain Definitions 1 Section 2. Appointment of Rights Agent 7 Section 3. Issuance of Right Certificates 7 Section 4. Form of Right Certificates 9 Section 5. Countersignature and Registration 9 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates 10 Section 7. Exercise of Rights 11 Section 8. Cancellation and Destruction of Right Certificates 13 Section 9. Reservation and Availability of Capital Stock 13 Section 10. Securities Record Date 14 Section 11. Adjustment of Exercise Price, Number of Shares Issuable Upon Exercise of Rights or Number of Rights 14 Section 12. Certificate of Adjusted Exercise Price or Number of Shares Issuable Upon Exercise of Rights 20 Section 13. Consolidation, Merger, or Sale or Transfer of Assets or Earning Power 20 Section 14. Fractional Rights and Fractional Shares 23 Section 15. Rights of Action 24 Section 16. Agreement of Right Holders 24 Section 17. Right Holder and Right Certificate Holder Not Deemed a Stockholder 25 Section 18. Concerning the Rights Agent 25 Section 19. Merger or Consolidation or Change of Name of Rights Agent 26 Section 20. Duties of Rights Agent 26 Section 21. Change of Rights Agent 28 Section 22. Issuance of New Right Certificates 29 3 Page ---- Section 23. Redemption of Rights 29 Section 24. Exchange of Rights 30 Section 25. Notice of Certain Events 31 Section 26. Notices 32 Section 27. Supplements and Amendments 32 Section 28. Certain Covenants 33 Section 29. Successors 33 Section 30. Benefits of this Agreement 33 Section 31. Severability 33 Section 32. Governing Law 34 Section 33. Counterparts 34 Section 34. Descriptive Headings 34 Exhibit A - Form of Right Certificate A-1 ii 4 RIGHTS AGREEMENT This Rights Agreement ("Agreement") is made and entered into as of the 18th day of February, 1998 by and between Computer Sciences Corporation, a Nevada corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent"). WHEREAS, the Board of Directors of the Company has authorized and declared a dividend of one preferred stock purchase right (a "Right") for each Common Share (as hereinafter defined) of the Company, which dividend is payable on February 27, 1998 (the "Record Date") to the holders of record of Common Shares as of the Close of Business (as hereinafter defined) on such date; WHEREAS, the Board of Directors of the Company has further authorized and directed the issuance of one (subject to adjustment of such number as provided in this Agreement) Right for (A) each Common Share that shall be issued by the Company at any time after the Record Date and prior to the earliest of the date of the first Section 11(a)(ii) Event, the date of the first Section 13(a) Event, the Redemption Date or the Expiration Date (as such terms are hereinafter defined), and (B) each Common Share that shall be issued by the Company at any time on or after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event and prior to the earlier of the Redemption Date or the Expiration Date pursuant to the exercise of conversion rights, exchange rights, rights (other than Rights), warrants or options that shall have been issued or granted prior to the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event, unless the Board of Directors shall provide otherwise at the time of the issuance or grant of such conversion rights, exchange rights, rights (other than Rights), warrants or options; and WHEREAS, in connection with the matters referred to herein, the Company desires to appoint the Rights Agent to act on behalf of the Company for the benefit of the holders of Rights, and the Rights Agent is willing so to act; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements set forth herein, and for the benefit of the holders of Rights, the parties hereto hereby agree as follows: Section 1. Certain Definitions. ------------------- For purposes of this Agreement, the following terms have the meanings indicated: (a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date hereof. (b) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "Beneficially Own": 1 5 (i) any securities that such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly, for purposes of Section 13(d) of the Exchange Act and Rule 13d-3 promulgated under the Exchange Act, in each case as in effect on the date hereof; (ii) any securities that such Person or any of such Person's Affiliates or Associates has the right to acquire (whether such right is exercisable immediately, or only after the passage of time, compliance with regulatory requirements, the fulfillment of a condition, or otherwise) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise, provided that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, securities tendered pursuant to a tender offer or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; (iii) any securities that such Person or any of such Person's Affiliates or Associates has the right to vote, alone or in concert with others, pursuant to any agreement, arrangement or understanding, provided that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, any security if the agreement, arrangement or understanding to vote such security (A) arises solely from a revocable proxy given to such Person or any of such Person's Affiliates or Associates in response to a public proxy solicitation made pursuant to and in accordance with the applicable rules and regulations of the Exchange Act, and (B) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); (iv) any securities that are Beneficially Owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (other than voting pursuant to a revocable proxy as described in the proviso to Section 1(b)(iii) hereof) or disposing of any securities of the Company; and (v) on any day on or after the Distribution Date, all Rights that prior to such date were represented by certificates for Common Shares that such Person Beneficially Owns on such day. Notwithstanding anything to the contrary in this Section 1(b), a Person engaged in business as an underwriter of securities shall not be deemed to be the Beneficial Owner of, or to Beneficially Own, any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. 2 6 (c) "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the States of New York or California are authorized or obligated by law or executive order to close. (d) "Close of Business" on any given date shall mean 5:00 o'clock p.m., California time, on such date; provided, however, that if such date is not a Business Day, it shall mean 5:00 o'clock p.m., California time, on the next succeeding Business Day. (e) "Closing Price" of a stock or other security on any day shall be the last sale price, regular way, per share of such stock or unit of such other security on such day or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if such stock or other security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such stock or other security is listed or admitted to trading or, if such stock or other security is not listed or admitted to trading on any national securities exchange, the last quoted sale price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use or, if on any such date such stock or other security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker that makes a market in such stock or other security and that is selected by the Board of Directors of the Company. (f) "Common Share" shall mean one share of the common stock, par value $1.00 per share, of the Company, unless used with reference to a Person other than the Company, in which case it shall mean one share of the class of capital stock (or equity interest) of such other Person having the greatest voting power per share or, if such Person is a Subsidiary of another Person, of the Person that ultimately controls such Person. (g) "Common Share Equivalent" shall have the meaning ascribed to it in Section 11(a)(iii) hereof. (h) "Current Market Price" per share of a stock or unit of any other security on any date shall mean the average of the daily Closing Prices of such stock or other security for the 30 consecutive Trading Days through and including the Trading Day immediately preceding the date in question; provided, however, that if any event shall have caused the Closing Price on any Trading Day during such 30-day period not to be fully comparable with the Closing Price on the date in question (or, if no Closing Price is available on the date in question, on the Trading Day immediately preceding the date in question), then each such noncomparable Closing Price so used shall be appropriately adjusted by the Board of Directors of the Company in order to make the Closing Price on each Trading Day during the period used for the determination of the Current Market Price fully comparable with the 3 7 Closing Price on such date in question (or, if applicable, the immediately preceding Trading Day). "Current Market Price" per share of any stock or unit of such other security that is not publicly held or so listed or traded, and "Current Market Price" of any other property, shall mean the fair value per share of such stock or unit of such other security, or the fair value of such other property, respectively, as determined in good faith by the Board of Directors of the Company based upon such appraisals or valuation reports of such independent experts as the Board of Directors shall in good faith determine appropriate, which determination shall be described in a statement filed by the Company with the Rights Agent. Notwithstanding the foregoing, for purposes of Section 11 hereof "Current Market Price Per Share" as to Preferred Shares shall be determined as set forth in Section 11(d). (i) "Distribution Date" shall have the meaning ascribed to it in Section 3 hereof. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (k) "Exchange Ratio" shall have the meaning ascribed to it in Section 24(a) hereof. (l) "Exempt Person" shall mean the Company, any wholly-owned Subsidiary of the Company, any employee benefit plan of the Company or of a Subsidiary of the Company, and any Person holding Voting Shares for or pursuant to the terms of any such employee benefit plan. (m) "Exercise Price" shall have the meaning ascribed to it in Section 7(c) hereof. (n) "Expiration Date" shall mean February 18, 2008. (o) "Person" shall mean any individual, firm, partnership, corporation, association, group (as such term is used in Rule 13d-5 promulgated under the Exchange Act as in effect on the date hereof) or other entity, and shall include any successor (by merger or otherwise) of such entity. (p) "Preferred Share" shall mean one share of the Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Company, which has the rights and preferences set forth in the Certificate of Designations filed with the Secretary of State of the State of Nevada on January 13, 1989, as amended and, to the extent that there is not a sufficient number of shares of Series A Junior Participating Preferred Stock authorized to permit the full exercise of the Rights, any other series of preferred stock, $1.00 par value of the Company, designated for such purpose containing terms substantially similar to the terms of the Series A Junior Participating Preferred Stock. 4 8 (q) "Preferred Share Equivalents" shall have the meaning ascribed to it in Section 11(b) hereof. (r) "Record Date" shall have the meaning ascribed to it in the recitals hereto. (s) "Redemption Date" shall mean the date of the action of the Board of Directors of the Company authorizing and directing the redemption of the Rights pursuant to Section 23(a) hereof or the exchange of the Rights pursuant to Section 24(a) hereof. (t) "Redemption Price" shall have the meaning ascribed to it in Section 23(a) hereof. (u) "Right" shall have the meaning ascribed to it in the recitals hereto. (v) "Rights Agent" shall have the meaning ascribed to it in the recitals hereto. (w) "Section 11(a)(ii) Event" shall have the meaning ascribed to it in Section 11(a)(ii) hereof. (x) "Section 13(a) Event" shall have the meaning ascribed to it in Section 13(a) hereof. (y) "Securities Act" shall mean the Securities Act of 1933, as amended. (z) "Subsidiary" of any Person shall mean any corporation or other Person of which equity securities or equity interests representing a majority of the voting power are owned, directly or indirectly, or which is effectively controlled, by such Person. (aa) "Surviving Person" shall have the meaning ascribed to it in Section 13(a) hereof. (bb) "Trading Day" shall mean, as to any stock or other security, a day on which the principal national securities exchange on which such stock or other security is listed or admitted to trading is open for the transaction of business or, if such stock or other security is not listed or admitted to trading on any national securities exchange, a Business Day. (cc) "Unavailable Adjustment Shares" has the meaning ascribed to it in Section 11(a)(iii) hereof. (dd) "Voting Share" shall mean (i) a Common Share of the Company and (ii) any other share of capital stock of the Company entitled to vote generally in the election of directors or entitled to vote together with the 5 9 Common Shares in respect of any merger, consolidation, sale of all or substantially all of the Company's assets, liquidation, dissolution or winding up. References in this Agreement to a percentage or portion of the outstanding Voting Shares shall be deemed a reference to the percentage or portion of the total votes entitled to be cast by the holders of the outstanding Voting Shares. (ee) "10% Ownership Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or a 10% Stockholder containing the facts by virtue of which a Person has become a 10% Stockholder or such earlier date as a majority of the directors shall become aware of the existence of a 10% Stockholder. (ff) "10% Stockholder" shall mean any Person that, together with all Affiliates and Associates of such Person, hereafter becomes the Beneficial Owner of such number of Voting Shares of the Company as constitutes a percentage of the then outstanding Voting Shares that is equal to or greater than 10%; provided, however, that the term "10% Stockholder" shall not include: (i) an Exempt Person; (ii) any Person if such Person would not otherwise be a 10% Stockholder but for a reduction in the number of outstanding Voting Shares resulting from a stock repurchase program or other similar plan of the Company or from a self-tender offer of the Company, which plan or tender offer commenced on or after the date hereof, provided, however, that the term "10% Stockholder" shall include such Person from and after the first date upon which (A) such Person, since the date of the commencement of such plan or tender offer, shall have acquired Beneficial Ownership of, in the aggregate, a number of Voting Shares of the Company equal to 1% or more of the Voting Shares of the Company then outstanding and (B) such Person, together with all Affiliates and Associates of such Person, shall Beneficially Own 10% or more of the Voting Shares of the Company then outstanding; or (iii) any Person if such Person is the Beneficial Owner of 10% or more of the outstanding Voting Shares of the Company as of the date of this Agreement, provided, however, that the term "10% Stockholder" shall include such Person from and after the first date upon which (A) such Person, since the date of this Agreement, shall have acquired, without the prior approval of the Board of Directors of the Company, Beneficial Ownership of, in the aggregate, a number of Voting Shares of the Company equal to 1% or more of the Voting Shares of the Company then outstanding and (B) such Person, together with all Affiliates and Associates of such Person, shall Beneficially Own 10% or more of the Voting Shares of the Company then outstanding. In calculating the percentage of the outstanding Voting Shares that are Beneficially Owned by a Person for purposes of this subsection (ff), Voting Shares that are Beneficially Owned by such Person shall be deemed outstanding, and Voting Shares that are not Beneficially Owned by such Person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, rights (other than Rights), warrants or options shall not be deemed outstanding. Notwithstanding the foregoing, if the Board of Directors of the Company determines that a Person that would otherwise be a 10% Stockholder pursuant to the foregoing provisions of this Section 1(ff) and Section 1(b) hereof has become such inadvertently, and such Person (i) promptly notifies the Board of Directors of such status and (ii) as promptly 6 10 as practicable thereafter, either divests a sufficient number of Voting Shares so that such Person would no longer be a 10% Stockholder, or causes any other circumstance, such as the existence of an agreement respecting Voting Shares, to be eliminated such that such Person would no longer be a 10% Stockholder as defined pursuant to this Section 1(ff) and 1(b), then such Person shall not be deemed to be a 10% Stockholder for any purposes of this Agreement. Any determination made by the Board of Directors of the Company as to whether any Person is or is not a 10% Stockholder shall be conclusive and binding upon all holders of Rights. Section 2. Appointment of Rights Agent. --------------------------- The Company hereby appoints the Rights Agent to act as agent for the Company, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable, upon ten days' prior written notice to the Rights Agent. The Rights Agent shall have no duty to supervise, and shall in no event be liable for, the acts or omissions of any such co-Rights Agent. Section 3. Issuance of Right Certificates. ------------------------------ (a) "Distribution Date" shall mean the date, after the date hereof, that is the earliest of (i) the tenth Business Day (or such later day as shall be designated by the Board of Directors of the Company) following the date of the commencement of, or the first public announcement of the intent of any Person, other than an Exempt Person, to commence a tender offer or exchange offer, the consummation of which would cause any Person to become a 10% Stockholder, (ii) the date of the first Section 11(a)(ii) Event or (iii) the date of the first Section 13(a) Event; provided, however, that, notwithstanding anything in this Section 3(a) to the contrary, clause (i) of this Section 3(a) shall not apply with respect to the commencement of a tender offer by CAI Computer Services Corp. on February 17, 1998. (b) Until the Distribution Date, (i) the Rights shall be represented by certificates for Common Shares (all of which certificates for Common Shares shall be deemed to be Right Certificates) and not by separate Right Certificates, (ii) the record holder of the Common Shares represented by each of such certificates shall be the record holder of the Rights represented thereby and (iii) the Rights shall be transferable only in connection with the transfer of Common Shares. Until the earliest of the Distribution Date, the Redemption Date or the Expiration Date, the surrender for transfer of such certificates for Common Shares shall also constitute the surrender for transfer of the Rights represented thereby. (c) As soon as practicable after the Distribution Date, and after notification by the Company, the Rights Agent shall send, at the Company's expense, by first-class, postage-prepaid mail to each record holder of Common Shares, as of the Close of Business on the Distribution Date, at the address of such holder shown on the records of the Company, a Right Certificate substantially in the form of Exhibit A hereto representing one Right for each Common Share so held. From and after the Distribution Date, the Rights shall 7 11 be represented solely by such Right Certificates and may only be transferred by the transfer of such Right Certificates, and the holders of such Right Certificates, as listed in the records of the Company or any transfer agent or registrar for such Rights, shall be the record holders of such Rights. (d) Certificates for Common Shares issued at any time after the Record Date and prior to the earliest of the Distribution Date, the Redemption Date or the Expiration Date, shall have impressed on, printed on, written on or otherwise affixed to them the following legend: "This certificate also represents Rights that entitle the holder hereof to certain rights as set forth in a Rights Agreement dated as of February 18, 1998 by and between the Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (as it may be amended from time to time, the "Rights Agreement"), the terms and conditions of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. Under certain circumstances specified in the Rights Agreement, such Rights will be represented by separate certificates and will no longer be represented by this certificate. Under certain circumstances specified in the Rights Agreement, Rights beneficially owned by certain persons may become null and void. The Corporation will mail to the record holder of this certificate a copy of the Rights Agreement without charge promptly following receipt of a written request therefor." (e) Certificates for Common Shares issued at any time on or after the Distribution Date and prior to the earlier of the Redemption Date or the Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend: "This certificate does not represent any Right issued pursuant to the terms of a Rights Agreement dated as of February 18, 1998 by and between the Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent." (f) In the event that at any time on or after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event and prior to the earlier of the Redemption Date or the Expiration Date, the Company shall issue any Common Shares pursuant to the exercise of conversion rights, exchange rights, rights (other than Rights), warrants or options that shall have been issued or granted prior to the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event, then, unless the Board of Directors of the Company shall have provided otherwise at the time of the issuance or grant of such conversion rights, exchange rights, rights (other than Rights), warrants or options, the Rights Agent shall, as soon as practicable after the date of such event, 8 12 send by first-class, postage-prepaid mail to the record holder of such Common Shares, at the address of such holder as shown on the records of the Company, a Right Certificate substantially in the form of Exhibit A hereto representing one Right for each Common Share so issued. (g) Notwithstanding the foregoing provisions of this Section 3, the Rights Agent shall not send any Right Certificate to any 10% Stockholder or any of its Affiliates or Associates or to any Person if the Rights held by such Person are Beneficially Owned by a 10% Stockholder or any of its Affiliates or Associates. Any determination made by the Board of Directors of the Company as to whether any Common Shares are or were Beneficially Owned at any time by a 10% Stockholder or an Affiliate or Associate of a 10% Stockholder shall be conclusive and binding upon all holders of Rights. Section 4. Form of Right Certificates. -------------------------- The Right Certificates and the form of assignment, including certificate, and the form of election to purchase, including certificate, printed on the reverse thereof, when, as and if issued, shall be substantially the same as Exhibit A hereto, and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange upon which the Rights or the securities of the Company issuable upon exercise of the Rights may from time to time be listed, or to conform to usage. Subject to Section 22 hereof, Right Certificates, whenever issued, that are issued in respect of Common Shares that were issued and outstanding as of the Close of Business on the Distribution Date, shall be dated as of the Distribution Date. Section 5. Countersignature and Registration. --------------------------------- (a) The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President or any Vice President, either manually or by facsimile signature, and may have affixed thereto the Company's seal or a facsimile thereof attested by its Secretary or any Assistant Secretary, either manually or by facsimile signature. The Right Certificates shall be countersigned by an authorized signatory of the Rights Agent (which need not be the same authorized signatory for all of the Right Certificates) and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates may nevertheless be countersigned by an authorized signatory of the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company. Any Right Certificate may be signed on behalf of the Company by any person who at the actual date of such execution shall be a proper officer of the Company to sign such Right Certificate, even though such person was not such an officer at the date of the execution of this Agreement. 9 13 (b) Following the Distribution Date, the Rights Agent shall keep or cause to be kept at its principal offices in Ridgefield Park, New Jersey, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of Right Certificates, the number of Rights represented on its face by each Right Certificate and the date of each Right Certificate. Section 6. Transfer, Split Up, Combination and Exchange of Right ----------------------------------------------------- Certificates; Mutilated, Destroyed, Lost or Stolen Right -------------------------------------------------------- Certificates. ------------ (a) Subject to the provisions of Sections 6(c), 7(d) and 14 hereof, at any time after the Close of Business on the Distribution Date, and so long as the Rights represented thereby remain outstanding, any one or more Right Certificates may be transferred, split up, combined or exchanged for one or more Right Certificates representing the same aggregate number of Rights as the Right Certificates surrendered. Any registered holder desiring to transfer, split up, combine or exchange one or more Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent with the form of assignment, including certificate, on the reverse side thereof completed and duly executed, with signature guaranteed and such other and further documentation as the Rights Agent may reasonably request. Thereupon, the Rights Agent shall countersign and deliver to the person entitled thereto one or more Right Certificates, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of such Right Certificate, if mutilated, along with signature guarantees and such other and further documentation as the Rights Agent may reasonably request, the Company shall issue and deliver to the Rights Agent for delivery to the record holder of such Right Certificate a new Right Certificate of like tenor in lieu of such lost, stolen, destroyed or mutilated Right Certificate. (c) Notwithstanding anything to the contrary in this Section 6, the Rights Agent shall not countersign and deliver a Right Certificate to any Person if such Right Certificate represents, or would represent when held by such Person, Rights that had become or would become null and void pursuant to Section 7(d) hereof. Section 7. Exercise of Rights. ------------------ (a) Until the Distribution Date, no Right may be exercised. 10 14 (b) Subject to Section 7(d) and (g) hereof and the other provisions of this Agreement, at any time after the Close of Business on the Distribution Date and prior to the Close of Business on the earlier of the Redemption Date or the Expiration Date, the registered holder of any Right Certificate may exercise the Rights represented thereby in whole or in part upon surrender of such Right Certificate, with the form of election to purchase, including certificate, on the reverse side thereof completed and duly executed, to the Rights Agent at the office of the Rights Agent in Ridgefield Park, New Jersey, along with a signature guarantee and such other and further documentation as the Rights Agent may reasonably request, together with payment of the Exercise Price for each Right exercised. Upon the exercise of an exercisable Right and payment of the Exercise Price in accordance with the provisions of this Agreement, the holder of such Right shall be entitled to receive, subject to adjustment as provided herein, one four-thousandth (1/4000th) of a Preferred Share (or, following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event, Common Shares, other securities cash and/or other property in accordance with the provisions of this Agreement). (c) The Exercise Price for each one four-thousandth (1/4000th) of a Preferred Share pursuant to the exercise of each Right shall initially be $500 (Five Hundred Dollars) and shall be payable in lawful money of the United States of America in accordance with Section 7(f) hereof. The Exercise Price and the number of Preferred Shares (or, following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event, Common Shares, cash and/or other property in accordance with the provisions of this Agreement) to be acquired upon exercise of a Right shall be subject to adjustment from time to time as provided in Sections 7(e), 11 and 13 hereof and the other provisions of this Agreement. (d) Notwithstanding anything in this Agreement to the contrary, from and after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event, any Rights that are or were Beneficially Owned by (i) a 10% Stockholder or any Affiliate or Associate of a 10% Stockholder, (ii) a transferee of a 10% Stockholder (or of any such Associate or Affiliate) who becomes a transferee after the 10% Stockholder becomes such, or (iii) a transferee of a 10% Stockholder (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with a 10% Stockholder becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the 10% Stockholder to holders of equity interests in such 10% Stockholder or to any Person with whom the 10% Stockholder has any continuing agreement, arrangement or understanding regarding the transferred Rights, or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(d), at any time on or after the Distribution Date shall be null and void, and for all purposes of this Agreement such Rights shall thereafter be deemed not to be outstanding, and any holder of such Rights (whether or not such holder is a 10% Stockholder or an Affiliate or Associate of a 10% Stockholder) shall thereafter have no right to exercise such Rights. 