-----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, N7GGSc2QeSxNFNatYVX11KWdYJx97NO01r77/lpLWZaPMFsz3/hFHi4LcTMyY+nu JkeJ//rojn2LUKwWUbnvZg== 0000356028-98-000006.txt : 19980525 0000356028-98-000006.hdr.sgml : 19980525 ACCESSION NUMBER: 0000356028-98-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980522 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER ASSOCIATES INTERNATIONAL INC CENTRAL INDEX KEY: 0000356028 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 132857434 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09247 FILM NUMBER: 98630930 BUSINESS ADDRESS: STREET 1: ONE COMPUTER ASSOCIATES PLAZA CITY: ISLANDIA STATE: NY ZIP: 11788 BUSINESS PHONE: 5163425224 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-10180 COMPUTER ASSOCIATES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 13-2857434 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) ONE COMPUTER ASSOCIATES PLAZA, ISLANDIA, NEW YORK 11788-7000 (Address of principal executive offices) (Zip Code) (516) 342-5224 (Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: (Title of Class) (Exchange on which registered) Common Stock, par value $.10 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: 6 1/4% Convertible Subordinated Debentures of On-Line Software International, Inc. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes _x_ No ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III to this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non- affiliates of the Registrant: The aggregate market value of the voting stock held by non-affiliates of the Registrant as at May 19, 1998 was $20,528,427,331 based on a total of 363,334,997 shares held by non-affiliates and the closing price on the New York Stock Exchange on that date which was $56.50. Number of shares of stock outstanding at May 19, 1998: 546,623,630 shares of Common Stock, par value $.10 per share. Documents Incorporated by Reference: Part III - Proxy Statement to be issued in conjunction with Registrants Annual Stockholders Meeting. 2 PART I Item 1. Business (a) General Development of Business Computer Associates International, Inc. (the Company or Registrant) was incorporated in Delaware in 1974. In December 1981, the Company completed its initial public offering of Common Stock. The Companys Common Stock is traded on the New York Stock Exchange under the symbol CA. The Company supplies an extensive array of enterprise management, information management, and business application software products for use on a variety of hardware platforms. Because of its independence from hardware manufacturers, the Company provides clients with integrated solutions which are platform neutral. The Company supplies products which can be used on all major hardware platforms, operating systems, and application development environments. The Companys product philosophy of internally developing products, such as Unicenter TNGTM and OpalTM, the acquisition of key technology, the integration of the two, and strategic alliances with over 40 business partners has been tested and proven over time. In June 1994, the Company acquired The ASK Group, Inc. (ASK). ASK was primarily engaged in developing, marketing, and selling relational database management systems, including Ingres, various data access and connectivity products, as well as manufacturing and financial software applications for use in client/server environments. The acquisition was accounted for using the purchase method of accounting. In August 1995, the Company acquired Legent Corporation (Legent). Legent provided a broad range of computer software products for managing information systems across several platforms and operating systems. The acquisition was accounted for using the purchase method of accounting. In April 1996, the Company announced a restructuring with respect to its business applications solutions. Organizing around the concept of self- contained operational units, the Company formed several new independent Business Units (iBUs). These iBUs are responsible for development, marketing, sales and support of banking, financial, and manufacturing application offerings. In order to emphasize its commitment to delivering quality technical support to its clients throughout the world, the Company concentrated its technical services in a group known as GTDS (Global Technology Delivery Services). This group serves as the bridge between the Companys sales and development organizations, providing high- level technical assistance and guidance to clients. In November 1996, the Company acquired Cheyenne Software, Inc. (Cheyenne). Cheyenne developed software solutions for NetWare, Windows NT, UNIX, Macintosh, OS/2, Windows 3.1, and Windows 95 operating systems. This acquisition was accounted for using the purchase method of accounting. See Note 2 of Notes to Consolidated Financial Statements for additional information concerning acquisitions. (b) Financial Information About Industry Segments The Companys business is in a single industry segment the design, development, marketing, licensing and support of integrated computer software products operating on a diverse range of hardware platforms and operating systems. See Note 4 of Notes to Consolidated Financial Statements for financial data pertaining to geographic