11 15 (e) Prior to the Distribution Date, if the Board of Directors of the Company shall have determined that such action adequately protects the interests of the holders of Rights, the Company may, in its discretion, substitute for all or any portion of the Preferred Shares that would otherwise be issuable (after the Close of Business on the Distribution Date) upon the exercise of each Right and payment of the Exercise Price, (i) cash, (ii) other equity securities of the Company, (iii) debt securities of the Company, (iv) other property or (v) any combination of the foregoing, in each case having an aggregate Current Market Price equal to the aggregate Current Market Price of the Preferred Shares for which substitution is made. Subject to Section 7(d) hereof, in the event that the Company takes any action pursuant to this Section 7(e), such action shall apply uniformly to all outstanding Rights. (f) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase, including certificate, completed and duly executed, with signature guaranteed, accompanied by payment of the Exercise Price for each Right to be exercised and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof by certified check or cashier's check payable to the order of the Company, the Rights Agent shall thereupon promptly (i) requisition from the transfer agent of the Preferred Shares (or, following the occurrence of a Section 11(a)(ii) Event or a Section 13(a) Event, Common Shares, other securities, cash and/or other property in accordance with the provisions of this Agreement), certificates for the number of one four-thousandths (1/4000th) of a Preferred Share (or such other securities) to be purchased, and the Company hereby irrevocably authorizes such transfer agent to comply with all such requests, and/or, as provided in Section 14 hereof, requisition from the depositary agent described therein depositary receipts representing such number of one four-thousandths (1/4000th) of a Preferred Share (or such other securities) as are to be purchased (in which case certificates for the Preferred Shares (or such other securities) represented by such receipts shall be deposited by the transfer agent with such depositary agent) and the Company hereby directs such depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional Preferred Shares (or such other securities) in accordance with Section 14 hereof, (iii) after receipt of such certificates, depositary receipts or cash, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt thereof, deliver such cash to or upon the order of the registered holder of such Right Certificate. (g) Notwithstanding the foregoing provisions of this Section 7, the exercisability of the Rights shall be suspended for such period as shall reasonably be necessary for the Company to register under the Securities Act and any applicable securities law of any jurisdiction the Preferred Shares to be issued pursuant to the exercise of the Rights; provided, however, that nothing contained in this Section 7 shall relieve the Company of its obligations under Section 9(c) hereof. 12 16 (h) In case the registered holder of any Right Certificate shall exercise less than all of the Rights represented thereby, a new Right Certificate representing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to such holder's duly authorized assigns, subject to the provisions of Section 14 hereof. Section 8. Cancellation and Destruction of Right Certificates. -------------------------------------------------- All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Right Certificates to the Company. Section 9. Reservation and Availability of Capital Stock. --------------------------------------------- (a) Subject to Section 7(e) hereof, the Company shall cause to be reserved and kept available out of its authorized and unissued equity securities (or out of its authorized and issued equity securities held in its treasury), the number of such equity securities that will from time to time be sufficient to permit the exercise in full of all outstanding Rights. (b) In the event that any securities issuable upon exercise of the Rights are listed on any national securities exchange, the Company shall use its best efforts, from and after such time as the Rights become exercisable, to cause all such securities issued or reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) If necessary to permit the issuance of securities upon exercise of the Rights, the Company shall use its best efforts, from and after the Distribution Date, to register such securities under the Securities Act and any applicable state securities laws and to keep such registration effective until the earlier of the Redemption Date or the Expiration Date. (d) The Company shall take all such action as may be necessary to ensure that all securities delivered upon exercise of the Rights shall, at the time of delivery of the certificates for such securities (subject to payment of the Exercise Price), be duly and validly authorized and issued and fully paid and nonassessable securities. (e) The Company shall pay when due and payable any and all federal and state transfer taxes and charges that may be payable in respect of the issuance or delivery of the Right Certificates or of any securities upon the exercise of Rights. The Company shall not, however, be required to pay any 13 17 transfer tax that may be payable in respect of any transfer or delivery of a Right Certificate to a Person other than, or the issuance or delivery of a certificate for securities in respect of a name other than that of, the registered holder of the Right Certificate representing Rights surrendered for exercise, or to issue or deliver any certificate for securities upon the exercise of any Right until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. (f) With respect to the Common Shares and/or other securities issuable pursuant to Section 11(a)(ii) and (iii) hereof, the foregoing covenants shall be applicable only upon and following the occurrence of a Section 11(a)(ii) Event. Section 10. Securities Record Date. ---------------------- Each person in whose name any certificate for securities of the Company is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the securities represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate representing such Rights was duly surrendered and payment of the Exercise Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the securities transfer books of the Company are closed, such person shall be deemed to have become the record holder of such securities on, and such certificate shall be dated, the next succeeding Business Day on which the securities transfer books of the Company are open. Section 11. Adjustment of Exercise Price, Number of Shares Issuable ------------------------------------------------------- Upon Exercise of Rights or Number of Rights. ------------------------------------------- The Exercise Price, the number and kind of securities that may be purchased upon exercise of a Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event that the Company shall at any time after the Close of Business on the Record Date and prior to the Close of Business on the earlier of the Redemption Date or the Expiration Date (A) declare or pay any dividend on the Preferred Shares payable in Preferred Shares or Voting Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue Preferred Shares or Voting Shares in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), then, and upon each such event, the Exercise Price in effect on the date of such event and the number and kind of Preferred Shares or other securities issuable upon the exercise of a Right on the date of such event shall be proportionately adjusted so that the holder of any Right exercised on or after such date shall be entitled to receive, upon the exercise thereof and payment of the Exercise Price, the aggregate number and kind of Preferred Shares or other securities or other property, as the case may be, that, if such Right had been exercised immediately prior to such date and at a time when such Right was exercisable and the 14 18 transfer books of the Company were open, such holder would have owned upon such exercise and would have been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs that would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. (ii) In the event (a "Section 11(a)(ii) Event") that a 10% Ownership Date shall have occurred and neither the Redemption Date nor the Expiration Date shall have occurred, then, effective as of the 10% Ownership Date, proper provision shall be made so that except as provided in Section 7(d) hereof, each holder of a Right shall thereafter have the right to receive, upon the exercise thereof in accordance with the terms of this Agreement and payment of the then-current Exercise Price, in lieu of the securities or other property otherwise purchasable upon such exercise, such number of Common Shares of the Company as shall equal the result obtained by multiplying the then current Exercise Price by the then number of one four-thousandths (1/4000th) of a Preferred Share for which a Right was exercisable (or, if the Distribution Date shall not have occurred prior to the date of such Section 11(a)(ii) Event, the number of one four-thousandths (1/4000th) of a Preferred Share for which a Right would have been exercisable if the Distribution Date had occurred on the Business Day immediately preceding the date of such Section 11(a)(ii) Event) immediately prior to such Section 11(a)(ii) Event, and dividing that product by 50% of the Current Market Price (determined pursuant to Section 11(d) hereof) of a Common Share on the date of occurrence of the relevant Section 11(a)(ii) Event (such number of shares being hereinafter referred to as the "Adjustment Shares"). Successive adjustments shall be made pursuant to this paragraph each time a Section 11(a)(ii) Event occurs. (iii) In the event that on the date of a Section 11(a)(ii) Event the aggregate number of Common Shares that are authorized by the Company's restated articles of incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is less than the aggregate number of Adjustment Shares thereafter issuable upon the exercise in full of the Rights in accordance with Section 11(a)(ii) hereof (the excess of such number of Adjustment Shares over and above such number of Common Shares being hereinafter referred to as the "Unavailable Adjustment Shares"), then, and upon each such event, the Company shall substitute for the pro rata portion of the Unavailable Adjustment Shares that would otherwise be issuable thereafter upon the exercise of each Right and payment of the Exercise Price, (A) cash, (B) other equity securities of the Company (including, without limitation, shares of preferred stock of the Company or units of such shares having the same Current Market Price as one Common Share (a "Common Share Equivalent")), (C) debt securities of the Company, (D) other property or (E) any combination of the foregoing, in each case having an aggregate Current Market Price equal to the aggregate Current Market Price of the 15 19 Unavailable Adjustment Shares for which substitution is made. Subject to Section 7(d) hereof, in the event that the Company takes any action pursuant to this Section 11(a)(iii), such action shall apply uniformly to all outstanding Rights. (b) In the event that the Company shall, at any time after the Close of Business on the Record Date and prior to the Close of Business on the earlier of the Redemption Date or the Expiration Date, fix a record date prior to the earlier of the Redemption Date or the Expiration Date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them initially to subscribe for or purchase Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares ("Preferred Share Equivalents")) or securities convertible into Preferred Shares or Preferred Share Equivalents, at a price per Preferred Share or Preferred Share Equivalent (or having a conversion price per share, if a security convertible into Preferred Shares or Preferred Share Equivalents) less than the Current Market Price per Preferred Share on such record date, then, and upon each such event, the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be equal to the sum of the number of Preferred Shares outstanding on such record date plus the number of Preferred Shares that the aggregate offering price of the total number of Preferred Shares and/or Preferred Share Equivalents to be so offered (and/or the aggregate initial conversion price of the convertible securities to be so offered) would purchase at such Current Market Price, and the denominator of which shall be equal to the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares and/or Preferred Share Equivalents to be offered for subscription or purchase (or into which the convertible securities to be so offered are initially convertible); provided, however, that if such rights, options or warrants are not exercisable immediately upon issuance but become exercisable only upon the occurrence of a specified event or the passage of a specified period of time, then the adjustment to the Exercise Price shall be made and become effective only upon the occurrence of such event or such passage of time, and such adjustment shall be made as if the record date for the issuance of such rights, options or warrants had been the Business Day immediately preceding the date upon which such rights, options or warrants became exercisable. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment to the Exercise Price shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Exercise Price shall be adjusted to be the Exercise Price that would then be in effect if such record date had not been fixed. (c) In the event that the Company shall, at any time after the Close of Business on the Record Date and prior to the Close of Business on the earlier of the Redemption Date or the Expiration Date, fix a record date for the making of a distribution to all holders of the Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) of securities or assets (other than a distribution of securities for which an adjustment is required under Section 11(a)(i) or (b) hereof or a regular quarterly cash dividend), then the 16 20 Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be equal to the excess of the Current Market Price per Preferred Share on such record date over and above the fair market value of the portion of the securities or assets to be so distributed with respect to one Preferred Share, and the denominator of which shall be equal to such Current Market Price per Preferred Share. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such a distribution is not so made, the Exercise Price shall be adjusted to be the Exercise Price that would then be in effect if such record date had not been fixed. (d) For the purpose of any computation under this Section 11, if the Preferred Shares are not publicly held or traded, the "Current Market Price" per Preferred Share shall be conclusively deemed to be the Current Market Price per Common Share multiplied by 4,000 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Shares occurring after the date of this Agreement). (e) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price; provided, however, that any adjustments that by reason of this Section 11(e) are not required to be made shall be cumulated and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one-thousandth of a Common Share or other share or one forty-millionth of a Preferred Share, as the case may be. (f) If, as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any securities of the Company other than Preferred Shares, the number of such other securities so receivable upon exercise of any Right and the Exercise Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Preferred Shares contained in this Section 11, and the other provisions of this Agreement with respect to Preferred Shares shall apply on like terms to any such other securities. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Exercise Price hereunder shall represent the right to purchase, at the adjusted Exercise Price, the number of one four-thousandths (1/4000th) of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i) below, upon each adjustment of the Exercise Price as a result of the calculations made in Sections 11(b) and (c) hereof, each Right outstanding immediately prior to the making of such adjustment shall thereafter represent the right to purchase, at the adjusted Exercise Price, 17 21 that number of one four-thousandths (1/4000th) of a Preferred Share (calculated to the nearest one forty-thousandth (1/40000th) of a Preferred Share) obtained by multiplying (i) the number of one four-thousandths (1/4000th) of a Preferred Share purchasable upon the exercise of one Right immediately prior to such adjustment of the Exercise Price by (ii) the Exercise Price in effect immediately prior to such adjustment, and dividing the product so obtained by the Exercise Price in effect immediately after such adjustment. (i) The Company may elect, on or after the date of any adjustment of the Exercise Price, to adjust the number of Rights instead of making any adjustment in the number of one four-thousandths (1/4000th) of a Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one four-thousandths (1/4000th) of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one four-thousandth (1/4000th) of a Right) obtained by dividing the Exercise Price in effect immediately prior to the adjustment of the Exercise Price by the Exercise Price in effect immediately after such adjustment of the Exercise Price. The Company shall make a public announcement of its election to adjust the number of Rights pursuant to this Section 11(i), indicating the record date for the adjustment and, if known at the time, the amount of the adjustment to be made. Such record date may be the date on which the Exercise Price is adjusted or any day thereafter, but, if separate Right Certificates have been issued, it shall be at least 10 days after the date of such public announcement. If separate Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates representing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment or, at the option of the Company, cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of such adjustment, and upon surrender thereof if required by the Company, new Right Certificates representing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates to be so distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Exercise Price) and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Exercise Price or the number of one four-thousandths (1/4000th)of a Preferred Share issuable upon the exercise of one Right, the Right Certificates theretofore and thereafter issued may continue to express the Exercise Price per one four-thousandth (1/4000th) of a Preferred Share and the number of one four-thousandths (1/4000th) of a Preferred Share issuable upon the exercise of one Right that were expressed in the initial Right Certificates issued hereunder. 18 22 (k) Before taking any action that would cause an adjustment reducing the Exercise Price below one four-thousandth (1/4000th) of the then par value, if any, of the Preferred Shares issuable upon exercise of the Rights, the Company shall take any corporate action that may, in the advice or opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable one four-thousandth (1/4000th) of a Preferred Share at such adjusted Exercise Price. (l) In any case in which this Section 11 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, the issuance to the holder of any Right exercised after such record date of the number of one four-thousandths (1/4000th) of a Preferred Share and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one four-thousandths (1/4000th) of a Preferred Share and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument representing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such further adjustments in the number of one four-thousandths (1/4000th) of a Preferred Share that may be purchased upon exercise of one Right, and such further adjustments in the Exercise Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Shares, (ii) issuance wholly for cash of any Preferred Shares at less than the Current Market Price thereof, (iii) issuance wholly for cash of Preferred Shares or securities that by their terms are convertible into or exchangeable for Preferred Shares, (iv) dividends on Preferred Shares payable in Preferred Shares or (v) issuance of rights, options or warrants referred to Section 11(b) hereof, hereafter made by the Company to holders of its Preferred Shares shall not be taxable to such stockholders. (n) In the event that the Company shall, at any time after the Close of Business on the Record Date and prior to the Close of Business on the earliest of the date of the first Section 11(a)(ii) Event, the date of the first Section 13(a) Event, the Redemption Date or the Expiration Date, (i) pay any dividend on the Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares, (iii) combine the outstanding Common Shares into a smaller number of Common Shares or (iv) issue Common Shares in a reclassification of the Common Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), then, and upon each such event, the Exercise Price to be in effect after such event shall be determined by multiplying the Exercise Price in effect immediately prior to such event by a fraction, the numerator of which shall be equal to the number of Common Shares outstanding immediately prior to such event and the denominator of which shall 19 23 be equal to the number of Common Shares outstanding immediately after such event. Successive adjustments shall be made pursuant to this Section 11(n) each time such a dividend is paid or such a subdivision, combination or reclassification is effected. If an event occurs that would require an adjustment under both this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(n) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. Section 12. Certificate of Adjusted Exercise Price or Number of --------------------------------------------------- Shares Issuable Upon Exercise of Rights. --------------------------------------- Whenever an adjustment is made as provided in Section 11 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment and a brief statement of the facts giving rise to such adjustment, (b) file with the Rights Agent and with each transfer agent for the securities issuable upon exercise of the Rights a copy of such certificate and (c) mail a brief summary thereof to each holder of Rights in accordance with Section 25 hereof. Notwithstanding the foregoing sentence, the failure of the Company to make such certification or to give such notice shall not affect the validity or the force and effect of such adjustment. Any adjustment to be made pursuant to Sections 11 or 13 hereof shall be effective as of the date of the event giving rise to such adjustment. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of such adjustment unless and until it shall have received such certificate. Section 13. Consolidation, Merger, or Sale or Transfer of Assets or ------------------------------------------------------- Earning Power. ------------- (a) In the event (a "Section 13(a) Event") that, at any time on or after the 10% Ownership Date and prior to the earlier of the Redemption Date or the Expiration Date, (1) the Company shall, directly or indirectly, consolidate with or merge with and into any other Person and the Company shall not be the continuing or surviving corporation in such consolidation or merger, (2) any Person shall, directly or indirectly, consolidate with or merge with and into the Company and the Company shall be the continuing or surviving corporation in such consolidation or merger and, in connection with such consolidation or merger, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of any Person or cash or any other property, or (3) the Company and/or any one or more of its Subsidiaries shall, directly or indirectly, sell or otherwise transfer, in one or more transactions (other than transactions in the ordinary course of business), assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons other than the Company or one or more of its wholly owned Subsidiaries (such Persons, together with the Persons described in clauses (1) and (2) above shall be collectively referred to in this Section 13 as the "Surviving Person"), then, and in each such case, proper provision shall be made so that: (i) except as provided in Section 7(d) hereof, each holder of a Right shall thereafter have the right to receive, upon the exercise thereof in accordance with the terms of this Agreement and payment of the then-current Exercise Price, in lieu of the securities or other property 20 24 otherwise purchasable upon such exercise, such number of validly authorized and issued, fully paid and nonassessable Common Shares of the Surviving Person as shall be equal to a fraction, the numerator of which is the product of the then-current Exercise Price multiplied by the number of one four-thousandths (1/4000th) of a Preferred Share purchasable upon the exercise of one Right immediately prior to the first Section 13(a) Event (or, if the Distribution Date shall not have occurred prior to the date of such Section 13(a) Event, the number of one four-thousandths (1/4000th) of a Preferred Share that would have been so purchasable if the Distribution Date had occurred on the Business Day immediately preceding the date of such Section 13(a) Event, or, if a Section 11(a)(ii) Event has occurred prior to such Section 13(a) Event, the product of the number of one four-thousandths (1/4000th) of a Preferred Share purchasable upon the exercise of a Right (or, if the Distribution Date shall not have occurred prior to the date of such Section 11(a)(ii) Event, the number of one four-thousandths (1/4000th) of a Preferred Share that would have been so purchasable if the Distribution Date had occurred on the Business Day immediately preceding the date of such Section 11(a)(ii) Event) immediately prior to such Section 11(a)(ii) Event, multiplied by the Exercise Price in effect immediately prior to such Section 11(a)(ii) Event), and the denominator of which is 50% of the Current Market Price per Common Share of the Surviving Person on the date of consummation of such Section 13(a) Event; (ii) the Surviving Person shall thereafter be liable for and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term, "Company," shall thereafter be deemed to refer to the Surviving Person; and (iv) the Surviving Person shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares in accordance with Section 9 hereof) in connection with such consummation as may be necessary to ensure that the provisions hereof shall thereafter be applicable to its Common Shares thereafter deliverable upon the exercise of Rights. (b) Notwithstanding the foregoing, if the Section 13(a) Event is the sale or transfer in one or more transactions of assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole), but less than 100% thereof, then each Person acquiring all or a portion thereof shall assume the obligations of the Company as to a fraction of each of the Rights equal to the fraction of the assets of the Company and its Subsidiaries (taken as a whole) acquired by such Person, and the obligations of the Company as to the remaining fraction of each of the Rights shall continue to be the obligations of the Company. (c) The Company shall not consummate a Section 13(a) Event unless prior thereto the Company and the Surviving Person shall have executed and 21 25 delivered to the Rights Agent a supplemental agreement confirming that such Surviving Person shall, upon consummation of such Section 13(a) Event, assume this Agreement in accordance with Section 13 hereof, that all rights of first refusal or preemptive rights in respect of the issuance of Common Shares of such Surviving Person upon exercise of outstanding Rights have been waived and that such Section 13(a) Event shall not result in a default by such Surviving Person under this Agreement, and further providing that, as soon as practicable after the date of consummation of such Section 13(a) Event, such Surviving Person shall: (i) prepare and file a registration statement under the Securities Act with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, use its best efforts to cause such registration statement to become effective as soon as practicable after such filing, use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date, and similarly comply with all applicable state securities laws; (ii) use its best efforts to list (or continue the listing of) the Rights and the Common Shares of the Surviving Person purchasable upon exercise of the Rights on a national securities exchange, or use its best efforts to cause the Rights and such Common Shares to meet the eligibility requirements for quotation on NASDAQ; and (iii) deliver to holders of the Rights historical financial statements for such Surviving Person that comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act. (d) In the event that at any time after the occurrence of a Section 11(a)(ii) Event some or all of the Rights shall not have been exercised pursuant to Section 11 hereof prior to the date of a Section 13(a) Event, such Rights shall thereafter be exercisable only in the manner described in Section 13(a) hereof. In the event that a Section 11(a)(ii) Event occurs on or after the date of a Section 13(a) Event, Rights shall not be exercisable pursuant to Section 11 hereof but shall instead be exercisable pursuant to, and only pursuant to, this Section 13. (e) The provisions of this Section 13 shall apply to each successive merger, consolidation, sale or other transfer constituting a Section 13(a) Event. Section 14. Fractional Rights and Fractional Shares. --------------------------------------- (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates that represent fractional Rights. If the Company shall determine not to issue such fractional Rights, the Company shall pay to the registered holders of the Right Certificates with respect to which such fractional Rights would otherwise be issuable, at the time such fractional Rights would otherwise have been issued as provided herein, an 22 26 amount in cash equal to the same fraction of the Current Market Price of a whole Right on the Business Day immediately prior to the date upon which such fractional Rights would otherwise have been issuable. (b) The Company shall not be required to issue fractions of Common Shares or Preferred Shares (other than fractions that are integral multiples of one four-thousandth (1/4000th) of a Preferred Share) upon exercise of Rights, or to distribute certificates that represent fractional Common Shares or Preferred Shares (other than fractions that are integral multiples of one four-thousandth (1/4000th) of a Preferred Share). Fractions of Preferred Shares in integral multiples of one four-thousandth (1/4000th) of a Preferred Share may, at the election of the Company, be represented by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of Preferred Shares. If the Company shall determine not to issue fractional Common Shares or Preferred Shares (or depositary receipts in lieu of Preferred Shares), the Company shall pay to the registered holders of Right Certificates with respect to which such fractional Common Shares or Preferred Shares would otherwise be issuable, at the time such Rights are exercised as provided herein, an amount in cash equal to the same fraction of the Current Market Price of a whole Common Share or Preferred Share, as the case may be. For purposes of this Section 14(b), the Current Market Price of a whole Common Share or Preferred Share shall be the Closing Price per share for the Trading Day immediately prior to the date of such exercise. (c) The holder of a Right, by the acceptance of such Right, expressly waives such holder's right to receive any fractional Rights or any fractional Common Shares or Preferred Shares upon exercise of such Right, except as permitted by this Section 14. Section 15. Rights of Action. ---------------- All rights of action in respect of this Agreement, except the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates and certificates for Common Shares representing Rights, and any registered holder of any Right Certificate or of such certificate for Common Shares, without the consent of the Rights Agent or of the holder of any other Right Certificate or any other certificate for Common Shares may, in such holder's own behalf and for such holder's own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise the Rights represented by such Right Certificate or by such certificate for Common Shares in the manner provided in such Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance, and injunctive relief against actual or threatened violations, of the obligations of any Person under this Agreement. 23 27 Section 16. Agreement of Right Holders. -------------------------- Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and every other holder of a Right that: (a) prior to the Distribution Date, the Rights shall be represented by certificates for Common Shares registered in the name of the holders of such Common Shares (which certificates for Common Shares shall also constitute Right Certificates), and each such Right shall be transferable only in connection with the transfer of such Common Shares; (b) after the Distribution Date, the Right Certificates shall only be transferable on the registry books of the Rights Agent if surrendered at the principal stock transfer office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer along with a signature guarantee and such other and further documentation as the Rights Agent may reasonably request; (c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate is registered as the absolute owner thereof and of the Rights represented thereby (notwithstanding any notations of ownership or writing on the Right Certificate by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority prohibiting or otherwise restraining performance of such obligation. Section 17. Right Holder and Right Certificate Holder Not Deemed a ------------------------------------------------------ Stockholder. ----------- No holder, as such, of any Right or Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the securities of the Company that may at any time be issuable upon the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right or Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, to give or withhold consent to any corporate action, to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, in each case until such Right or the Rights represented by such Right Certificate shall have been exercised in accordance with the provisions hereof. 24 28 Section 18. Concerning the Rights Agent. --------------------------- (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. Notwithstanding anything in this Agreement to the contrary, in no event shall the Rights Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever, even if the Rights Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for a Common Share or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. --------------------------------------------------------- (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. 25 29 (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. Duties of Rights Agent. ---------------------- The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including without limitation, the identity of any 10% Shareholder and the determination of Current Market Price) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any adjustment required under the provisions of Sections 7, 11, 13 or Section 23 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the 26 30 existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after receipt of the certificate described in Section 12 hereof setting forth any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificates or as to whether any Common Shares or Preferred Shares will, when so issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; provided, however, reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase as the case may be, has not been completed, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Company. 27 31 Section 21. Change of Rights Agent. ---------------------- The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days' notice in writing mailed to the Company, and to each transfer agent of the Common Shares and Preferred Shares by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent (with or without cause) upon thirty (30) days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares and Preferred Shares, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then the incumbent Rights Agent or any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of any other state of the United States in good standing, which is authorized under such laws to exercise corporate trust or stock transfer powers or (b) an affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares and the Preferred Shares, and a mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Right Certificates. ---------------------------------- Notwithstanding any of the provisions of this Agreement or of the Right Certificates to the contrary, the Company may, at its option (subject to Section 4 hereof), issue new Right Certificates in such form as may be approved by the Board of Directors in order to reflect any adjustment or change in the Exercise Price and the number or kind or class of shares or other securities or property purchasable upon exercise of the Rights in accordance with the provisions of this Agreement. 28 32 Section 23. Redemption of Rights. -------------------- (a) Until the earliest of (i) the date of the first Section 11(a)(ii) Event, (ii) the date of the first Section 13(a) Event or (iii) the Expiration Date, the Board of Directors of the Company may, at its option, authorize and direct the redemption of all, but not less than all, of the then outstanding Rights at a redemption price of $.001 per Right, as such redemption price shall be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (the "Redemption Price"), and the Company shall so redeem the Rights; provided, however, that from and after the date of the first Section 11(a)(ii) Event, the Rights shall not be redeemable. (b) Immediately upon the action of the Board of Directors of the Company authorizing and directing the redemption of the Rights pursuant to subsection (a) of this Section 23, or at such time and date thereafter as it may specify, and without any further action and without any notice, the right to exercise Rights shall terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. Within 10 Business Days after the date of such action, the Company shall give notice of such redemption to the holders of Rights by mailing such notice to all holders of Rights at their last addresses as they appear upon the registry books of the Rights Agent or, if prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives such notice, but neither the failure to give any such notice nor any defect therein shall affect the legality or validity of such redemption. Each such notice of redemption shall state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may, directly or indirectly, redeem, acquire or purchase for value any Rights in any manner other than that specifically set forth in Section 24 hereof or in this Section 23, and other than in connection with the purchase of Common Shares prior to the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event. (c) The Company may, at its option, pay the Redemption Price in cash, Common Shares, Preferred Shares, other equity securities of the Company, debt securities of the Company, other property or any combination of the foregoing, in each case having an aggregate Current Market Price on the Redemption Date equal to the Redemption Price. Section 24. Exchange of Rights. ------------------ (a) At any time after the 10% Ownership Date and prior to the first date thereafter upon which a 10% Stockholder, together with all Affiliates and Associates of such 10% Stockholder, shall be the Beneficial Owner of 50% or more of the Voting Shares then outstanding, the Board of Directors of the Company may, at its option, authorize and direct the exchange of all, but not less than all, of the then outstanding Rights for Common Shares at an exchange ratio (the "Exchange Ratio") per Right, equal to that number of Common Shares which, as of the date of the Board of Directors' action, has a Current Market Price equal to the difference between the 29 33 Exercise Price and the Current Market Price of the Common Shares that each holder of a Right would otherwise have the right to receive upon the exercise of a Right on such date. (b) Immediately upon the action of the Board of Directors of the Company authorizing and directing the exchange of the Rights pursuant to subsection (a) of this Section 24, or at such time and date thereafter as it may specify, and without any further action and without any notice, the right to exercise Rights shall terminate and the only right thereafter of the holders of Rights shall be to receive a number of Common Shares equal to the Exchange Ratio. Within 10 Business Days after the date of such action, the Company shall give notice of such exchange to the holders of Rights by mailing such notice to all holders of Rights at their last addresses as they appear upon the registry books of the Rights Agent or, if prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives such notice, but neither the failure to give any such notice nor any defect therein shall affect the legality or validity of such exchange. Each such notice of exchange shall state the method by which the Rights will be exchanged for Common Shares. Neither the Company nor any of its Affiliates or Associates may, directly or indirectly, redeem, acquire or purchase for value any Rights in any manner other than (i) as specifically set forth in Section 23 hereof, (ii) as specifically set forth in this Section 24 or (iii) in connection with the purchase of Common Shares prior to the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event. (c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute (i) cash, (ii) other equity securities of the Company (including, but not limited to, Common Share Equivalents), (iii) debt securities of the Company, (iv) other property or (v) any combination of the foregoing for the Common Shares exchangeable for Rights, as appropriately adjusted. Subject to Section 7(d) hereof, in the event that the Company takes any action pursuant to this Section 24, such action shall apply uniformly to all outstanding Rights. Section 25. Notice of Certain Events. ------------------------ (a) In the event that the Company shall propose (i) to declare or pay any dividend payable on or make any distribution with respect to its Common Shares or Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Common Shares or Preferred Shares options, rights or warrants to subscribe for or to purchase any additional shares thereof or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Common Shares or Preferred Shares (other than a reclassification involving only the subdivision of outstanding shares), (iv) to effect any consolidation or merger with or into, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person or Persons, or (v) to effect the liquidation, dissolution or winding up of the 30 34 Company, then and in each such case, the Company shall give to each holder of a Right Certificate and to the Rights Agent, in accordance with Section 26 hereof, a notice of such proposed action, that shall specify the record date for the purpose of such dividend or distribution, or the date upon which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of record of the Common Shares or Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 20 days prior to the record date for determining holders of the Common Shares or Preferred Shares for purposes of such action, and in the case of any such other action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares or Preferred Shares, whichever date shall be the earlier. The failure to give the notice required by this Section 25 or any defect therein shall not affect the legality or validity of the action taken by the Company or the vote upon any such action. (b) Upon the occurrence of each Section 11(a)(ii) Event and each Section 13(a) Event, the Company shall as soon as practicable thereafter give to each holder of a Right Certificate and to the Rights Agent, in accordance with Section 26 hereof, a notice of the occurrence of such event, specifying the event and the consequences of the event to holders of Rights under Sections 11 and 13 hereof. Section 26. Notices. ------- Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Computer Sciences Corporation 2100 East Grand Avenue El Segundo, California 90245 Attention: Secretary Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) to the principal stock transfer office of the Rights Agent as follows: ChaseMellon Shareholder Services, L.L.C. 400 South Hope Street 4th Floor Los Angeles, California 90071 Attention: Department Manager 31 35 Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company or the transfer agent. Section 27. Supplements and Amendments. -------------------------- (a) The Board of Directors of the Company may, from time to time, before and after the Distribution Date, without the approval of any holders of Rights, supplement or amend any provision of this Agreement in any manner, whether or not such supplement or amendment is adverse to any holder of Rights, and direct the Rights Agent so to supplement or amend such provision, and the Rights Agent shall so supplement or amend such provision; provided, however, that from and after the earliest of (i) the date of the first Section 11(a)(ii) Event, (ii) the date of the first Section 13(a) Event, (iii) the Redemption Date or (iv) the Expiration Date, this Agreement shall not be supplemented or amended in any manner that would materially and adversely affect any holder of outstanding Rights other than a 10% Stockholder or a Surviving Person; and provided further, however, that from and after the date of the first Section 11(a)(ii) Event, the Agreement shall not be supplemented or amended in any manner. (b) From and after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event and prior to the earlier of the Redemption Date or the Expiration Date, the Company shall not effect any amendment to the Certificate of Designations for the Preferred Shares that would materially and adversely affect the rights, privileges or preferences of the Preferred Shares without the prior approval of the holders of two-thirds or more of the then outstanding Rights. (c) Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this section, the Rights Agent shall execute such supplement or amendment. Notwithstanding any other provision hereof, the Rights Agent's consent must be obtained regarding any amendment or supplement pursuant to this Section 27 which alters the Rights Agent's rights or duties. Section 28. Certain Covenants. ----------------- Subject to Section 27 hereof and the other provisions of this Agreement, from and after the earlier of the date of the first Section 11(a)(ii) Event or the date of the first Section 13(a) Event and prior to the earlier of the Redemption Date or the Expiration Date, the Company shall not (a) issue or sell, or permit any Subsidiary to issue or sell, to a 10% Stockholder or a Surviving Person, or any Affiliate or Associate of a 10% Stockholder or a Surviving Person, or any Person holding Voting Shares of the Company that are Beneficially Owned by a 10% Stockholder or a Surviving Person, (i) any rights, options, warrants or convertible securities on terms similar to, or that materially adversely affect the value of, the Rights or (ii) Preferred Shares, Common Shares or shares of any other class of capital stock, if such sale is 32 36 intended to or would materially adversely affect the value of the Rights, or (b) take any other action that is intended to or would materially adversely affect the value of the Rights. Section 29. Successors. ---------- All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 30. Benefits of this Agreement. -------------------------- Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent, the registered holders of the Right Certificates (other than those representing Rights that have become null and void) and the certificates for Common Shares representing Rights (other than those Rights that have become null and void) any legal or equitable right, remedy or claim under this Agreement, and this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent, such registered holders of Right Certificates and such certificates for Common Shares representing Rights. Section 31. Severability. ------------ If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 32. Governing Law. ------------- This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Nevada and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts made and performed entirely within such state. Section 33. Counterparts. ------------ This Agreement may be executed in any number of counterparts and each such counterpart shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. Section 34. Descriptive Headings. -------------------- Descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 33 37 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. COMPUTER SCIENCES CORPORATION By: /s/Hayward D. Fisk ------------------------------- Name: Hayward D. Fisk Title: Vice President CHASEMELLON SHAREHOLDER SERVICES, L.L.C., as Rights Agent By: /s/Michael Dziecolowski ------------------------------- Name: Michael Dziecolowski Title: Assistant Vice President 34 38 EXHIBIT A FORM OF RIGHT CERTIFICATE Certificate No. R-___________ Rights NOT EXERCISABLE AFTER FEBRUARY 18, 2008 OR EARLIER IF REDEEMED OR EXCHANGED. THE RIGHTS ARE SUBJECT TO EARLIER EXPIRATION, REDEMPTION AND EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY CERTAIN PERSONS OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. Right Certificate COMPUTER SCIENCES CORPORATION This certifies that ______________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms and conditions of a Rights Agreement (the "Rights Agreement") dated as of February 18, 1998 by and between Computer Sciences Corporation, a Nevada corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent"), to purchase from the Company at any time prior to the earlier of the Redemption Date (as such term is defined in the Rights Agreement) or 5:00 o'clock p.m., California time, on February 18, 1998, at the office or agency of the Rights Agent at Ridgefield Park, New Jersey, or at the office of its successor as Rights Agent, one four-thousandth (1/4000th) of a fully paid and nonassessable share of Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Company (a "Preferred Share") or, in certain circumstances, other securities or other property, at a purchase price of $500 (Five Hundred Dollars) per one four-thousandth (1/4000th) of a Preferred Share (the "Exercise Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase, including Certificate, on the reverse side hereof completed and duly executed, with signature guaranteed. The number of Rights represented by this Right Certificate and the Exercise Price set forth above are the number of Rights and the Exercise Price as of February 18, 1998, based upon the Preferred Shares as constituted on such date. As provided in the Rights Agreement, the Exercise Price and the number of Preferred Shares or other securities or other property that may be purchased upon the exercise of the Rights represented by this Right Certificate are subject to modification and adjustment upon the occurrence of certain events. A-1 39 The Rights Agreement contains a full description of the rights, limitations of rights, obligations, duties and immunities of the Rights Agent, the Company and the holders of Right Certificates. This Right Certificate is subject to all the terms and conditions of the Rights Agreement, which terms and conditions are hereby incorporated herein by reference and made a part hereof. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned offices of the Rights Agent. This Right Certificate, with or without other Right Certificates, upon presentation and surrender at the above-mentioned offices of the Rights Agent, with the Form of Assignment, including Certificate, on the reverse side hereof completed and duly executed, with signature guaranteed, may be exchanged for another Right Certificate or Right Certificates of like tenor and date representing Rights entitling the holder thereof to purchase a like aggregate number of Preferred Shares or, in certain circumstances, other securities or other property, as the Rights represented by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive, upon the surrender hereof with the Form of Election to Purchase, including Certificate, on the reverse side hereof completed and duly executed, with signature guaranteed, another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights represented by this Right Certificate may be redeemed by the Company, at its option, at a redemption price of $.001 per Right or, upon the occurrence of certain events, the Company, at its option, may exchange such Rights for fully paid and nonassessable shares of Common Stock, par value $1.00 per share, of the Company at an exchange ratio, per Right, of that number of Common Shares (as defined in the Rights Agreement) which, as of the date of the Board of Directors' action, has a Current Market Price (as defined in the Rights Agreement) equal to the difference between the Exercise Price and the Current Market Price of the Common Shares which each holder of a Right would have a right to receive upon the exercise of a Right on such date. No fractional securities shall be issued upon the exercise of any Right or Rights represented hereby (other than fractions of Preferred Shares that are integral multiples of one four-thousandth (1/4000th) of a Preferred Share, that may, at the option of the Company, be represented by depository receipts), but in lieu thereof, a cash payment shall be made, as provided in the Rights Agreement. No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights A-2 40 Agreement), or to receive dividends or subscription rights, until the Right or Rights represented by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _______________________, ____. Attest: COMPUTER SCIENCES CORPORATION By _________________________ By ________________________ Name: Name: Title: Title: Countersigned: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By _________________________ By ________________________ Name: Name: Title: Title: A-3 41 Form of Reverse Side of Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer any or all of the Rights represented by this Right Certificate) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- (Name, address and social security or other identifying number of transferee) ___________________________________________ (_____________) of the Rights represented by this Right Certificate, together with all right, title and interest in and to said Rights, and hereby irrevocably constitutes and appoints __________________ attorney to transfer said Rights on the books of Computer Sciences Corporation with full power of substitution. Dated:________________, ____ _________________________ (Signature) Signature Guaranteed: A-4 42 Certificate (to be completed, if true) The undersigned hereby certifies that the Rights represented by this Right Certificate are not Beneficially Owned by a 10% Stockholder or an Affiliate or Associate of a 10% Stockholder (as such capitalized terms are defined in the Rights Agreement). Dated:________________, ____ _________________________ (Signature) Signature Guaranteed: A-5 43 Form of Reverse Side of Right Certificate (continued) NOTICE The signatures to the foregoing Assignment and the foregoing Certificate, if applicable, must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States of America. In the event that the foregoing Certificate is not duly executed, with signature guaranteed, the Company may deem the Rights represented by this Right Certificate to be Beneficially Owned by a 10% Stockholder or an Affiliate or Associate of a 10% Stockholder (as such capitalized terms are defined in the Rights Agreement), and not issue any Right Certificate or Right Certificates in exchange for this Right Certificate. A-6 44 Form of Reverse Side of Right Certificate (continued) FORM OF ELECTION TO PURCHASE (To be executed by the registered holder if such holder desires to exercise any or all of the Rights represented by this Right Certificate) To Computer Sciences Corporation: The undersigned hereby irrevocably elects to exercise _________________________ (_____________) of the Rights represented by this Right Certificate to purchase the following: (Check one of the following boxes) [ ] the Preferred Shares or other securities or property issuable upon the exercise of said number of Rights pursuant to Section 7(c) of the Rights Agreement. [ ] the shares of the Common Stock, par value $1.00 per share, of the Company, or other securities or property issuable upon the exercise of said number of Rights pursuant to Section 11(a)(ii) of the Rights Agreement. [ ] the securities issuable upon the exercise of said number of Rights pursuant to Section 13(a) of the Rights Agreement. The undersigned hereby requests that any such property and a certificate for any such securities be issued in the name of and delivered to: - -------------------------------------------------------------------------- (Name, address and social security or other identifying number of issuee) The undersigned hereby further requests that if said number of Rights shall not be all the Rights represented by this Right Certificate, a new Right Certificate for the remaining balance of such Rights be issued in the name of and delivered to: - -------------------------------------------------------------------------- (Name, address and social security or other identifying number of issuee) Dated:________________, ____ _________________________ (Signature) Signature Guaranteed: A-7 45 Form of Reverse Side of Right Certificate (continued) Certificate (to be completed, if true) The undersigned hereby certifies that the Rights represented by this Right Certificate are not Beneficially Owned by a 10% Stockholder or an Affiliate or Associate of a 10% Stockholder (as such capitalized terms are defined in the Rights Agreement). Dated:________________, ____ _________________________ (Signature) Signature Guaranteed: NOTICE The signatures to the foregoing Assignment and the foregoing Certificate, if applicable, must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. In the event that the foregoing Certificate is not duly executed, with signature guaranteed, the Company may deem the Rights represented by this Right Certificate to be Beneficially Owned by a 10% Stockholder or an Affiliate or Associate of a 10% Stockholder (as such capitalized terms are defined in the Rights Agreement), and not issue any property or certificate for securities upon the exercise of this Right Certificate or issue any new Right Certificate for any remaining balance of unexercised Rights represented by this Right Certificate. A-8 EX-99.(C)(5) 8 DEFERRED COMPENSATION PLAN 1 EXHIBIT (c)(5) COMPUTER SCIENCES CORPORATION DEFERRED COMPENSATION PLAN 2 COMPUTER SCIENCES CORPORATION DEFERRED COMPENSATION PLAN TABLE OF CONTENTS
Page ---- ARTICLE I - DEFINITIONS ..........................................................1 Section 1.1 - General.....................................................1 Section 1.2 - Account ....................................................1 Section 1.3 - Administrator ..............................................1 Section 1.4 - Board.......................................................2 Section 1.5 - Change in Control ..........................................2 Section 1.6 - Chief Executive Officer ....................................2 Section 1.7 - Code........................................................2 Section 1.8 - Committee ..................................................2 Section 1.9 - Company ....................................................2 Section 1.10- Deferred Compensation ......................................2 Section 1.11- Election Form ..............................................3 Section 1.12- Eligible Key Executive .....................................3 Section 1.13- Employee ...................................................3 Section 1.14- ERISA ......................................................3 Section 1.15- Exchange Act ...............................................3 Section 1.16- Hardship ...................................................3 Section 1.17- Key Executive ..............................................4 Section 1.18- Key Executive Plan .........................................4 Section 1.19- Nonemployee Director .......................................4 Section 1.20- Nonemployee Director Plan ..................................4 Section 1.21- Partial First Plan Year ....................................4 Section 1.22- Participant ................................................5 Section 1.23- Plan........................................................5 Section 1.24- Plan Year ..................................................5 Section 1.25- Predecessor Plan ...........................................5 Section 1.26- Retirement .................................................5 Section 1.27- Separation from Service ....................................5 Section 1.28- Qualified Compensation .....................................5 ARTICLE II - ELIGIBILITY..........................................................6 Section 2.1 - Requirements for Participation .............................6 Section 2.2 - Deferral Election Procedure ................................6 Section 2.3 - Content of Election Form ...................................6