areas. (c) Narrative Description of Business General The Company designs, develops, markets, licenses and supports standardized computer software products for use with a broad range of desktop, midrange, and mainframe computers from many different hardware manufacturers including, among others, IBM, Hewlett-Packard Company (HP, Sun Microsystems Inc. (Sun), Data General Corp. (DG) and Compaq Computer Corporation (including the Digital Equipment and Tandem Computer Companies). A computer system, ranging from the most powerful mainframe to the ubiquitous desktop, consists of hardware and software. Hardware is the physical computer or central processing unit as well as peripheral equipment such as disk and tape data storage devices, printers and terminals. Software is the program, or set of instructions, which tell the hardware what to do and how to respond to specific user requests. The Company continues to pursue its approach of designing and developing new software technology solutions, acquiring software technology that is complementary to existing products and integrating internally developed products with acquired software. The Companys service philosophy is similarly marked by a commitment to the development of a dedicated internal service staff, the acquisition of third-party service organizations, the integration of the two, and long-standing alliances with leading service providers. 3 Products The Company offers over 500 enterprise systems management, information management, and business applications solutions to a broad spectrum of organizations. Built upon a common infrastructure, these products provide solutions across multiple operating systems and hardware platforms. The Companys standardized business software products enable clients to use their total data processing resources hardware, software, and personnel more efficiently. Many of the Companys products provide tools to measure and improve computer hardware and software performance and programmer productivity. The Company provides products that effectively manage the complex, heterogeneous systems upon which businesses depend. The Companys solutions enable clients to use the latest technologies while preserving their substantial investments in hardware, software and staff expertise. By employing a common infra-structure, the Companys developers create modular software designed to be continually and consistently improved. This pragmatic approach protects clients investments by using scalar, evolutionary change rather than revolutionary disruption and waste. The Companys software architecture is specifically designed to help clients migrate to client/server computing or build new client/server systems. The Companys integrated distributed systems management solutions manage this complex environment. Full-function client/server business applications simplify customization to meet unique business needs on a combination of platforms. During fiscal year 1998, the Company commenced full-scale delivery of JasmineTM. Jasmine is a true object database with an integrated development environment and a robust multi-platform deployment facility. Its object-oriented database engine provides the foundation to store, manage, and maintain multimedia and business objects. The Jasmine Studio feature provides a complete multimedia authoring and application development environment, allowing clients to build multimedia applications without the need to write complex programs. Jasmine also features tools for designing and debugging sophisticated applications. The Jasmine execution environment allows Jasmine applications to run in standalone mode or as a plug-in to an Internet Web browser. Since its introduction in fiscal year 1997, Unicenter TNG TM (The Next Generation)TM has become the industrys de facto standard for enterprise management software. In fiscal year 1998, the Company continued to extend the features and functionality of Unicenter TNG. Unicenter TNG is an object-oriented solution that enables organizations to visualize and control their entire information technology infra-structure including applications, databases, systems and networks from a business perspective. This technology establishes a link between an organizations information technology resources and its business policies. Through Unicenter TNG, an organization can define its business policies, map these policies to particular resource management requirements, and then monitor resources for their support of specific business processes. The flexible Business Process ViewsTM can be customized to deliver the information based on specific roles, locations, resources, and any other dimensions of control. To visualize the complex interactions and interdependencies of an enterprises entire distributed environment, Unicenter TNG employs a Real World InterfaceTM that incorporates 3-D animation and elements of virtual reality. With the release of Opal 2.0 as part of its information management solutions, clients can exploit new technologies, including HTML, Java and ActiveX, while leveraging existing technologies. Opal enables clients to modernize legacy applications without mounting expensive full-scale development efforts. Opal provides access to mainframe legacy applications as well as other information sources