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Page ---- ARTICLE III - PARTICIPANTS' DEFERRALS ............................................7 Section 3.1 - Deferral of Qualified Compensation .........................7 Section 3.2 - Deferral for Partial First Plan Year .......................7 ARTICLE IV - DEFERRED COMPENSATION ACCOUNTS ......................................7 Section 4.1 - Deferred Compensation Accounts .............................7 Section 4.2 - Crediting of Deferred Compensation .........................7 Section 4.3 - Crediting of Earnings ......................................8 Section 4.4 - Applicability of Account Values ............................8 Section 4.5 - Vesting of Deferred Compensation Accounts ..................8 Section 4.6 - Assignments, Etc. Prohibited ...............................8 ARTICLE V - DISTRIBUTIONS OF DEFERRED COMPENSATION ACCOUNTS ......................8 Section 5.1 - Distributions upon a Key Executive's Retirement and a Nonemployee Director's Separation from Service ......8 Section 5.2 - Distributions upon a Key Executive's Pre-Retirement Separation from Service .............................9 Section 5.3 - Distributions upon a Participant's Death ...................9 Section 5.4 - Optional Distributions .....................................10 Section 5.5 - Applicable Taxes ...........................................10 ARTICLE VI - WITHDRAWALS FROM DEFERRED COMPENSATION ACCOUNTS ...................................................11 Section 6.1 - Hardship Withdrawals from Accounts .........................11 Section 6.2 - Withdrawals after a Change in Control ......................11 Section 6.3 - Voluntary Withdrawals ......................................11 Section 6.4 - Applicable Taxes ...........................................12 ARTICLE VII - ADMINISTRATIVE PROVISIONS ..........................................12 Section 7.1 - Administrator's Duties and Powers ..........................12 Section 7.2 - Limitations Upon Powers ....................................12 Section 7.3 - Final Effect of Administrator Action .......................13 Section 7.4 - Committee ..................................................13 Section 7.5 - Indemnification by the Company; Liability Insurance ........13 Section 7.6 - Recordkeeping ..............................................13 Section 7.7 - Statement to Participants ..................................14 Section 7.8 - Inspection of Records ......................................14 Section 7.9 - Identification of Fiduciaries ..............................14 Section 7.10- Procedure for Allocation of Fiduciary Responsibilities .....14 Section 7.11- Claims Procedure ...........................................14 Section 7.12- Conflicting Claims .........................................16 Section 7.13- Service of Process .........................................16
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Page ---- ARTICLE VIII - MISCELLANEOUS PROVISIONS ..........................................16 Section 8.1 - Termination of the Plan ....................................16 Section 8.2 - Limitation on Rights of Participants .......................17 Section 8.3 - Consolidation or Merger; Adoption of Plan by Other Companies .....................................17 Section 8.4 - Errors and Misstatements ...................................17 Section 8.5 - Payment on Behalf of Minor, Etc. ...........................18 Section 8.6 - Amendment of Plan ..........................................18 Section 8.7 - Funding ....................................................18 Section 8.8 - Governing Law ..............................................18 Section 8.9 - Pronouns and Plurality .....................................18 Section 8.10- Titles......................................................18 Section 8.11- References .................................................19
iii 5 COMPUTER SCIENCES CORPORATION DEFERRED COMPENSATION PLAN AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 2, 1998 Computer Sciences Corporation, a Nevada corporation, by resolution of its Board of Directors dated August 14, 1995, has adopted the Computer Sciences Corporation Deferred Compensation Plan (the "Plan"), which constitutes a complete amendment and restatement of the Computer Sciences Corporation Nonqualified Deferred Compensation Plan (the "Predecessor Plan"), effective as of September 30, 1995, for the benefit of its Nonemployee Directors, as defined below, and certain of its Key Executives, as defined below. The Plan shall constitute two separate plans, one for the benefit of Nonemployee Directors and one for the benefit of Key Executives. The plan for Key Executives is a nonqualified deferred compensation plan which is unfunded and is maintained 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, as defined below. The plan for Nonemployee Directors is not subject to ERISA. ARTICLE I DEFINITIONS Section 1.1 General Whenever the following terms are used in the Plan with the first letter capitalized, they shall have the meaning specified below unless the context clearly indicates to the contrary. Section 1.2 Account "Account" of a Participant shall mean the Participant's individual deferred compensation account established for his or her benefit under Article IV hereof. Section 1.3 Administrator "Administrator" shall mean Computer Sciences Corporation, acting through its Chief Executive Officer or his or her delegate, except that if Computer Sciences Corporation appoints a Committee under Section 7.4, the term "Administrator" shall mean the Committee as to those duties, powers and responsibilities specifically conferred upon the Committee. 6 Section 1.4 Board "Board" shall mean the Board of Directors of Computer Sciences Corporation. The Board may delegate any power or duty otherwise allocated to the Administrator to any other person or persons, including a Committee appointed under Section 7.4. Section 1.5 Change in Control "Change in Control" means, after September 30, 1995, (a) the acquisition by any person, entity or group (as defined in Section 13(d)3 of the Exchange Act), as beneficial owner, directly or indirectly, of securities of Computer Sciences Corporation representing twenty percent (20%) or more of the combined voting power of the then outstanding securities of Computer Sciences Corporation, (b) a change during any period of two (2) consecutive years of a majority of the Board as constituted as of the beginning of such period, unless the election of each director who was not a director at the beginning of such period was approved by vote of at least two-thirds of the directors then in office who were directors at the beginning of such period, (c) a sale of substantially all of the property and assets of Computer Sciences Corporation, (d) a merger, consolidation, reorganization or other business combination to which Computer Sciences Corporation is a party and the consummation of which results in the outstanding voting securities of Computer Sciences Corporation being exchanged for or converted into cash, property and/or securities not issued by Computer Sciences Corporation, (e) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such business combination) represent less than 50% of the voting power of the Company immediately following such business combination, or (f) any other event constituting a change in control of Computer Sciences Corporation for purposes of Schedule 14A of Regulation 14A under the Exchange Act. Section 1.6 Chief Executive Officer "Chief Executive Officer" shall mean the Chief Executive Officer of Computer Sciences Corporation. Section 1.7 Code "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 2 7 Section 1.8 Committee "Committee" shall mean the Committee, if any, appointed in accordance with Section 7.4. Section 1.9 Company "Company" shall mean Computer Sciences Corporation and all of its affiliates, and any entity which is a successor in interest to Computer Sciences Corporation and which continues the Plan under Section 8.3(a). Section 1.10 Deferred Compensation "Deferred Compensation" of a Participant shall mean the amounts deferred by such Participant under Article III of the Plan. Section 1.11 Election Form "Election Form" shall mean the form of election provided by the Administrator to each Eligible Executive and Nonemployee Director pursuant to Section 3.1. Section 1.12 Eligible Key Executive "Eligible Key Executive" shall mean any Key Executive who has been designated as eligible to participate in the Plan with respect to any Plan Year by the Chief Executive Officer. Section 1.13 Employee "Employee" shall mean any person who renders services to the Company in the status of an employee as that term is defined in Code Section 3121(d), including officers but not including directors who serve solely in that capacity. Section 1.14 ERISA "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. Section 1.15 Exchange Act "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 3 8 Section 1.16 Hardship (a) "Hardship" of a Participant, shall mean an unforeseeable emergency which constitutes a severe financial hardship resulting from any one or more of the following: (i) sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Code Section 152(a)) of the Participant; (ii) loss of the Participant's property due to casualty; or (iii) any other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's control. (b) Notwithstanding subsection(a) above, a financial need shall not constitute a Hardship unless it is for at least $1,000.00 (or the entire principal amount of the Participant's Accounts, if less). (c) Whether a Participant has incurred a Hardship shall be determined by the Administrator in its discretion on the basis of all relevant facts and circumstances and in accordance with nondiscriminatory and objective standards, uniformly interpreted and consistently applied. Section 1.17 Key Executive "Key Executive" shall mean any Employee of the Company who is an officer or other key executive of the Company and who qualifies as a "highly compensated employee or management employee" within the meaning of Title I of ERISA. Section 1.18 Key Executive Plan "Key Executive Plan" shall mean the portion of this Plan which is maintained or the benefit of the Company's Key Executives. Section 1.19 Nonemployee Director "Nonemployee Director" shall mean a member of the Board who is not an Employee. Section 1.20 Nonemployee Director Plan "Nonemployee Director Plan" shall mean the portion of this Plan which is maintained for the benefit of the Company's Nonemployee Directors. 4 9 Section 1.21 Partial First Plan Year "Partial First Plan Year" shall mean that portion of the first Plan Year of the Plan subject to its amendment and restatement effective as of September 30, 1995, which shall begin on September 30, 1995 and end on March 29, 1996. Section 1.22 Participant "Participant" shall mean any person who elects to participate in the Plan as provided in Article II and who defers Qualified Compensation under the Plan. Section 1.23 Plan "Plan" shall mean the Computer Sciences Corporation Deferred Compensation Plan. Section 1.24 Plan Year "Plan Year" shall mean the fiscal year of the Company. Section 1.25 Predecessor Plan "Predecessor Plan" shall mean the Computer Sciences Corporation Nonqualified Deferred Compensation Plan as in effect and maintained by the Company for the benefit of its Nonemployee Directors prior to the amendment and restatement of the Plan effective as of September 30, 1995. Section 1.26 Retirement "Retirement" shall mean, with respect to a Key Executive, a Separation from Service of such Key Executive (a) on or after attainment of age sixty-two (62) or (b) prior to attainment of age sixty-two (62) if the Chief Executive Officer shall designate such Separation from Service as Retirement for purposes of the Plan. Section 1.27 Separation from Service (a) "Separation from Service" of a Key Executive shall mean the termination of his or her employment with the Company by reason of resignation, discharge, death or Retirement. A leave of absence or sick leave authorized by the Company in accordance with established policies, a vacation period or a military leave shall not constitute a Separation from Service; provided, however, that failure to return to work upon expiration of any leave of absence, sick leave, military leave or vacation shall be considered a resignation effective as of the date of expiration of such leave of absence, sick leave, military leave or vacation. (b) "Separation from Service" of a Nonemployee Director shall mean the Nonemployee Director's ceasing to serve as a member of the Board for any reason. 5 10 Section 1.28 Qualified Compensation (a) "Qualified Compensation" of a Key Executive shall mean the Key Executive's annual bonus which may be payable to the Key Executive under the Computer Sciences Corporation Annual Incentive Plan or such other bonus or incentive compensation plan of the Company which may be designated from time to time by the Administrator. (b) "Qualified Compensation" of a Nonemployee Director shall mean the retainer, consulting fees, committee fees and meeting fees which are payable to the Nonemployee Director by the Company. ARTICLE II ELIGIBILITY Section 2.1 Requirements for Participation Any Eligible Key Executive and any Nonemployee Director shall be eligible to be a Participant in the Plan. Section 2.2 Deferral Election Procedure For each Plan Year, the Administrator shall provide each Eligible Key Executive and each Nonemployee Director with an Election Form on which such person may elect to defer his or her Qualified Compensation under Article III. Each such person who elects to defer Qualified Compensation under Article III shall complete and sign the Election Form and return it to the Administrator. Section 2.3 Content of Election Form Each Participant who elects to defer Qualified Compensation under the Plan shall set forth on the Election Form specified by the Administrator: (a) the amount of Qualified Compensation to be deferred under Article III and the Participant's authorization to the Company to reduce his or her Qualified Compensation by the amount of the deferred compensation, (b) the length of time with respect to which the Participant elects to defer the Deferred Compensation, (c) the method under which the Participant's Deferred Compensation shall be payable, and (d) such other information, acknowledgments or agreements as may be required by the Administrator. 6 11 ARTICLE III PARTICIPANTS' DEFERRALS Section 3.1 Deferral of Qualified Compensation (a) Each Eligible Key Executive and Nonemployee Director may elect to defer into his or her Account all or any portion of the Qualified Compensation which would otherwise be payable to him or her for any Plan Year in which he or she has not incurred a Separation from Service as of the first day of the Plan Year in question. Such election shall be made by the Eligible Key Executive or Nonemployee Director completing and delivering to the Administrator his or her Election Form for such Plan Year no later than the last day of the next preceding Plan Year, except (i) with respect to the Partial First Plan Year, in which case such election shall be made not later than September 29, 1995, and (ii) with respect to a person who first becomes an Employee or Nonemployee Director during a Plan Year, which person may make such election within 30 days after first becoming an Employee or Nonemployee Director, respectively. (b) Any such election made by a Participant to defer Qualified Compensation shall be irrevocable and shall not be amendable by the Participant, except: (i) as set forth in Sections 6.2 and 6.3 hereof; or (ii) in the event of a Hardship, a Participant may terminate the Participant's deferral election for the Plan Year in which the Hardship occurs with respect to all Qualified Compensation which has not yet been deferred. Section 3.2 Deferral for Partial First Plan Year For the Partial First Plan Year, Participants may defer any or all of the Qualified Compensation which is earned by them after September 29, 1995 and before March 30, 1996. Deferral elections previously made by Nonemployee Directors for the 1996 Plan Year shall only remain effective with respect to Qualified Compensation earned prior to September 30, 1995. ARTICLE IV DEFERRED COMPENSATION ACCOUNTS Section 4.1 Deferred Compensation Accounts The Administrator shall establish and maintain for each Participant an Account to which shall be credited the amounts allocated thereto under this Article IV and from which shall be debited the Participant's distributions and withdrawals under Articles V and VI. 7 12 Section 4.2 Crediting of Deferred Compensation Each Participant's Account shall be credited with an amount which is equal to the amount of the Participant's Qualified Compensation which such Participant has elected to defer under Article III at the time such Qualified Compensation would otherwise have been paid to the Participant. Section 4.3 Crediting of Earnings Beginning on September 30, 1995 and subject to amendment by the Board, for each Plan Year earnings shall be credited to each Participant's Account (including the Accounts of Nonemployee Directors under the Predecessor Plan), at a rate equal to 120% of the 120-month rolling average interest payable on 10-year United States Treasury Notes as of December 31 of the preceding Plan Year, compounded annually. Earnings shall be credited on such valuation dates as the Administrator shall determine. Section 4.4 Applicability of Account Values The value of each Participant's Account as determined as of a given date under this Article, plus any amounts subsequently allocated thereto under this Article and less any amounts distributed or withdrawn under Articles V or VI shall remain the value thereof for all purposes of the Plan until the Account is revalued hereunder. Section 4.5 Vesting of Deferred Compensation Accounts Subject to the possible reductions provided for in Section 6.2 and 6.3 with respect to certain Participant withdrawals, each Participant's interest in his or her Account shall be 100% vested and non-forfeitable at all times. Section 4.6 Assignments, Etc. Prohibited No part of any Participant's Account shall be liable for the debts, contracts or engagements of the Participant, or the Participant's beneficiaries or successors in interest, or be taken in execution by levy, attachment or garnishment or by any other legal or equitable proceeding, nor shall any such person have any rights to alienate, anticipate, commute, pledge, encumber or assign any benefits or payments hereunder in any manner whatsoever except to designate a beneficiary as provided in Section 5.3. 8 13 ARTICLE V DISTRIBUTIONS OF DEFERRED COMPENSATION ACCOUNTS Section 5.1 Distributions upon a Key Executive's Retirement and a Nonemployee Director's Separation from Service (a) The Account of a Key Executive who incurs a Separation from Service upon his or her Retirement, and the Account of a Nonemployee Director who incurs a Separation from Service, in each case other than on account of death, shall be paid to the Participant as specified in any election made by the Participant pursuant to Section 5.4 hereof. Any remaining balance of the Participant's Account shall be paid to the Participant, as specified by the Participant in an election made pursuant to this Section 5.1, in a lump-sum distribution or in approximately equal annual installments over 5, 10 or 15 years. Payment(s) shall commence within thirty (30) days following the date of such Separation from Service. (b) At the time a Participant first elects to defer Qualified Compensation under the Plan, he or she shall make an election pursuant to this Section 5.1. Such election shall remain in effect and shall apply to the Participant's total Account, as the same may increase or decrease from time to time. An election pursuant to this Section 5.1 may be superseded by a subsequent election, which subsequent election shall then apply to the Participant's total Account, as the same may increase or decrease from time to time. Notwithstanding the foregoing, no subsequent election pursuant to this Section 5.1 shall be effective unless it is made at least 13 months prior to the Participant's Separation from Service. Section 5.2 Distributions upon a Key Executive's Pre-Retirement Separation from Service The Account of a Key Executive who incurs a Separation from Service prior to his or her Retirement and other than on account of his or her death shall be paid to the Participant in a lump-sum distribution within thirty (30) days following the date of such Separation from Service, notwithstanding any election to the contrary made by the Participant pursuant to Section 5.4 hereof. Section 5.3 Distributions upon a Participant's Death (a) Notwithstanding anything to the contrary in the Plan, the remaining balance of the Account of a Participant who dies (i) shall be paid to the persons and entities designated by the Participant as his or her beneficiaries for such purpose and (ii) shall be paid in the manner set forth in this Section 5.3. With respect to a Participant who does not incur a Separation from Service prior to his or her death, such balance shall be paid, as specified by the Participant in an election made pursuant to this Section 5.3, in a lump-sum distribution or in approximately equal annual installments over 5, 10 or 15 years. With respect to a Participant who does incur a Separation from Service prior to his or her death, such balance shall be paid, as specified by the Participant in an election made pursuant to this Section 5.3, in a 9 14 lump-sum distribution or in approximately equal annual installments over the remaining term of the 5, 10 or 15-year payment period elected pursuant to Section 5.1 hereof. Payment(s) shall commence within thirty (30) days following the date of death. (b) At the time a Participant first elects to defer Qualified Compensation under the Plan, he or she shall make an election pursuant to this Section 5.3. Such election shall remain in effect and shall apply to the Participant's total Account, as the same may increase or decrease from time to time. An election pursuant to this Section 5.3 may be superseded by a subsequent election, which subsequent election shall then apply to the Participant's total Account, as the same may increase or decrease from time to time. Notwithstanding the foregoing, no subsequent election pursuant to this Section 5.3 shall be effective unless it is made at least 13 months prior to the Participant's Separation from Service. Section 5.4 Optional Distributions (a) At the time a Participant elects to defer Qualified Compensation for any Plan Year, he or she may also elect, pursuant to this Section 5.4, to receive a special, lump-sum distribution of any or all of the amount deferred for such Plan Year on a date specified by the Participant in such election, which date must be at least 24 months after the date of such election. Any such special distribution shall be made within five (5) business days after the date therefor specified by the Participant, unless the Participant shall have died on or prior to such date, in which case no such special distribution shall be made. (b) An election pursuant to this Section 5.4 may be superseded by one subsequent election; provided, however, that such subsequent election shall not be effective unless: (i) it is irrevocable; (ii) it is made at least 13 months prior to the Participant's Separation from Service and at least 24 months prior to the date upon which the special distribution will be made; and (iii) the date of the special distribution specified in the subsequent election is earlier than the date specified in the initial election. (c) Notwithstanding the foregoing, an election pursuant to this Section 5.4 with respect to the Partial First Plan Year may be superseded by two subsequent elections; provided, however, that: (i) the first such subsequent election shall not be effective unless it is made prior to March 30, 1996 and at least 13 months prior to the Participant's Separation from Service and at least 24 months prior to the date upon which the special distribution will be made; and (ii) the second such subsequent election satisfies all the requirements set forth in paragraph (b)(i), (ii) and (iii) of this Section 5.4. 10 15 Section 5.5 Applicable Taxes All distributions under the Plan shall be subject to withholding for all amounts which the Company is required to withhold under federal, state or local tax law. ARTICLE VI WITHDRAWALS FROM DEFERRED COMPENSATION ACCOUNTS Section 6.1 Hardship Withdrawals from Accounts A Participant may make a withdrawal from the Participant's Account on account of the Participant's Hardship, only to the extent that the Hardship is not otherwise relievable: (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Participant's assets (to the extent that such liquidation does not itself cause a Hardship), or (c) by cessation of deferrals under the Plan. Section 6.2 Withdrawals after a Change in Control At any time within three years after the occurrence of a Change in Control, a Key Executive may elect to withdraw all or any part of the Key Executive's Account by delivering a written election to such effect to the Administrator, provided, however, that if a Key Executive makes such an election, (i) the Key Executive shall forfeit, and the Key Executive's Account shall be debited with, an amount equal to 5% of the amount of the withdrawal distribution, (ii) the Key Executive's deferral election for the Plan Year in which the withdrawal distribution occurs shall be terminated with respect to any Qualified Compensation which has not yet been deferred and (iii) the Key Executive shall not be permitted to defer Qualified Compensation under the Plan for the two Plan Years immediately following the Plan Year of the withdrawal distribution. Section 6.3 Voluntary Withdrawals At any time, a Participant may elect to withdraw all or any part of the Participant's Account by delivering a written election to such effect to the Administrator, provided, however, that if a Participant makes such an election, (i) the Participant shall forfeit, and the Participant's Account shall be debited with, an amount equal to 10% of the amount of the withdrawal distribution, (ii) the Participant's deferral election for the Plan Year in which the withdrawal distribution occurs shall be terminated with respect to any Qualified Compensation which has not yet been deferred and (iii) the Participant shall not be permitted to defer 11 16 Qualified Compensation under the Plan for the two Plan Years immediately following the year of the withdrawal distribution. Section 6.4 Applicable Taxes All withdrawals under the Plan shall be subject to withholding for all amounts which the Company is required to withhold under federal, state or local tax law. ARTICLE VII ADMINISTRATIVE PROVISIONS Section 7.1 Administrator's Duties and Powers The Administrator shall conduct the general administration of the Plan in accordance with the Plan and shall have all the necessary power, authority and discretion to carry out that function. Among its necessary powers and duties are the following: (a) To delegate all or part of its function as Administrator to others and to revoke any such delegation. (b) To determine questions of eligibility of Participants and their entitlement to benefits, subject to the provisions of Section 7.11. (c) To select and engage attorneys, accountants, actuaries, trustees, appraisers, brokers, consultants, administrators, physicians, or other persons to render service or advice with regard to any responsibility the Administrator or the Board has under the Plan, or otherwise, to designate such persons to carry out fiduciary responsibilities under the Plan, and (together with the Committee, the Company, the Board and the officers and Employees of the Company) to rely upon the advice, opinions or valuations of any such persons, to the extent permitted by law, being fully protected in acting or relying thereon in good faith. (d) To interpret the Plan and any relevant facts for purpose of the administration and application of the Plan, in a manner not inconsistent with the Plan or applicable law and to amend or revoke any such interpretation. (e) To conduct claims procedures as provided in Section 7.11. Section 7.2 Limitations Upon Powers The Plan shall be uniformly and consistently administered, interpreted and applied with regard to all Participants in similar circumstances. The Plan shall be administered, interpreted and applied fairly and equitably and in accordance with the specified purposes of the Plan. 12 17 Section 7.3 Final Effect of Administrator Action Except as provided in Section 7.11, all actions taken and all determinations made by the Administrator in good faith shall be final and binding upon all Participants, the Company and any person interested in the Plan. Section 7.4 Committee (a) The Administrator may, but need not, appoint a Committee consisting of two or more members to hold office during the pleasure of the Administrator. The Committee shall have such powers and duties as are delegated to it by the Administrator. Committee members shall not receive payment for their services as such. (b) Appointment of Committee members shall be effective upon filing of written acceptance of appointment with the Administrator. (c) A Committee member may resign at any time by delivering written notice to the Administrator. (d) Vacancies in the Committee shall be filled by the Administrator. (e) The Committee shall act by a majority of its members in office; provided, however, that the Committee may appoint one of its members or a delegate to act on behalf of the Committee on matters arising in the ordinary course of administration of the Plan or on specific matters. Section 7.5 Indemnification by the Company; Liability Insurance The Company shall pay or reimburse any of the Company's officers, directors, Committee members or Employees who are fiduciaries with respect to the Plan for all expenses incurred by such persons in, and shall indemnify and hold them harmless from, all claims, liability and costs (including reasonable attorneys' fees) arising out of the good faith performance of their duties under the Plan. The Company may obtain and provide for any such person, at the Company's expense, liability insurance against liabilities imposed on such person by law. Section 7.6 Recordkeeping (a) The Administrator shall maintain suitable records of each Participant's Account which, among other things, shall show separately deferrals and the earnings credited thereon, as well as distributions and withdrawals therefrom and records of its deliberations and decisions. (b) The Administrator shall appoint a secretary, and at its discretion, an assistant secretary, to keep the record of proceedings, to transmit its decisions, instructions, consents or directions to any interested party, to execute and file, on 13 18 behalf of the Administrator, such documents, reports or other matters as may be necessary or appropriate under ERISA and to perform ministerial acts. (c) The Administrator shall not be required to maintain any records or accounts which duplicate any records or accounts maintained by the Company. Section 7.7 Statement to Participants By March 15 of each year, the Administrator shall furnish to each Participant a statement setting forth the value of the Participant's Account as of the preceding December 31 and such other information as the Administrator shall deem advisable to furnish. Section 7.8 Inspection of Records Copies of the Plan and records of a Participant's Account shall be open to inspection by the Participant or the Participant's duly authorized representatives at the office of the Administrator at any reasonable business hour. Section 7.9 Identification of Fiduciaries The Administrator shall be the named fiduciary of the Plan and, as permitted or required by law, shall have exclusive authority and discretion to operate and administer the Plan. Section 7.10 Procedure for Allocation of Fiduciary Responsibilities (a) Fiduciary responsibilities under the Plan are allocated as follows: (i) The sole duties, responsibilities and powers allocated to the Board, any Committee and any fiduciary shall be those expressly provided in the relevant Sections of the Plan. (ii) All fiduciary duties, responsibilities, and powers not allocated to the Board, any Committee or any fiduciary, are hereby allocated to the Administrator, subject to delegation. (b) Fiduciary duties, responsibilities and powers under the Plan may be reallocated among fiduciaries by amending the Plan in the manner prescribed in Section 8.6, followed by the fiduciaries' acceptance of, or operation under, such amended Plan. Section 7.11 Claims Procedure (a) No distributions under this Plan to a Participant, former Participant or Participant's beneficiary shall be made except upon a claim filed in writing with the Committee, if in existence, or otherwise to a claims official designated by the Administrator. 14 19 (b) If the Committee or claims official wholly or partially denies the claim, it or he shall, within a reasonable period of time after receipt of the claim, provide the claimant with written notice of such denial, setting forth, in a manner calculated to be understood by the claimant: (i) the specific reason or reasons for such denial; (ii) specific reference to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the Plan's claims review procedure. (c) The Administrator shall provide each claimant with a reasonable opportunity to appeal a denial of a claim to the Chief Executive Officer or his or her authorized delegate for a full and fair review. The claimant or his or her duly authorized representative: (i) may request a review upon written application to the Chief Executive Officer or his authorized delegate (which shall be filed with the Committee or claims official); (ii) may review pertinent documents; and (iii) may submit issues and comments in writing. (d) The Chief Executive Officer or his authorized delegate may establish such time limits within which a claimant may request review of a denied claim as are reasonable in relation to the nature of the benefit which is the subject of the claim and to other attendant circumstances but which shall be not less than sixty days after receipt by the claimant of written notice of denial of his or her claim. (e) The decision by the Chief Executive Officer or his delegate upon review of a claim shall be made not later than sixty days after receipt by the Chief Executive Officer or his authorized delegate of the request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty days after receipt of such request for review. (f) The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant with specific references to the pertinent Plan provisions on which the decision is based. 15 20 (g) To the extent permitted by law, the decision of the Committee or claims official, if no appeal is filed, or the decision of the Chief Executive Officer or his delegate on review, when warranted on the record and reasonably based on the law and the provisions of the Plan, shall be final and binding on all parties. Section 7.12 Conflicting Claims If the Administrator is confronted with conflicting claims concerning a Participant's Account, the Administrator may interplead the claimants in an action at law, or in an arbitration conducted in accordance with the rules of the American Arbitration Association, as the Administrator shall elect in its sole discretion, and in either case, the attorneys' fees, expenses and costs reasonably incurred by the Administrator in such proceeding shall be paid from the Participant's Account. Section 7.13 Service of Process The Secretary of Computer Sciences Corporation is hereby designated as agent of the Plan for the service of legal process. ARTICLE VIII MISCELLANEOUS PROVISIONS Section 8.1 Termination of the Plan (a) While the Plan is intended as a permanent program, the Board shall have the right at any time to declare the Plan terminated completely as to the Company or as to any group, division or other operational unit thereof or as to any affiliate thereof. (b) Discharge or layoff of any Employees without such a declaration shall not result in a termination of the Plan. (c) In the event of any termination, the Board, in its sole and absolute discretion may elect to: (i) maintain Participants' Accounts, payment of which shall be made in accordance with Articles V and VI; or (ii) liquidate the portion of the Plan attributable to each Participant as to whom the Plan is terminated and distribute each such Participant's Account in a lump sum or pursuant to any method which is at least as rapid as the distribution method elected by the Participant under Section 5.4. Section 8.2 Limitation on Rights of Participants The Plan is strictly a voluntary undertaking on the part of the Company and shall not constitute a contract between the Company and any Employee or any 16 21 Nonemployee Director, or consideration for, or an inducement or condition of, the employment of an Employee or service of a Nonemployee Director. Nothing contained in the Plan shall give any Employee or Nonemployee Director the right to be retained in the service of a Company or to interfere with or restrict the right of the Company, which is hereby expressly reserved, to discharge or retire any Employee or Nonemployee Director, except as otherwise provided by a written employment agreement between the Company and the Employee or Nonemployee Director, at any time without notice and with or without cause. Inclusion under the Plan will not give any Employee or Nonemployee Director any right or claim to any benefit hereunder except to the extent such right has specifically become fixed under the terms of the Plan. The doctrine of substantial performance shall have no application to Employees, Nonemployee Directors, Participants or any other persons entitled to payments under the Plan. Section 8.3 Consolidation or Merger; Adoption of Plan by Other Companies (a) In the event of the consolidation or merger of the Company with or into any other entity, or the sale by the Company of substantially all of its assets, the resulting successor may continue the Plan by adopting it in a resolution of its Board of Directors. If within 90 days from the effective date of such consolidation, merger or sale of assets, such successor corporation does not adopt the Plan, the Plan shall be terminated in accordance with Section 8.1. (b) There shall be no merger or consolidation with, or transfer of the liabilities of the Plan to, any other plan unless each Participant in the Plan would have, if the combined or successor plans were terminated immediately after the merger, consolidation, or transfer, an account which is equal to or greater than his or her corresponding Account under the Plan had the Plan been terminated immediately before the merger, consolidation or transfer. Section 8.4 Errors and Misstatements In the event of any misstatement or omission of fact by a Participant to the Administrator or any clerical error resulting in payment of benefits in an incorrect amount, the Administrator shall promptly cause the amount of future payments to be corrected upon discovery of the facts and shall cause the Company to pay the Participant or any other person entitled to payment under the Plan any underpayment in cash in a lump sum, or to recoup any overpayment from future payments to the Participant or any other person entitled to payment under the Plan in such amounts as the Administrator shall direct, or to proceed against the Participant or any other person entitled to payment under the Plan for recovery of any such overpayment. Section 8.5 Payment on Behalf of Minor, Etc. In the event any amount becomes payable under the Plan to a minor or a person who, in the sole judgment of the Administrator, is considered by reason of physical or mental condition to be unable to give a valid receipt therefor, the 17 22 Administrator may direct that such payment be made to any person found by the Administrator in its sole judgment, to have assumed the care of such minor or other person. Any payment made pursuant to such determination shall constitute a full release and discharge of the Company, the Board, the Administrator, the Committee and their officers, directors and employees. Section 8.6 Amendment of Plan The Plan may be wholly or partially amended by the Board from time to time, in its sole and absolute discretion, including prospective amendments which apply to amounts held in a Participant's Account as of the effective date of such amendment and including retroactive amendments necessary to conform to the provisions and requirements of ERISA or the Code or regulations pursuant thereto; provided, however, that no amendment shall decrease the amount of any Participant's Account as of the effective date of such amendment. Notwithstanding the foregoing, Section 8.7 shall not be amended in any respect on or after a Change in Control. Section 8.7 Funding (a) Subject to Section 8.7(b), all benefits payable under the Plan will be paid from the general assets of the Company and no Participant or beneficiary shall have any claim against any specific assets of the Company. (b) Not later than the occurrence of a Change in Control, the Company shall cause to be transferred to a grantor trust described in Section 671 of the Code, assets equal in value to all accrued obligations under the Plan as of one day following a Change in Control, in respect of both active employees of the Company and retirees as of that date. Such trust by its terms shall, among other things, be irrevocable. The value of liabilities and assets transferred to the trust shall be determined by one or more nationally recognized firms qualified to provide actuarial services as described in Section 4 of the Computer Sciences Corporation Severance Plan for Senior Management and Key Employees. The establishment and funding of such trust shall not affect the obligation of the Company to provide benefits payments under the terms of the Plan to the extent such benefits are not paid from the trust. Section 8.8 Governing Law The Plan shall be construed, administered and governed in all respects under and by the laws of the State of California, except to the extent such laws may be preempted by ERISA. Section 8.9 Pronouns and Plurality The masculine pronoun shall include the feminine pronoun, and the singular the plural where the context so indicates. 18 23 Section 8.10 Titles Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. Section 8.11 References Unless the context clearly indicates to the contrary, a reference to a statute, regulation or document shall be construed as referring to any subsequently enacted, adopted or executed statute, regulation or document. 19 EX-99.(C)(6) 9 BYLAWS, AS AMENDED AND RESTATED 02/18/1998 1 EXHIBIT (c)(6) BYLAWS OF COMPUTER SCIENCES CORPORATION As amended February 18, 1998 2 BYLAWS OF COMPUTER SCIENCES CORPORATION ARTICLE I OFFICES Section 1. Principal Office. ---------------- The principal office of the corporation in the State of Nevada shall be in the City of Reno, County of Washoe. Section 2. Other Offices. ------------- The corporation may also have offices in such other places, both within and without the State of Nevada, as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Annual Meetings. ------------------------ Annual meetings of the stockholders shall be held at the office of the corporation in the City of El Segundo, State of California or at such other place, within or without the State of California, as shall be designated by the Board of Directors. Section 2. Date of Annual Meetings; Election of Directors. ---------------------------------------------- Annual meetings of the stockholders shall be held at such time and date as the Board of Directors shall determine. At each such annual meeting, the stockholders of the corporation shall elect a Board of Directors and transact such other business as has properly been brought before the meeting in accordance with Section 12 of this Article II. Section 3. Special Meetings. ---------------- Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, by the Articles of Incorporation or by these Bylaws, may be called by the Chairman of the Board, the Board of Directors, or by the president and not otherwise, except as provided in the following sentence. In the event the corporation shall have failed to hold its annual meeting of stockholders for a period of 18 months from the last preceding annual meeting at which directors were elected or if such annual meeting shall have been held but directors shall not have been elected at such annual meeting, a special meeting of the stockholders shall be called by the president or secretary at the request in writing of a majority of the Board of Directors or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request from stockholders shall be directed to the Chairman of the Board, the president, the vice president or the secretary. 3 To be in proper written form, a stockholder's notice must set forth (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the election of directors and any material interest of such stockholder in such election and (iv) a representation that such stockholder intends to appear in person or by proxy at such special meeting to vote on the election of directors at such meeting. The business transacted at such special meeting shall be confined to the election of directors. Section 4. Notices of Meetings. ------------------- Notices of meetings of the stockholders shall be in writing and signed by the president, a vice president, the secretary, an assistant secretary, or by such other person or persons as the directors shall designate. Such notice shall state the purpose or purposes for which the meeting is called and the time when, and the place where, it is to be held. A copy of such notice shall be either delivered personally or shall be mailed, postage prepaid, to each stockholder of record entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before such meeting. If mailed, it shall be directed to the stockholder at his address as it appears upon the records of the corporation and upon such mailing of any such notice, the service thereof shall be complete, and the time of the notice shall begin to run from the date upon which such notice is deposited in the mail for transmission to such stockholder. If no such address appears on the books of the corporation and a stockholder has given no address for the purpose of notice, then notice shall be deemed to have been given to such stockholder if it is published at least once in a newspaper of general circulation in the county in which the principal executive office of the corporation is located. An affidavit of the mailing or publication of any such notice shall be prima facie evidence of the giving of such notice. Personal delivery of any such notice to any officer of a corporation or association, or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. If any notice addressed to the stockholder at the address of such stockholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that it is unable to deliver the notice to the stockholder at such address, all future notices shall be deemed to have been duly given to such stockholder, without further mailing, if the same shall be available for the stockholder upon written demand of the stockholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other stockholders. Section 5. Quorum. ------ The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by the statutes of Nevada or by the Articles of Incorporation. Regardless of whether or not a quorum is present or 2 4 represented at any annual or special meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present in person or represented by proxy, provided that when any stockholders' meeting is adjourned for more than forty-five (45) days, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally noticed. Section 6. Vote Required. ------------- When a quorum is present or represented at any meeting, the holders of a majority of the stock present in person or represented by proxy and voting shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes of Nevada, the Articles of Incorporation or these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. The stockholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Section 7. Cumulative Voting. ----------------- Except as otherwise provided in the Articles of Incorporation, every stockholder of record of the corporation shall be entitled at each meeting of the stockholders to one vote for each share of stock standing in his name on the books of the corporation. At all elections of directors of this corporation, each holder of shares of capital stock possessing voting power shall be entitled to as many votes as shall equal the number of his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for or any two or more of them, as he may see fit. The stockholders of this corporation and any proxyholders for such stockholders are entitled to exercise the right to cumulative voting at any meeting held for the election of directors if: (a) not less than forty-eight (48) hours before the time fixed for holding such meeting, if notice of the meeting has been given at least ten (10) days prior to the date of the meeting, and otherwise not less than twenty-four (24) hours before such time, a stockholder of this corporation has given notice in writing to the president or secretary of the corporation that he desires that the voting at such election of directors shall be cumulative; and (b) at such meeting, prior to the commencement of voting for the election of directors, an announcement of the giving of such notice has been made by the chairman or the secretary of the meeting or by or on behalf of the stockholder giving such notice. Notice to stockholders of the requirements of the preceding sentence shall be contained in the notice calling such meeting or in the proxy material accompanying such notice. 3 5 Section 8. Conduct of Meetings. ------------------- Subject to the requirements of the statutes of Nevada, and the express provisions of the Articles of Incorporation and these Bylaws, all annual and special meetings of stockholders shall be conducted in accordance with such rules and procedures as the Board of Directors may determine and, as to matters not governed by such rules and procedures, as the chairman of such meeting shall determine. The chairman of any annual or special meeting of stockholders shall be designated by the Board of Directors and, in the absence of any such designation, shall be the president of the corporation. Section 9. Proxies. ------- At any meeting of the stockholders, any stockholder may be represented and vote by a proxy or proxies appointed by an instrument in writing. In the event that such instrument in writing shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by such written instrument upon all of the persons so designated unless the instrument shall otherwise provide. No such proxy shall be valid after the expiration of six (6) months from the date of its execution, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven (7) years from the date of its execution. Subject to the above, any proxy duly executed is not revoked and continues in full force and effect until (i) an instrument revoking it or duly executed proxy bearing a later date is filed with the secretary of the corporation or, (ii) the person executing the proxy attends such meeting and votes the shares subject to the proxy, or (iii) written notice of the death or incapacity of the maker of such proxy is received by the corporation before the vote pursuant thereto is counted. Section 10. Action by Written Consent. ------------------------- Any action, except election of directors, which may be taken by a vote of the stockholders at a meeting, may be taken without a meeting and without notice if authorized by the written consent of stockholders holding at least ninety percent (90%) of the voting power. Section 11. Inspectors of Election. ---------------------- In advance of any meeting of stockholders, the Board of Directors may appoint inspectors of election to act at such meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, then, unless other persons are appointed by the Board of Directors prior to the meeting, the chairman of any such meeting may, and on the request of any stockholder or a stockholder proxy shall, appoint inspectors of election (or persons to replace those who fail to appear or refuse to act) at the meeting. The number of inspectors shall not exceed three. The duties of such inspectors shall include: (a) determining the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; (b) receiving votes, ballots or consents; (c) 4 6 hearing and determining all challenges and questions in any way arising in connection with the right to vote; (d) counting and tabulating all votes or consents and determining the result; and (e) taking such other action as may be proper to conduct the election or vote with fairness to all stockholders. In the determination of the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution of the proxies, regardless of the postmark dates on the envelopes in which they are mailed. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. Section 12. Action at Meetings of Stockholders. ---------------------------------- No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 12 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 12. In addition to any other applicable requirements, for business properly to be brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Chairman of the Board, if any, the President, or the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the 5:00 o'clock, p.m., Los Angeles, California time on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class 5 7 or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 12, provided, however, that, once business has been brought properly before the annual meeting in accordance with such procedures, nothing in this Section 12 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not brought properly before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not brought properly before the meeting and such business shall not be transacted. ARTICLE III DIRECTORS Section 1. Number of Directors. ------------------- The exact number of directors that shall constitute the authorized number of members of the Board shall be nine (9), all of whom shall be at least 18 years of age. The authorized number of directors may from time to time be increased to not more than fifteen (15) or decreased to not less than three (3) by resolution of the directors of the corporation amending this section of the Bylaws in compliance with Article VIII, Section 2 of these Bylaws. Except as provided in Section 2 of this Article III, each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies. --------- Vacancies, including those caused by (i) the death, removal, or resignation of directors, (ii) the failure of stockholders to elect directors at any annual meeting, and (iii) an increase in the number of directors, may be filled by a majority of the remaining directors though less than a quorum. When one or more directors shall give notice of his or their resignation to the Board, effective at a future date, the acceptance of such resignation shall not be necessary to make it effective. The Board shall have power to fill such vacancy or vacancies to take effect when such resignation or resignations shall become effective, each director so appointed to hold office during the remainder of the term of office of the resigning director or directors. No director or directors of this corporation shall be removed from office except upon the affirmative vote of stockholders owning a fraction of the total number of outstanding shares of the Company's voting stock equal to (a) one (1) minus (b) the ratio of (x) one (1) divided by (y) the sum of one (1) plus the authorized number of directors. 6 8 Section 3. Authority. --------- The business of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. Section 4. Meetings. -------- The Board of Directors of the corporation may hold meetings, both regular and special, at such place, either within or without the State of Nevada, which has been designated by resolution of the Board of Directors. In the absence of such designation, meetings shall be held at the office of the corporation in the City of El Segundo, State of California. Section 5. First Meeting. ------------- The first meeting of the newly elected Board of Directors shall be held immediately following the annual meeting of the stockholders and no notice of such meeting to the newly elected directors shall be necessary in order legally to constitute a meeting, provided a quorum shall be present. Section 6. Regular Meetings. ---------------- Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board. Section 7. Special Meetings. ---------------- Special meetings of the Board of Directors may be called by the Chairman of the Board, or the president and shall be called by the president or secretary at the written request of two directors. Notice of the time and place of special meetings shall be given within 30 days to each director (a) personally or by telephone, telegraph, facsimile or electronic means, in each case at least twenty four (24) hours prior to the holding of the meeting, or (b) by mail, charges prepaid, addressed to him at his address as it is shown upon the records of the corporation (or, if it is not so shown on such records and is not readily ascertainable, at the place at which the meetings of the directors are regularly held) at least three (3) days prior to the holding of the meeting. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. Any notice, waiver of notice or consent to holding a meeting shall state the time, date and place of the meeting but need not specify the purpose of the meeting. Section 8. Quorum. ------ Presence in person of a majority of the Board of Directors, at a meeting duly assembled, shall be necessary to constitute a quorum for the transaction of 7 9 business and the act of a majority of the directors present and voting at any meeting, at which a quorum is then present, shall be the act of the Board of Directors, except as may be otherwise specifically provided by the statutes of Nevada or by the Articles of Incorporation. A meeting at which a quorum is initially present shall not continue to transact business in the absence of a quorum. Section 9. Action by Written Consent. ------------------------- Unless otherwise restricted by the Articles of Incorporation or by these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent thereto is signed by all members of the Board. Such written consent shall be filed with the minutes of proceedings of the Board of Directors. Section 10. Telephonic Meetings. ------------------- Unless otherwise restricted by the Articles of Incorporation or these Bylaws, members of the Board of Directors or of any committee designated by the Board of Directors may participate in a meeting of the Board or committee by means of a conference telephone network or a similar communications method by which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to the preceding sentence constitutes presence in person at such meeting. Section 11. Adjournment. ----------- A majority of the directors present at any meeting, whether or not a quorum is present, may adjourn any directors' meeting to another time, date and place. If any meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time, date and place shall be given, prior to the time of the adjourned meeting, to the directors who were not present at the time of adjournment. If any meeting is adjourned for less than twenty-four (24) hours, notice of any adjournment shall be given to absent directors, prior to the time of the adjourned meeting, unless the time, date and place is fixed at the meeting adjourned. Section 12. Committees. ---------- The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees of the Board of Directors. Such committee or committees shall have such name or names, shall have such duties and shall exercise such powers as may be determined from time to time by the Board of Directors. Section 13. Committee Minutes. ----------------- The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors. Section 14. Compensation of Directors. ------------------------- The directors shall receive such compensation for their services as directors, and such additional compensation for their services as members of any committees of the Board of Directors, as may be authorized by the Board of Directors. 8 10 Section 15. Mandatory Retirement of Directors. --------------------------------- Notwithstanding anything to the contrary in these Bylaws, a director shall not serve beyond, and shall automatically retire at, the close of the first meeting of the Board of Directors held during the month in which such director shall become age 70; provided, however, that any person who was a director on December 6, 1996 and who was age 65 or older on such date may serve until, but shall automatically retire at, the close of the first meeting of the Board of Directors held during the month in which such director shall become age 72. If no meeting of the Board of Directors is held during such month, the director shall automatically retire as of the last day of such month. ARTICLE IV OFFICERS Section 1. Principal Officers. ------------------ The officers of the corporation shall be elected by the Board of Directors and shall be a president, a secretary and a treasurer. A resident agent for the corporation in the State of Nevada shall be designated by the Board of Directors. Any person may hold two or more offices. Section 2. Other Officers. -------------- The Board of Directors may also elect one or more vice presidents, assistant secretaries and assistant treasurers, and such other officers and agents, as it shall deem necessary. Section 3. Qualification and Removal. ------------------------- The officers of the corporation mentioned in Section 1 of this Article IV shall hold office until their successors are elected and qualify. Any such officer and any other officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Section 4. Resignation. ----------- Any officer may resign at any time by giving written notice to the corporation, without prejudice, however, to the rights, if any, of the corporation under any contract to which such officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Powers and Duties; Execution of Contracts. ----------------------------------------- Officers of this corporation shall have such powers and duties as may be determined by the Board of Directors. Unless otherwise specified by the Board of Directors, the president shall be the chief executive officer of the corporation. Contracts and other instruments in the normal course of business may be executed on behalf of the corporation by the president or any vice president of the corporation, or any other person authorized by resolution of the Board of Directors. 9 11 ARTICLE V STOCK AND STOCKHOLDERS Section 1. Issuance. -------- Every stockholder shall be issued a certificate representing the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the certificate shall contain a statement setting forth the office or agency of the corporation from which stockholders may obtain a copy of a statement or summary of the designations, preferences and relative or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights. The corporation shall furnish to its stockholders, upon request and without charge, a copy of such statement or summary. Section 2. Facsimile Signatures. -------------------- Whenever any certificate is countersigned or otherwise authenticated by a transfer agent or transfer clerk, and by a registrar, then a facsimile of the signatures of the officers of the corporation may be printed or lithographed upon such certificate in lieu of the actual signatures. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, before such certificates shall have been delivered by the corporation, such certificates may nevertheless be issued as though the person or persons who signed such certificates, had not ceased to be an officer of the corporation. Section 3. Lost Certificates. ----------------- The Board of Directors may direct a new stock certificate to be issued in place of any certificate alleged to have been lost or destroyed, and may require the making of an affidavit of that fact by the person claiming the stock certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent, require the owner of the lost or destroyed certificate to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. Section 4. Transfer of Stock. ----------------- Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed for transfer, it shall be the duty of the corporation to issue a new certificate, cancel the old certificate and record the transaction upon its books. Section 5. Record Date. ----------- The directors may fix a date not more than sixty (60) days prior to the holding of any meeting as the date as of which stockholders entitled to notice of and to vote at such meeting shall be determined; and only stockholders of record on such day shall be entitled to notice or to vote at such meeting. If no record date is fixed by the Board of Directors (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of 10 12 stockholders shall be the sixtieth (60th) day preceding the day on which the meeting is held; (b) the record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given; and (c) the record date for determining stockholders for any other purpose shall be the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such action, whichever is later. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. Section 6. Registered Stock. ---------------- The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the statutes of Nevada. Section 7. Dividends. --------- In the event a dividend is declared, the stock transfer books will not be closed but a record date will be fixed by the Board of Directors and only shareholders of record on that date shall be entitled to the dividend. ARTICLE VI INDEMNIFICATION Section 1. Indemnity of Directors, Officers and Agents. ------------------------------------------- The corporation shall indemnify and hold harmless any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was or has agreed to become a director or officer of the corporation or is serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise or by reason of actions alleged to have been taken or omitted in such capacity or in any other capacity while serving as a director or officer. The indemnification of directors and officers by the corporation shall be to the fullest extent authorized or permitted by applicable law, as such law exists or may hereafter be amended (but only to the extent that such amendment permits the corporation to provide broader indemnification rights than permitted prior to the amendment). The indemnification of directors and officers shall be against all loss, liability and expense (including attorneys fees, costs, damages, judgments, fines, amounts paid in settlement and ERISA excise taxes or penalties) actually and reasonably incurred by or on behalf of a director or officer in connection with such action, suit or proceeding, 11 13 including any appeals; provided, however, that with respect to any action, suit or proceeding initiated by a director or officer, the corporation shall indemnify such director or officer only if the action, suit or proceeding was authorized by the board of directors of the corporation, except with respect to a suit for the enforcement of rights to indemnification or advancement of expenses in accordance with Section 3 hereof. Section 2. Expenses -------- The expenses of directors and officers incurred as a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative shall be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding; provided, however, that if applicable law so requires, the advance payment of expenses shall be made only upon receipt by the corporation of an undertaking by or on behalf of the director or officer to repay all amounts as advanced in the event that it is ultimately determined by a final decision, order or decree of a court of competent jurisdiction that the director or officer is not entitled to be indemnified for such expenses under this Article VI. Section 3. Enforcement ----------- Any director or officer may enforce his or her rights to indemnification or advance payments for expenses in a suit brought against the corporation if his or her request for indemnification or advance payments for expenses is wholly or partially refused by the corporation or if there is no determination with respect to such request within 60 days from receipt by the corporation of a written notice from the director or officer for such a determination. If a director or officer is successful in establishing in a suit his or her entitlement to receive or recover an advancement of expenses or a right to indemnification, in whole or in part, he or she shall also be indemnified by the corporation for costs and expenses incurred in such suit. It shall be a defense to any such suit (other than a suit brought to enforce a claim for the advancement of expenses under Section 2 of this Article VI where the required undertaking, if any, has been received by the corporation) that the claimant has not met the standard of conduct set forth in the Nevada General Corporation Law. Neither the failure of the corporation to have made a determination prior to the commencement of such suit that indemnification of the director or officer is proper in the circumstances because the director or officer has met the applicable standard of conduct nor a determination by the corporation that the director or officer has not met such applicable standard of conduct shall be a defense to the suit or create a presumption that the director or officer has not met the applicable standard of conduct. In a suit brought by a director or officer to enforce a right under this Section 3 or by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that a director or officer is not entitled to be indemnified or is not entitled to an advancement of expenses under this Section 3 or otherwise, shall be on the corporation. Section 4. Non-exclusivity --------------- The right to indemnification and to the payment of expenses as they are incurred and in advance of the final disposition of the action, suit or proceeding shall not be exclusive of any other right to which a person may be 12 14 entitled under these articles of incorporation or any bylaw, agreement, statute, vote of stockholders or disinterested directors or otherwise. The right to indemnification under Section 1 hereof shall continue for a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, next of kin, executors, administrators and legal representatives. Section 5. Settlement ---------- The corporation shall not be obligated to reimburse the amount of any settlement unless it has agreed to such settlement. If any person shall unreasonably fail to enter into a settlement of any action, suit or proceeding within the scope of Section 1 hereof, offered or assented to by the opposing party or parties and which is acceptable to the corporation, then, notwithstanding any other provision of this Article VI, the indemnification obligation of the corporation in connection with such action, suit or proceeding shall be limited to the total of the amount at which settlement could have been made and the expenses incurred by such person prior to the time the settlement could reasonably have been effected. Section 6. Purchase of Insurance. --------------------- The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. Section 7. Conditions ---------- The corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the corporation or to any director, officer, employee or agent of any of its subsidiaries to the fullest extent of the provisions of this Article VI subject to the imposition of any conditions or limitations as the Board of Directors may deem necessary or appropriate. ARTICLE VII GENERAL PROVISIONS Section 1. Exercise of Rights. ------------------ All rights incident to any and all shares of another corporation or corporations standing in the name of this corporation may be exercised by such officer, agent or proxyholder as the Board of Directors may designate. In the absence of such designation, such rights may be exercised by the Chairman of the Board or the president of this corporation, or by any other person authorized to do so by the Chairman of the Board or the president of this corporation. Except as provided below, shares of this corporation owned by any subsidiary of this corporation shall not be entitled to vote on any matter. Shares of this corporation held by this corporation in a fiduciary 13 15 capacity and shares of this corporation held in a fiduciary capacity by any subsidiary of this corporation, shall not be entitled to vote on any matter, except to the extent that the settler or beneficial owner possesses and exercises a right to vote or to give this corporation or such subsidiary binding instructions as to how to vote such shares. Solely for purposes of Section 1 of this Article VII, a "subsidiary" of this corporation shall mean a corporation, shares of which possessing more than fifty percent (50%) of the power to vote for the election of directors at the time determination of such voting power is made, are owned directly, or indirectly through one or more subsidiaries, by this corporation. Section 2. Interpretation. -------------- Unless the context of a Section of these Bylaws otherwise requires, the terms used in these Bylaws shall have the meanings provided in, and these Bylaws shall be construed in accordance with the Nevada statutes relating to private corporations, as found in Chapter 78 of the Nevada Revised Statutes or any subsequent statute. ARTICLE VIII AMENDMENTS Section 1. Stockholder Amendments. ---------------------- Bylaws may be adopted, amended or repealed by the affirmative vote of more than eighty percent (80%) of the outstanding voting shares of this corporation. Section 2. Amendments by Board of Directors. -------------------------------- Subject to the right of stockholders as provided in Section 1 of this Article VIII, Bylaws may be adopted, amended or repealed by the Board of Directors. ARTICLE IX "ACQUISITION OF CONTROLLING INTEREST" PROVISIONS OF THE NEVADA GENERAL CORPORATION LAW SHALL NOT APPLY On and after February 16, 1998, the provisions of Section 78.378 to 78.3793, inclusive, of the Nevada Revised Statutes shall not apply to the corporation. 14 EX-99.(C)(15) 10 RIGHTS AGREEMENT, 12/88 AMENDED 2/98 1 EXHIBIT (c)(15) ================================================================================ COMPUTER SCIENCES CORPORATION AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C. AMENDED AND RESTATED RIGHTS AGREEMENT DATED AS OF DECEMBER 21, 1988 AMENDED AND RESTATED AS OF FEBRUARY 18, 1998 ================================================================================ 2 TABLE OF CONTENTS
Section Page - ------- ---- l Certain Definitions................................................................1 2 Appointment of Rights Agent........................................................6 3 Issue of Rights Certificates.......................................................6 4 Form of Rights Certificates........................................................8 5 Countersignature and Registration..................................................9 6 Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates......................9 7 Exercise of Rights; Purchase Price; Expiration Date of Rights....................10 8 Cancellation and Destruction of Rights Certificates..............................12 9 Reservation and Availability of Stock ...........................................13 10 Preferred Stock Record Date......................................................14 11 Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights.............................................................15 12 Certificate of Adjusted Purchase Price or Number of Shares.......................24 13 Consolidation, Merger or Sale or Transfer of Assets or Earning Power.............24 14 Fractional Rights and Fractional Shares..........................................28 15 Rights of Action.................................................................29 16 Agreement of Rights Holders......................................................30 17 Rights Certificate Holder Not Deemed a Stockholder...............................30 18 Concerning the Rights Agent......................................................31 19 Merger or Consolidation or Change of Name of Rights Agent........................31 20 Duties of Rights Agent...........................................................32
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Section Page - ------- ---- 21 Change of Rights Agent...........................................................34 22 Issuance of New Rights Certificates..............................................35 23 Redemption and Termination.......................................................35 24 Notice of Certain Events.........................................................36 25 Notices..........................................................................37 26 Supplements and Amendments.......................................................37 27 Successors.......................................................................38 28 Determination and Actions by the Board of Directors, etc.........................38 29 Benefits of this Agreement.......................................................39 30 Severability.....................................................................39 31 Governing Law....................................................................39 32 Counterparts.....................................................................39 33 Descriptive Headings.............................................................40
Exhibit A -- Form of Certificate of Amendment of Certificate of Designations Exhibit B -- Form of Rights Certificate Exhibit C -- Form of Summary of Rights ii 4 AMENDED AND RESTATED RIGHTS AGREEMENT RIGHTS AGREEMENT, dated as of December 21, 1988, amended and restated as of February 18, 1998 (the "Agreement"), between COMPUTER SCIENCES CORPORATION, a Nevada corporation (the "Company"), and CHASEMELLON SHAREHOLDER SERVICES, L.L.C. (the "Rights Agent"). W I T N E S S E T H WHEREAS, on December 21, 1988 (the "Rights Dividend Declaration Date"), the Board of Directors of the Company authorized and declared a dividend distribution of one preferred stock purchase right (a "Right") for each share of common stock, $1.00 par value, of the Company (the "Common Stock") outstanding at the close of business on January 3, 1989 (the "Record Date"), and authorized the issuance of one Right for each share of Common Stock issued between the Record Date (whether originally issued or delivered from the Company's treasury) and the Distribution Date (as hereinafter defined), each Right initially representing the right to purchase one four-thousandth (l/4000th) of a share of Series A Junior Participating Preferred Stock of the Company having the rights, powers and preferences set forth in the form of Certificate of Amendment of Certificate of Designations attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding; provided, however that (i) the term "Acquiring Person" shall not include the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, (ii) a person who becomes the Beneficial Owner of at least twenty percent (20%) of such outstanding shares of Common Stock as the result of a stock repurchase plan or self-tender offer of the Company shall not be deemed an Acquiring Person, and the Stock Acquisition Date shall not be deemed to occur, until such Person, together with all Affiliates and Associates of such Person, thereafter becomes the Beneficial Owner of, in the aggregate, a number of additional shares of Common Stock equal to one percent (1%) or more of the then outstanding shares (and, at that time, owns at least twenty percent (20%) of such outstanding shares), and (iii) the term "Acquiring 5 Person shall not include a person who becomes the Beneficial Owner of at least twenty percent (20%) of such outstanding shares of Common Stock as the result of an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board of Directors who are not officers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person, after receiving advice from one or more investment banking firms, to be (a) at a price which is fair to stockholders of the Company (taking into account all factors which such members of the Board deem relevant including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders. (b) "Act" shall mean the Securities Act of 1933, as amended. (c) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended and in effect on the date of this Agreement (the "Exchange Act)". (d) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a)) or Section 22 hereof (the "Original Rights") or pursuant to Section ll(i) hereof in connection with an adjustment made with respect to any Original Rights; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has 2 6 "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (d)) or disposing of any voting securities of the Company; provided, however, that nothing in this paragraph (d) shall cause a person engaged in business as an underwriter of securities to be the "Beneficial Owner" of, or to "beneficially own," any securities acquired through such person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. (e) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of California are authorized or obligated by law or executive order to close. (f) "Close of business" on any given date shall mean 5:00 P.M., California time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., California time, on the next succeeding Business Day. (g) "Common Stock" shall mean the common stock, $1.00 par value, of the Company, except that "Common Stock" when used with reference to any Person other than the Company shall mean the capital stock (or units of beneficial interest which represent the right to participate in profits, losses, deductions and credits) of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person. (h) "Continuing Director" shall mean (i) any member of the Board of Directors of the Company, while such Person is a member of the Board, who is not 3 7 an Acquiring Person or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who was a member of the Board prior to the date of this Agreement, or (ii) any Person who subsequently becomes a member of the Board, while such Person is a member of the Board, who is not an Acquiring Person or an Affiliate or Associate of an Acquiring Person or a representative of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election or election to the Board is recommended or approved by a majority of the Continuing Directors. (i) "Current market price" shall have the meaning set forth in Section ll(d) hereof. (j) "Current Value" shall have the meaning set forth in Section ll(a)(iii) hereof. (k) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof. (l) "Equivalent Preferred Stock" shall have the meaning set forth in Section ll(b) hereof. (m) "Exchange Act" shall have the meaning set forth in Section l(c) hereof. (n) "Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (o) "Final Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (p) "Person" shall mean any individual, firm, corporation, partnership, association, trust or other entity. (q) "Preferred Stock" shall mean shares of Series A Junior Participating Preferred Stock, $1.00 par value, of the Company and, to the extent that there is not a sufficient number of shares of Series A Junior Participating Preferred Stock authorized to permit the full exercise of the Rights, any other series of Preferred Stock, $1.00 par value, of the Company designated for such purpose containing terms substantially similar to the terms of the Series A Junior Participating Preferred Stock. (r) "Principal Party" shall have the meaning set forth in Section 13(b) hereof. (s) "Purchase Price" shall have the meaning set forth in Section 4(a) hereof. 4 8 (t) "Record Date" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (u) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof. (v) "Rights" shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement. (w) "Rights Certificates" shall have the meaning set forth in Section 3(a) hereof. (x) "Section ll(a)(ii) Event" shall mean any event described in Section ll(a)(ii) hereof. (y) "Section ll(a)(ii) Trigger Date" shall have the meaning set forth in Section ll(a)(iii) hereof. (z) "Section 13 Event" shall mean any event described in clauses (x), (y) or (z) of Section 13(a) hereof. (aa) "Spread" shall have the meaning set forth in Section ll(a)(iii) hereof. (bb) "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such or such earlier date as a majority of the directors shall become aware of the existence of an Acquiring Person. (cc) "Subsidiary" shall mean, with reference to any Person, any corporation of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation is beneficially owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person. (dd) "Substitution Period" shall have the meaning set forth in Section ll(a)(iii) hereof. (ee) "Trading Day" shall have the meaning set forth in Section ll(d) hereof. (ff) "Triggering Event" shall mean any Section ll(a)(ii) Event or any Section 13 Event. Any determination required by the definitions contained in this Section 1 shall be made by the Board of Directors of the Company in its good faith judgment, 5 9 which determination shall be binding on the Rights Agent and the holders of the Rights. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall, prior to the Distribution Date, also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Rights Certificates. (a) Until the earlier of (i) the close of business on the tenth business day after the Stock Acquisition Date or, if the tenth business day after the Stock Acquisition Date occurs before the Record Date, the close of business on the Record Date), or (ii) the close of business on the tenth business day after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be the Beneficial Owner of 30% or more of the shares of Common Stock then outstanding (irrespective of whether any shares are actually purchased pursuant to any such offer) (the earlier of (i) or (ii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company);provided, however, that, notwithstanding anything to the contrary in the foregoing definition of the "Distribution Date," clause (ii) of the definition does not apply to the tender offer commenced by CAI Computer Services Corp. on February 17, 1998.. As soon as practicable after the Distribution Date, the Rights Agent will send by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more rights certificates, in substantially the form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section ll(p) hereof, at the time of distribution of the Rights Certificates, the Company shall make the 6 10 necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. (b) As promptly as practicable following the Record Date, the Company will send a copy of a Summary of Rights, in substantially the form attached hereto as Exhibit C (the "Summary of Rights"), by first-class, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for the Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates for the Common Stock and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date, the transfer of any certificates representing shares of Common Stock in respect of which Rights have been issued shall also constitute the transfer of the Rights associated with such shares of Common Stock. (c) Rights shall be issued in respect of all shares of Common Stock which are issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear the following legend: "This certificate also evidences and entitles the holder hereof to certain rights as set forth in the Rights Agreement between Computer Sciences Corporation (the "Company") and American Transtech (the "Rights Agent") dated as of December 21, 1988 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Rights Agent will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void." With respect to such certificates containing the foregoing legend, until the earlier of the Distribution Date or the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such 7 11 certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. Section 4. Form of Rights Certificates. (a) The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of four-thousandths of a share of Preferred Stock as shall be set forth therein at the price set forth therein (such exercise price per one four-thousandth of a share, the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. (b) Notwithstanding any other provision of this Agreement, any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by any Person known to be: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend: 8 12 "The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of such Agreement." Section 5. Countersignature and Registration. (a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the Date of each of the Rights Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number 9 13 of four-thousandths of a share of Preferred Stock (or, following a Triggering Event, Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section ll(a)(iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of four-thousandths of a share of Preferred Stock (or Common Stock or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then 10 14 exercisable, at or prior to the earlier of (i) the close of business on December 21, 1998 (the "Final Expiration Date"), or (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the earlier of (i) and (ii) being herein referred to as the ("Expiration Date"). (b) The Purchase Price for each one four-thousandth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be $235.00, and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below. (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per one four-thousandth of a share of Preferred Stock (or Common Stock or other securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of four-thousandths of a share of Preferred Stock to be purchased and the Company hereby authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of four-thousandths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company an amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section ll(a)(iii) hereof) may be made in cash or by certified bank check or money order payable to the order of the Company. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash and/or distribute other property pursuant to Section ll(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. 11 15 (d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section ll(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate continued in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Rights Certificates. All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights Certificates shall be issued in 12 16 lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Stock. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a Section ll(a)(ii) Event, out of its authorized and unissued shares of Common Stock and/or other securities or out of its authorized and issued shares held in its treasury), the number of shares of Preferred Stock (and, following the occurrence of a Section ll(a)(ii) Event, Common Stock and, or other securities) that, as provided in this Agreement including Section ll(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights, provided, however, that the Company shall not be required to reserve and keep available shares of Preferred Stock, Common Stock or other securities sufficient to permit the exercise in full of all outstanding Rights pursuant to the adjustments set forth in Section ll(a)(ii), Section ll(a)(iii) or Section 13 hereof unless, and only to the extent that, the Rights become exercisable pursuant to such adjustments. (b) So long as the shares of Preferred Stock (and, following the occurrence of a Section ll(a)(ii) Event, Common Stock and/or other securities) issuable and deliverable upon the exercise of Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) If necessary to permit the offer and issuance of Preferred Stock (and, following the occurrence of a Section ll(a)(ii) Event, Common Stock and/or other securities) issuable and deliverable upon the exercise of Rights, the Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section ll(a)(ii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section ll(a)(iii) hereof, or as soon as is required by law following the Distribution Date, as the case may be, a registration statement under the Act, with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until 13 17 the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Company will also use reasonable efforts to take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained or an exemption therefrom shall have been obtained or be available and until a registration statement (if required) has been declared effective. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all four-thousandths of a share of Preferred Stock (and, following the occurrence of a Section ll(a)(ii) Event, Common Stock and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and non assessable. (e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of four-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of four-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in respect of a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for a number of four-thousandths of shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. Preferred Stock Record Date. Each person in whose name any certificate for a number of four-thousandths of a share of Preferred Stock (or 14 18 Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights. The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a)(i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation and the Company's capital stock is not converted into securities or property (including cash) of another Person), except as otherwise provided in this Section ll(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Preferred Stock or other capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of Preferred Stock or such capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or 15 19 reclassification. If an event occurs which would require an adjustment under both this Section ll(a)(i) and Section ll(a)(ii) hereof, the adjustment provided for in this Section ll(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section ll(a)(ii) hereof. (ii) In the event ("Section ll(a)(ii) Event") that the Stock Acquisition Date shall have occurred, then promptly following the close of business on the tenth business day after such Section ll(a)(ii) Event (or, if the tenth business day after such Section ll(a)(ii) Event occurs before the Record Date, the close of business on the Record Date), proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof, in lieu of a number of four-thousandths of a share of Preferred Stock, one share of Common Stock (as constituted on the date of this Agreement) of the Company for each Right which was exercisable immediately prior to the occurrence of such Section ll(a)(ii) Event (such number of shares, the "Adjustment Shares") at an adjusted Purchase Price (the "Section 11 Price") equal to the product obtained by multiplying the Adjustment Shares by 10% of the current market price (as determined pursuant to Section ll(d) hereof) per share of the Common Stock on the date of the occurrence of Such Section ll(a)(ii) Event; and, following the occurrence of such Section ll(a)(ii) Event, the Section 11 Price shall be the "Purchase Price" for all purposes of this Agreement provided that the Purchase Price and the number of Adjustment Shares shall be further adjusted as provided in this Agreement to reflect any events occurring after the date of such first occurrence; and provided, further, that if the transaction that would otherwise give rise to the foregoing adjustment is also subject to the provisions of Section 13 hereof, then only the provisions of Section 13 hereof shall apply and no adjustment shall be made pursuant to this Section ll(a)(ii). (iii) In the event that the number of shares of Common Stock which are authorized by the Company's articles of incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section ll(a) and the Rights shall become so exercisable, to the extent permitted by applicable law and any agreements in effect on the date hereof to which the Company is a party, the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value") over (2) the Purchase Price (such excess, the "Spread"), and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (l) cash, (2) a reduction in the Purchase Price, (3) Common Stock or shares or units of shares of Preferred Stock or other equity securities of the Company, (4) debt 16 20 securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section ll(a)(ii) Event and (y) the date on which the Company's right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the "Section ll(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section ll(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such period, as it may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section ll(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section ll(a)(iii), the value of the Common Stock shall be the current market price (as determined pursuant to Section ll(d) hereof) per share of the Common Stock on the Section ll(a)(ii) Trigger Date and the value of the Series A Junior Participating Preferred Stock shall be deemed to be the fair value on such day as determined in good faith by the Board of Directors. The Board of Directors may, but shall not be required to, establish procedures to allocate the right to receive Common Stock upon the exercise of Rights pursuant to this Section ll(a)(iii). (b) In case the Company shall fix a record date for the issuance of rights (other than the Rights), options or warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a period expiring within forty-five 17 21 (45) calendar days after such record date) Preferred Stock (or shares having the same rights, privileges and preferences as the shares of Preferred Stock ("Equivalent Preferred Stock")) or securities convertible into Preferred Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or per share of Equivalent Preferred Stock (or having a conversion price per share, if a security convertible into Preferred Stock or Equivalent Preferred Stock) less than the current market price (as determined pursuant to Section ll(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock which the aggregate offering price of the total number of shares of Preferred Stock (and/or Equivalent Preferred Stock so to be offered and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price, and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and/or Equivalent Preferred Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or subscription rights or warrants (excluding those referred to in Section ll(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current market price (as determined pursuant to Section ll(d) hereof) per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or 18 22 evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Preferred Stock and the denominator of which shall be such current market price (as determined pursuant to Section ll(d) hereof) per share of Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed. (d)(i) For the purpose of any computation hereunder, other than computations made pursuant to Section ll(a)(iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date, and for purposes of computations made pursuant to Section ll(a) (iii) hereof, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten (10) consecutive Trading Days immediately following such date; provided, however, that in the event that the current market price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and prior to the expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "current market price" shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or the Pacific Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange or the Pacific Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the 19 23 shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, "current market price" per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (ii) For the purpose of any computation hereunder, the "current market price" per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section ll(d) (other than the last sentence thereof). If the current market price per share of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of this Section ll(d), the "current market price" per share of Preferred Stock shall be conclusively deemed to be an amount equal to 4,000 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock occurring after the date of this Agreement) multiplied by the current market price per share of the Common Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, "current market price" per share of the Preferred Stock shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the "current market price" of one four-thousandth of a share of Preferred Stock shall be equal to the "current market price" of one share of Preferred Stock divided by 4,000. (e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided, however, that any adjustments which by reason of this Section ll(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one-thousandth of a share of Common Stock or other share or one 20 24 forty-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section ll(e), an adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustments, or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section ll(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections ll(a), (b), (c), (e), (g), (h), (i), (j), (k), and (m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of four-thousandths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in section ll(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections ll(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of four-thousandths of a share of Preferred Stock (calculated to the nearest one forty-thousandth) obtained by (i) multiplying (x) the number of four-thousandths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of four-thousandths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of four-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one forty-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the 21 25 adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section ll(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of four-thousandths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one four-thousandth of a share and the number of four-thousandths of a share which were expressed in the initial Rights Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then stated value, if any, of the number of four-thousandths of a share of Preferred Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable such number of four-thousandths of a share of Preferred Stock at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of four-thousandths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of four-thousandths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of 22 26 the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than the current market price, (iii) issuance wholly for cash of shares of Preferred Stock or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders. (n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section ll(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section ll(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section ll(o) hereof), if (x) at the time of or immediately after such consolidation, merger, sale or transfer there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger, sale or transfer, the stockholders of the Person who constitutes, or would constitute, the "Principal Party" for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. (o) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. (p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Rights Dividend Declaration Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock 23 27 into a smaller number of shares, the Purchase Price per Right immediately following such event shall be equal to the product of the Purchase Price per Right immediately prior to such event multiplied by a fraction, the numerator which shall be the total number of Rights outstanding immediately prior to such event and the denominator of which shall be the total number of Rights outstanding immediately following such event. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing shares of Common Stock) in accordance with Section 25 hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. Any adjustment to be made pursuant to Sections 11 and 13 of this Agreement shall be effective as of the date of the event giving rise to such adjustment. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the event ("Section 13(a) Event") that, following the Stock Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section ll(o) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section ll(o) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger, and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section ll(o) hereof), then, and in each such case, proper provisions shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon 24 28 the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of four-thousandths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section ll(a)(ii) Event has occurred prior to the first occurrence of a Section 13 event, multiplying the number of such four-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Section ll(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the current market price (determined pursuant to Section ll(d)(i) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event (or the fair market value on such date of other securities or property of the Principal Party, as provided for herein); provided that the Purchase Price and the number of shares of common stock of such Principal Party issuable upon exercise of each Right shall be further adjusted as provided in this Agreement to reflect any events occurring after the date of the first occurrence of a Section 13 event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; provided, however, that upon the subsequent occurrence of any merger, consolidation, sale of all or substantially all assets, recapitalization, reclassification of shares, reorganization or other extraordinary transaction in respect of such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon exercise of a Right and payment of the Purchase Price, such cash, shares, rights, warrants and other property which such holder would have been entitled to receive had he, at the time of such transaction, owned the shares of Common Stock of the Principal Party purchasable upon the exercise of a Right, and such Principal Party shall take such steps (including, but not limited to, reservation of shares of stock) as may be necessary to permit the subsequent exercise of the Rights in accordance with the terms hereof for such cash, shares, rights, warrants and other property; and (v) the provisions of Section ll(a)(ii) hereof shall be of no effect following the first occurrence of any 25 29 Section 13 Event. (b) "Principal Party" shall mean: (i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a): (A) the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer whose Common Stock has the greatest market value or (B) if no securities are so issued, (x) the Person that is the other party to such merger or consolidation and survives said merger or consolidation, or, if there is more than one such Person, the Person whose Common Stock has the greatest market value or (y) if the Person that is the other party to the merger or consolidation does not survive the merger or consolidation, the Person that does survive the merger or consolidation (including the Company if it survives); and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot be determined, whichever of such Persons as is the issuer of Common Stock having the greatest market value of shares outstanding; provided, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect subsidiary of another Person the Common Stock of which is and has been so registered, "Principal Party" shall refer to such other Person; and (2) if such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such persons is the issuer of the Common Stock having the greatest aggregate market value. (c) If, for any reason, the Rights cannot be exercised for the Common Stock of such Principal Party, then a holder of Rights will have the right to exchange each Right for cash from such Principal Party in an amount equal to twice the Purchase Price as calculated above. If, for any reason, the foregoing formulation cannot be applied to determine the cash amount to which the holder of Rights is entitled, then the Continuing Directors on the Board of Directors of the Company shall determine such amount reasonably and in good faith. 26 30 (d) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a), (b) and (c) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger, sale or transfer mentioned in paragraph (a) of this Section 13, the Principal Party will: (i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date and similarly comply with applicable state securities laws; (ii) will deliver to holders of the Rights historical financial statements of the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act; (iii) use its best efforts, if the Common Stock of the Principal Party shall become listed on a national securities exchange, to list (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on such securities exchange and, if the Common Stock of the Principal Party shall not be listed on a national securities exchange, to cause the Rights and the securities purchasable upon exercise of the Rights to be reported by NASDAQ or such other system then in use; and (iv) obtain waivers of any rights of first refusal or preemptive rights in respect of the shares of Common Stock of the Principal Party subject to purchase upon exercise of outstanding Rights. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section ll(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a). (e) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is consummated with a Person or Persons who 27 31 acquired shares of Common Stock pursuant to a tender offer or exchange offer for all outstanding shares of Common Stock which complies with the provisions of Section ll(a)(ii)(A) hereof (or a wholly owned subsidiary of any such Person or Persons), (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such tender offer or exchange offer, and (iii) the form of consideration being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(e), all Rights hereunder shall expire. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section ll(p) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or Pacific Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange or Pacific Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one four- 28 32 thousandth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one four-thousandth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one four-thousandth of a share of Preferred Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one four-thousandth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one four-thousandth of a share of Preferred Stock shall be one four-thousandth of the current market value of a share of Preferred Stock (as determined pursuant to Section ll(d)(ii) hereof) on the Trading Day immediately prior to the date of such exercise. (c) Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common Stock. For purposes of this Section 14(c), the current market value of one share of Common Stock shall be the closing price of one share of Common Stock (as determined pursuant to Section ll(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (d) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14. Section 15. Rights of Action. All rights of action in respect of this Agreement, other than rights of action vested in the Rights Agent pursuant to Section 18 hereof, are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this 29 33 Agreement. Section 16. Agreement of Rights Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed; (c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agents) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining Performance of such obligation; provided, however, the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purposes the holder of the number of four-thousandths of a share of Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate 30 34 action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. Notwithstanding anything in this Agreement to the contrary, in no event shall the Rights Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever, even if the Rights Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency 31 35 created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force Provided in the Rights Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of "current market price") be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of the statements 32 36 of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after receipt of the certificate described in Section 12 hereof setting forth any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificates or as to whether any shares of Common Stock or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its 33 37 attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; provided, however, reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Company. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days' notice in writing mailed to the Company, and to each transfer agent of the Common Stock and Preferred Stock by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent (with or without cause) upon thirty (30) days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then the incumbent Rights Agent or any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of any other state of the United States in good standing, which is authorized under such laws to exercise corporate trust or stock transfer powers or (b) an affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent 34 38 without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and the Preferred Stock, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Rights Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, or upon the exercise, conversion or exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 23. Redemption and Termination. (a) The Board of Directors of the Company may, at its option, at any time prior to the close of business on the earliest of (i) the tenth business day after the date of the first Section ll(a)(ii) Event, (ii) the date of the first Section 13(a) event, or (iii) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $0.01 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the "current market price", as defined in Section ll(d)(i) hereof, of the Common Stock at the time of redemption) or 35 39 any other form of consideration deemed appropriate by the Board of Directors. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held, without any interest thereon. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at each holder's last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. The failure to give notice required by this Section 23(b) or any defect therein shall not affect the legality or validity of the action taken by the Company. Section 24. Notice of Certain Events. (a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company), or (ii) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section ll(o) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section ll(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Preferred Stock, if any such date is to be fixed, and such notice shall be so 36 40 given in the case of any action covered by clause (i) or (ii) above at least ten (10) days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and in the case of any such other action, at least ten (10) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock whichever shall be the earlier. The failure to give notice required by this Section 24 or any defect therein shall not affect the legality or validity of the action taken by the Company or the vote upon any such action. (b) In case any of the events set forth in Section ll(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section ll(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if appropriate, other securities. Section 25. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Computer Sciences Corporation 2100 East Grand Avenue El Segundo, California 90245 Attention: Hayward D. Fisk, Vice President, General Counsel and Secretary Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: ChaseMellon Shareholder Services, L.L.C. 85 Challenger Road Overpeck Centre Ridgefield Park, New Jersey 07660 Attention: Reorganization Department Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first-class mail, postage prepaid, 37 41 addressed to such holder at the address of such holder as shown on the registry books of the Transfer Agent. Section 26. Supplements and Amendments Prior to the close of business on the earliest of (i) the tenth business day after the date of the First Section ll(a)(ii) Event, (ii) the date of the first Section 13(a) Event, or (iii) the Final Expiration Date and, in each case subject to extension by the Board of Directors by amendment hereof, and subject to the penultimate sentence of this Section 26, the Company may, in its sole and absolute discretion and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Stock. Thereafter, subject to the penultimate sentence of this Section 26, the Company may and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or (iii) to change or supplement any provision hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of any such Person); provided, this Agreement may not be supplemented or amended to lengthen, pursuant to clauses (i) or (ii) of this sentence, (A) a time period relating to when the Rights may be redeemed or this Agreement amended at the sole and absolute discretion of the Company at such time as the Rights are not then redeemable, or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights (other than any Acquiring Person and its Associates or Affiliates). Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price or the Final Expiration Date. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. Section 27. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 28. Determination and Actions by the Board of Directors. etc. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence 38 42 of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company (or, as set forth herein, certain specified members thereof) shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors of the Company or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including, but not limited to, a determination to redeem or not redeem the Rights, or to amend this Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors of the Company in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject any member of the Board of Directors to any liability to the holders of the Rights or to any other Person. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock). Section 30. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth business day following the date of such determination by the Board of Directors of the Company. Section 31. Governing Law. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Nevada and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be 39 43 performed entirely within such State. Section 32. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 40 44 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: COMPUTER SCIENCES CORPORATION By: /s/Hayward D. Fisk By: /s/Van B. Honeycutt ------------------------------ --------------------------------- Hayward D. Fisk Van B. Honeycutt Secretary President [ Seal ] Attest: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By: /s/James E. Hagan By: /s/Barry S. Rosenthal ----------------------------- --------------------------------- James E. Hagan Barry S. Rosenthal Team Leader Officer [ Seal ] 41 45 EXHIBIT A CERTIFICATE OF AMENDMENT OF CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK $1.00 PAR VALUE OF COMPUTER SCIENCES CORPORATION Pursuant to Section 78.195 of the General Corporation Law of the State of Nevada We, Hayward D. Fisk, Vice President, and Stephen E. Johnson, Assistant Secretary, of COMPUTER SCIENCES CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Nevada, in accordance with the provisions of Section 78.195 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Articles of Incorporation of the Corporation: (i) the Board on December 21, 1988 adopted a resolution creating a series of Preferred Stock, par value $1.00 per share, designated as Series A Junior Participating Preferred Stock, and caused to be filed with the Nevada Secretary of State on January 13, 1989 a Certificate of Designations with respect thereto; and (ii) the Board on October 30, 1995 amended and restated such resolution in its entirety and caused to be filed with the Nevada Secretary of State on November 3, 1995 a Certificate of Amendment of Certificate of Designations with respect to the Series A Junior Participating Preferred Stock; and That on June 17, 1996, prior to the issuance of any shares of Series A Junior Participating Preferred Stock, the Board of Directors, pursuant to the authority conferred upon the Board by the Restated Articles of Incorporation, again amended and restated such resolution in its entirety, effective as of August 1, 1996, as follows: RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of its Restated Articles of Incorporation, a series of Preferred Stock of the Corporation be, and it hereby is, created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are as follows: 46 Section 1. Designation and Amount. The shares of such series shall be designated as Series A Junior Participating Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock"), and the number of shares constituting such series shall be Two Hundred Thousand (200,000). Section 2. Dividends and Distributions. (a) The holders of shares of Series A Preferred Stock, in preference to the holders of shares of Common Stock, $1.00 per share, of the Corporation (the "Common Stock") and of any other junior stock of the Corporation that may be outstanding, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the fifteenth day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $1.00 per share ($4.00 per annum), or (ii) subject to the provision for adjustment hereinafter set forth, 4,000 times the aggregate per share amount of all cash dividends, and 4,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (a) of this Section 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, however, that in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share ($4.00 per annum) 2 47 on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall not bear interest. Each share of Preferred Stock shall rank on a parity with each other share of Preferred Stock, regardless of series, with respect to the payment of dividends at the respectively designated rates. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (a) Each share of Series A Preferred Stock shall entitle the holder thereof to 1 vote with the right to cumulate votes in certain instances in the manner set forth in the Restated Articles of Incorporation of the Corporation on all matters submitted to a vote of the stockholders of the Corporation. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then and in each such event, the number of votes per share to which holders of shares of Series A Preferred Stock are entitled shall be increased, in the case of a subdivision, or in the case of such a dividend, or reduced, in the case of a combination, in the same proportion as the subdivision, increase by dividend, or combination of the Common Stock. (b) Except as otherwise provided in the Restated Articles of Incorporation of the Corporation or herein or by law, the holders of shares of Series A Preferred 3 48 Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) In addition, the holders of shares of Series A Preferred Stock shall have the following special voting rights: In the event that at any time dividends on Series A Preferred Stock, whenever accrued and whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof set aside, in an amount equivalent to six quarterly dividends on all shares of Series A Preferred Stock at the time outstanding, then and in each such event, the holders of shares of Series A Preferred Stock and each other series of preferred stock now or hereafter issued that shall be accorded such class voting right by the Board of Directors and that shall have the right to elect two directors as the result of a prior or subsequent default in payment of dividends on such series (each such other series being hereinafter called "Other Series of Preferred Stock"), voting separately as a class without regard to series, shall be entitled to elect two directors at the next annual meeting of stockholders of the Corporation, in addition to the directors to be elected by the holders of all shares of the Corporation entitled to vote for the election of directors, and the holders of all shares (including the Series A Preferred Stock) otherwise entitled to vote for directors, voting separately as a class, shall be entitled to elect the remaining members of the Board of Directors, provided that the Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall not have the right to elect more than two directors. Such special voting right of the holders of shares of Series A Preferred Stock may be exercised until all dividends in default on the Series A Preferred Stock shall have been paid in full or declared and funds sufficient therefor set aside, and when so paid or provided for, such special voting right of the holders of shares of Series A Preferred Stock shall cease, but subject always to the same provisions for the vesting of such special voting rights in the event of any such future dividend default or defaults. At any time after such special voting rights shall have so vested in the holders of shares of Series A Preferred Stock, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal executive office of the Corporation shall, call a special meeting of the holders of shares of Preferred Stock so entitled to vote, for the election of the directors to be elected by them as herein provided, to be held within 60 days after such call and at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called or held, the holders of shares of Preferred Stock so entitled to vote shall be entitled to exercise the special voting rights provided in this paragraph 4 49 at such annual meeting. If any such special meeting required to be called as above provided shall not be called by the Secretary within 30 days after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice given by such person, and for that purpose shall have access to the stock books of the Corporation. No such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. If, at any meeting so called or at any annual meeting held while the holders of shares of Series A Preferred Stock have the special voting rights provided for in this paragraph, the holders of not less than 40% of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding are present in person or by proxy, which percentage shall be sufficient to constitute a quorum for the election of additional directors as herein provided, the then authorized number of directors of the Corporation shall be increased by two, as of the time of such special meeting or the time of the first such annual meeting held while such holders have special voting rights and such quorum is present, and the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall be entitled to elect the additional directors so provided for. If the directors of the Corporation are then divided into classes under provisions of the Restated Articles of Incorporation of the Corporation or the Bylaws, the two additional directors shall be members of those respective classes of directors in which a vacancy is created as a result of such increase in the authorized number of directors. If the foregoing expansion of the size of the Board of Directors shall not be valid under applicable law, then the holders of shares of Series A Preferred Stock and of each Other Series of Preferred Stock, voting as a class, shall be entitled, at the meeting of stockholders at which they would otherwise have voted, to elect directors to fill any then existing vacancies on the Board of Directors, and shall additionally be entitled, at such meeting and each subsequent meeting of stockholders at which directors are elected, to elect all of the directors then being elected until by such class vote two members of the Board of Directors have been so elected. Upon the election at such meeting by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, of the directors they are entitled so to elect, the persons so elected, together with such persons as may be directors or as may have been elected as directors by the holders of all shares (including Series A Preferred Stock) otherwise entitled to vote for directors, shall constitute the duly elected directors of the Corporation. The additional directors so elected by holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall serve until the next annual meeting or until their respective successors shall be elected and qualified, or if any such director is a member of a class of directors under provisions dividing the directors into classes, each such director shall serve until the annual meeting at which the term of office of such director's class shall 5 50 expire or until such director's successor shall be elected and shall qualify, and at each subsequent meeting of stockholders at which the directorship of any director elected by the vote of holders of shares of Series A Preferred Stock and each other Series of Preferred Stock under the special voting rights set forth in this paragraph is up for election, said special class voting rights shall apply in the reelection of such director or in the election of such director's successor; provided, however, that whenever the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be divested of the special rights to elect two directors as above provided, the terms of office of all persons elected as directors by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, or elected to fill any vacancies resulting from the death, resignation, or removal of directors so elected by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, shall forthwith terminate (and, if applicable, the number of directors shall be reduced accordingly). If, at any time after a special meeting of stockholders or an annual meeting of stockholders at which the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, have elected directors as provided above, and while the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be entitled so to elect two directors, the number of directors who have been elected by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock (or who by reason of one or more resignations, deaths or removals have succeeded any directors so elected) shall by reason of resignation, death or removal be less than two but at least one, the vacancy in the directors so elected by the holders of shares of the Series A Preferred Stock and each Other Series of Preferred Stock may be filled by the remaining director elected by such holders, and in the event that such election shall not occur within 30 days after such vacancy arises, or in the event that there shall not be incumbent at least one director so elected by such holders, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal office of the Corporation shall, call a special meeting of the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock so entitled to vote, for an election to fill such vacancy or vacancies, to be held within 60 days after such call and at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called, the holders of shares of Preferred Stock so entitled to vote shall be entitled to fill such vacancy or vacancies at such annual meeting. If any such special meeting required to be called as above provided shall not be called by the Secretary within 30 days after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then 6 51 outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice above provided, and for that purpose shall have access to the stock books of the Corporation; no such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. (d) Nothing herein shall prevent the directors or stockholders from taking any action to increase the number of authorized shares of Series A Preferred Stock, or increasing the number of authorized shares of Preferred Stock of the same class as the Series A Preferred Stock or the number of authorized shares of Common Stock, or changing the par value of the Common Stock or Preferred Stock, or issuing options, warrants or rights to any class of stock of the Corporation as authorized by the Restated Articles of Incorporation of the Corporation, as it may hereafter be amended. (e) Except as set forth herein, holders of shares of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote as set forth in the Restated Articles of Incorporation of the Corporation or herein or by law) for taking any corporate action. Section 4. Certain Restrictions. (a) Whenever any dividends or other distributions payable on the Series A Preferred Stock as provided in Section 2 hereof are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not, directly or indirectly: (i) declare or pay dividends on, or make any other distributions with respect to, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on, or make any other distributions with respect to any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on shares of the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (both as to dividends and upon liquidation, dissolution or winding up) the Series A Preferred Stock, provided that the 7 52 Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (both as to dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. Such shares may not be reissued as part of any series of preferred stock including Series A Preferred Stock). Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made to: (a) the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received the greater of (i) $40.00 per share ($.01 per one four-thousandth of a share), plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 4,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock (the "Series A Liquidation Preference"); or (b) the holders of shares of Preferred Stock regardless of series, except distributions made ratably on the Series A Preferred Stock and all other Preferred Stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. 8 53 In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (ii) at paragraph (a) of this Section 6 shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In the event that the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, or otherwise changed, then and in each such event, the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 4,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Notwithstanding the foregoing, the Corporation may acquire shares of Series A Preferred Stock in any other manner permitted by law, the Restated Articles of Incorporation of the Corporation or herein. Section 9. Amendment. The Restated Articles of Incorporation of the Corporation shall not be amended in any manner that would materially and adversely alter or change the powers, preferences or special rights of the Series A Preferred Stock without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single series. 9 54 Section 10. Fractional Shares. Series A Preferred Stock may be issued in fractions of a share (in one four-thousandth (1/4000) of a share and integral multiples thereof) that shall entitle the holder thereof, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of shares of Series A Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate of Amendment and do affirm the foregoing as true under the penalties of perjury this day of , 19 . ------------------------------ Hayward D. Fisk Vice President ------------------------------ Stephen E. Johnson Assistant Secretary 10 55 EXHIBIT B FORM OF RIGHTS CERTIFICATE Certificate No. R-______ ______ Rights NOT EXERCISABLE AFTER DECEMBER 21, 1998 OR EARLIER IF REDEEMED. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY CERTAIN PERSONS OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. Rights Certificate COMPUTER SCIENCES CORPORATION This certifies that ________________________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms and conditions of a Rights Agreement (the "Rights Agreement") dated as of December 21, 1988, as amended and restated as of August 1, 1996, by and between COMPUTER SCIENCES CORPORATION, a Nevada corporation (the "Company"), and CHASEMELLON SHAREHOLDER SERVICES, L.L.C. (the "Rights Agent"), to purchase from the Company at any time prior to 5:00 o'clock p.m., California time, on the earliest of (i) the date of the action of a majority, but not less than three, of the Independent Directors directing the Company to redeem the Rights pursuant to Section 23(a) of the Rights Agreement, (ii) the date upon which the Rights are redeemed pursuant to Section 25 of the Rights Agreement, or (iii) December 21, 1998, at the office or agency of the Rights Agent at 85 Challenger Road, Overpeck Centre, Ridgefield Park, New Jersey 07660, or at the office of its successor as Rights Agent, one four-thousandth of a fully paid and nonassessable share of Series A Junior Participating Cumulative Preferred Stock, par value $1.00 per share, of the Company (a "Preferred Share") or, in certain circumstances, other securities or other property, at a purchase price of $235.00 per one four-thousandth of a Preferred Share (the "Exercise Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase, including Certificate, on the reverse side hereof completed and duly executed, with signature guaranteed. The number of Rights represented by this Rights Certificate and the Exercise Price set forth above are the number of Rights and the Exercise Price as of December 21, 1988, based upon the Preferred Shares as constituted on such date. As provided in the Rights Agreement, the Exercise Price and the number of 56 Preferred Shares or other securities or other property that may be purchased upon the exercise of the Rights represented by this Rights Certificate are subject to modification and adjustment upon the occurrence of certain events. The Rights Agreement contains a full description of the rights, limitations of rights, obligations, duties and immunities of the Rights Agent, the Company and the holders of Rights Certificates. This Rights Certificate is subject to all the terms and conditions of the Rights Agreement, which terms and conditions are hereby incorporated herein by reference and made a part hereof. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned offices of the Rights Agent. This Rights Certificate, with or without other Rights Certificates, upon presentation and surrender at the above-mentioned offices of the Rights Agent, with the Form of Assignment, including Certificate, on the reverse side hereof completed and duly executed, with signature guaranteed, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date representing Rights entitling the holder thereof to purchase a like aggregate number of Preferred Shares or, in certain circumstances, other securities or other property, as the Rights represented by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive, upon the surrender hereof with the Form of Election to Purchase, including Certificate, on the reverse side hereof completed and duly executed, with signature guaranteed, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights represented by this Rights Certificate may be redeemed by the Company, at its option, at a redemption price of $.01 per Right. No fractional securities shall be issued upon the exercise of any Right or Rights represented hereby (other than fractions of Preferred Shares that are integral multiples of one four-thousandth of a Preferred Share, that may, at the option of the Company, be represented by depositary receipts), but in lieu thereof, a cash payment shall be made, as provided in the Rights Agreement. No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or other securities or property that may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, 2 57 until the Right or Rights represented by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ____________, _____. Attest: COMPUTER SCIENCES CORPORATION a Nevada corporation By__________________________ By__________________________________ Name: Name: Title: Title: Countersigned: CHASEMELLON SHAREHOLDER SERVICES, L.L.C., as Rights Agent By___________________________ Name: Title: 3 58 Form of Reverse Side of Rights Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer any or all of the Rights represented by this Rights Certificate) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________________________________________________________ ________________________________________________________________________________ (Name, address and social security or other identifying number of transferee)______________________________ ( ) of the Rights represented by this Rights Certificate, together with all right, title and interest in and to said Rights, and hereby irrevocably constitutes and appoints ______________________ attorney to transfer said Rights on the books of Project First Corporation with full power of substitution. Dated:_______________, 19___ _____________________________ (Signature) Signature Guaranteed: Certificate (to be completed, if true) The undersigned hereby certifies that the Rights represented by this Rights Certificate are not Beneficially owned by a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder (as such capitalized terms are defined in the Rights Agreement). Dated: _______________, 19___ ______________________________ (Signature) Signature Guaranteed: 4 59 Form of Reverse Side of Rights Certificate (continued) NOTICE The signatures to the foregoing Assignment and the foregoing Certificate, if applicable, must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. In the event that the foregoing Certificate is not duly executed, with signature guaranteed, the Company may deem the Rights represented by this Rights Certificate to be Beneficially Owned by a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder (as such capitalized terms are defined in the Rights Agreement), and not issue any Rights Certificate or Rights Certificates in exchange for this Rights Certificate. 5 60 Form of Reverse Side of Rights Certificate (continued) FORM OF ELECTION TO PURCHASE (To be executed by the registered holder if such holder desires to exercise any or all of the Rights represented by this Rights Certificate) To COMPUTER SCIENCES CORPORATION: The undersigned hereby irrevocably elects to exercise ________________ Rights represented by this Rights Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Rights (or such other securities of the Company or of any other Person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to: Please insert social security _____________________________ or other identifying number ________________________________________________________________________________ ________________________________________________________________________________ (Please print name and address) If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Please insert social security ______________________________ or other identifying number ________________________________________________________________________________ ________________________________________________________________________________ (Please print name and address) Dated: ______________, 19___ ______________________________ (Signature) Signature Guaranteed: 6 61 Form of Reverse Side of Rights Certificate (continued) Certificate (to be completed, if true) The undersigned hereby certifies that the Rights represented by this Rights Certificate are not Beneficially Owned by a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder (as such capitalized terms are defined in the Rights Agreement). Dated: ______________ 19___ ______________________________ (Signature) Signature Guaranteed: NOTICE The signatures to the foregoing Election and the foregoing Certificate, if applicable, must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. In the event that the foregoing Certificate is not duly executed, with signature guaranteed, the Company may deem the Rights represented by this Rights Certificate to be Beneficially Owned by a 20% Stockholder or an Affiliate or Associate of a 20% Stockholder (as such capitalized terms are defined in the Rights Agreement), and not issue any property or certificate for securities upon the exercise of this Rights Certificate or issue any new Rights Certificate for any remaining balance of unexercised Rights represented by this Rights Certificate. 7 62 EXHIBIT C SUMMARY OF THE RIGHTS On December 21, 1988, the Board of Directors of Computer Sciences Corporation (the "Company") authorized and declared a dividend distribution of one preferred stock purchase right (a "Right") for each share of common stock, $1.00 par value, of the Company (the "Common Stock") outstanding at the close of business on January 3, 1989 (the "Record Date"), and authorized the issuance of one Right for each share of Common Stock issued between the Record Date (whether originally issued or delivered from the Company's treasury) and the Distribution Date (as defined in Section 2 below). The following is a brief description of the Rights. It is intended to provide a general description only and is subject to the detailed terms and conditions of a Rights Agreement (the "Rights Agreement") dated as of December 21, 1988, as amended and restated as of August 1, 1996, by and between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent"). 1. Common Share Certificates Representing Rights Until the Distribution Date, (a) the Rights are not exercisable, (b) the Rights are attached to and trade only together with the Common Shares and (c) Common Share certificates represent the Rights related thereto. Common Share certificates issued after the Record Date and prior to the Distribution Date will contain a notation incorporating the Rights Agreement by reference. 2. Distribution Date The "Distribution Date" is the earlier of (a) the tenth business day following the date of the first public announcement that any person (other than the Company or certain related entities) has become the beneficial owner of 20% or more of the outstanding Common Shares (such person is a "20% Stockholder" and the date of such public announcement is the "20% Ownership Date") or (b) the tenth business day following the date of the commencement of, or the announcement of an intention to make, a tender offer or exchange offer by any Person (other than the Company or certain related entities), if upon the consummation thereof such person would be the owner of at least 30% of the Common Shares. Upon the close of business on the Distribution Date, the Rights will separate from the Common Shares, Right certificates will be issued and the Rights will become exercisable to purchase Preferred Shares, Common Shares or other securities as described in Section 4 below. 63 3. Expiration of Rights The Rights will expire on December 21, 1998, unless earlier redeemed. 4. Exercise of Rights Rights may be exercised, at the option of the holders, pursuant to paragraphs (a), (b) or (c) below. No Right may be exercised more than once or pursuant to more than one of such paragraphs. From and after the first event of the type described in paragraphs (b) or (c) below, each Right that is beneficially owned by a 20% Stockholder or that was attached to a Common Share that is subject to an option beneficially owned by a 20% Stockholder will be void. (a) Right to Purchase Preferred Shares. Unless the Rights have previously expired or been redeemed, from and after the close of business on the Distribution Date, each Right (other than a Right that has become void) will be exercisable to purchase one four-thousandth of a share of Series A Junior Participating Cumulative Preferred Stock, par value $1.00 per share, of the Company (the "Preferred Shares"), at the exercise price calculated in accordance with the terms of the Rights Agreement (as such price may be adjusted from time to time to prevent dilution, the "Exercise Price"). The Exercise Price as of August 1, 1996 was $78.33. Prior to the Distribution Date, the Company may substitute for all or any portion of the Preferred Shares that would otherwise be issuable upon exercise of the Rights, cash, assets or other securities having the same aggregate value as such Preferred Shares. The Preferred Shares are nonredeemable and may not be issued except upon exercise of Rights. The holder of a Preferred Share is entitled to receive when, as and if declared, the greater of (a) cash and non-cash dividends in an amount equal to 4,000 times the dividends declared on each Common Share or (b) a preferential annual dividend of $4.00 per Preferred Share ($.001 per one four-thousandth of a Preferred Share). In the event of liquidation, the holders of Preferred Shares will be entitled to receive a liquidation payment in an amount equal to the greater of (x) $40.00 per Preferred Share ($.01 per one four-thousandth of a Preferred Share), plus all accrued and unpaid dividends and distributions on the Preferred Shares, or (y) an amount equal to 4,000 times the aggregate amount to be distributed per Common Share. Each Preferred Share has one vote, voting together with the Common Shares. In the event of any merger, consolidation or other transaction in which Common Shares are exchanged, the holder of a Preferred Share will be entitled to receive 4,000 times the amount received per Common Share. The rights of the Preferred Shares as to dividends, voting and liquidation preferences are protected by anti-dilution provisions. (b) Right to Purchase Common Shares of the Company. Unless the Rights have previously expired or been redeemed, from and after the close of business on the tenth business 2 64 day following the 20% Ownership Date (or, if the tenth business day after the 20% ownership Date occurs before the Record Date, the close of business on the Record Date), each Right (other than a Right that has become void) will be exercisable to purchase one Common Share at 10% of the then current market value of the Common Shares. If the Company does not have sufficient Common Shares available for all Rights to be exercised, the Company will substitute for all or any portion of the Common Shares that would otherwise be issuable upon the exercise of the Rights, cash, assets or other securities or any combination of the foregoing having the same aggregate value as such Common Shares. (c) Right to Purchase Common Stock of a Successor Corporation. Unless the Rights have previously expired or been redeemed, if, on or after the 20% Ownership Date, (a) the Company is acquired in a merger or other business combination in which the Company is not the surviving corporation or in which the outstanding Common Shares are changed into or exchanged for stock or assets of another person or (b) 50% or more of the Company's consolidated assets or earning power are sold (other than in transactions in the ordinary course of business), then each Right (other than a Right that has become void) will thereafter be exercisable to purchase, at the Exercise Price (initially $235.00), shares of common stock of the surviving corporation or purchaser, respectively, with an aggregate market value equal to two times the Exercise Price. If the surviving corporation or purchaser does not have sufficient common stock available or is not publicly held, then each Right can be put to the surviving corporation or purchaser for a cash payment equal to the Exercise Price. 5. Adjustments to Prevent Dilution. The Exercise Price, the number of outstanding Rights and the number of Preferred Shares or Common Shares issuable upon exercise of the Rights are subject to adjustment from time to time as set forth in the Rights Agreement in order to prevent dilution. 6. Cash Paid Instead of Issuing Fractional Securities. No fractional securities will be issued upon exercise of a Right (other than fractions of Preferred Shares that are integral multiples of one four-thousandth of a Preferred Share and that may, at the election of the Company, be evidenced by depositary receipts) and in lieu thereof, an adjustment in cash will be made based on the market price of such securities. 7. Redemption. At any time prior to the close of business on the earliest of (i) the tenth business day after the date of the first event of the type described in Section 4(b) above, (ii) the date of the first event of the type described in Section 4(c) above or (iii) the Rights' date of expiration given in Section 3 above, the Board of Directors may direct the Company to redeem the Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption Price"), and the Company 3 65 will so redeem the Rights. Thereafter, the right to exercise Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. 8. No Stockholder Rights Prior to Exercise. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company (other than rights resulting from such holder's ownership of Common Shares), including, without limitation, the right to vote or receive dividends. 9. Amendment of Rights Agreement. At any time prior to the close of business on the earliest of (i) the tenth business day after the date of the first event of the type described in Section 4(b) above, (ii) the date of the first event of the type described in Section 4(c) above or (iii) the Rights' date of expiration given in Section 3 above, the Board of Directors may, without the approval of any holders of Rights, direct the Company and the Rights Agent to amend the Rights Agreement in any manner, whether or not such amendment is adverse to the holders of Rights. At any time thereafter the first event of the type described in Section 4(b) or (c) above, the Board of Directors may, without the approval of any holders of Rights, direct the Company and the Rights Agent to amend the Rights Agreement in any manner so long as such amendment does not materially and adversely affect the interests of the holders of Rights. 4 -----END PRIVACY-ENHANCED MESSAGE-----