through an advanced graphical user interface, employing multimedia, animation, sound, and video. Opal applications can be deployed on client/server systems as well as on the Web. In response to client concerns regarding the Year 2000, the Company expanded its offerings in this area with the introduction of CA- Fix/2000TM. CA-Fix/2000 is a COBOL-Intelligent, automated date correction tool that helps ensure a thorough and speedy conversion of COBOL batch and CICS applications. Its use reduces the manual effort required to achieve Year 2000 compliance. It consists of three phases: Discover, Find, and Fix. In the Discover phase, CA-Fix/2000 examines an application to identify missing routines. During the Find phase, CA-Fix/2000 uses application-wide data flow analysis to locate all likely date fields. In the Fix phase, CA-Fix/2000 connects all source and copybooks with the application, applying connections to each date field in accordance with user requirements. CA-Fix/2000 is a component of CA Discovery 2000TM, an integrated end-to-end solution which transitions legacy applications into the 21st century. Sales and Marketing The Company distributes, markets, and supports its products on a worldwide basis with its own employees and a network of independent value-added resellers, distributors, and dealers. The Company has approximately 5,300 sales and sales support personnel engaged in promoting the licensing of the Companys products. In North America, the Company operates primarily through Direct and Indirect sales forces responsible for sales, marketing and service of the Companys non-business application solutions. Several iBUs are responsible for the sales and marketing activities of business application solutions. A separate Global Accounts group provides additional service to large clients, particularly facilities managers. Facilities managers deliver data processing services using the Companys products to those companies that prefer to outsource their computer processing operations. 4 The Company also operates through wholly owned subsidiaries located in 43 countries outside North America. Each of these subsidiaries is structured as an autonomous entity and markets all or most of the Companys products in its respective territory. In addition, the Companys products are marketed by independent distributors in those areas of the world where it does not have a direct presence. Revenue from independent distributors accounted for less than 1% of the Companys fiscal 1998 revenue. The Companys marketing and marketing services groups produce substantially all of the user documentation for its products, as well as promotional brochures, advertising and other business solicitation materials. The duties of these groups include the writing of the requisite materials, editing, typesetting, photocomposition, and printing. Licensing The Company does not sell or transfer title to its products to its clients. The products are licensed on a right to use basis pursuant to license agreements. Such licenses generally require that the client use the product only for its internal purposes at its own computer installation. In addition, the Company offers license agreements to facilities managers enabling them to use the Companys software in conjunction with their outsourcing business. Under certain circumstances, the Company will also license, on a non-exclusive basis, clients and other third parties as resellers of certain of the Companys products. The Company is encouraging value-added resellers (VARs) to actively market the Companys products. VARs often bundle the Companys products with specialized consulting services to provide clients with a complete solution. Such VARs generally service a particular market or sector and provide enhanced user-specific solutions. The Company offers several types of software licenses. Under the standard license form, the client agrees to pay a one-time fee and an annual usage and maintenance fee. The annual usage and maintenance fees typically range from 9% to 20% of the then prevailing one-time fee for the product. Payment of the usage and maintenance fee entitles the client to continue to use, and to receive technical support for the product, as well as receive all enhancements and improvements (other than optional features subject to a separate charge) to the product developed by the Company during the period covered. A significant number of the Companys clients elect to license the Companys products under a variety of installment payment options. These plans incorporate license, usage and maintenance fees into annual or monthly payments ranging from one to ten years. The Company also offers licenses for products and groups of products based on the size of an enterprises computing power as measured in MIPS millions of instructions per second. Under this option, the client is free to reallocate hardware or modify user configurations without incremental costs. Similar licensing alternatives are available for the Companys midrange and UNIX-based software products. Most of the Companys client/server products, including Ingres and Unicenter TNG are licensed on a power unit basis. Client/server products sold through third-party VARs, distributors and dealers are generally subject to distribution licensing agreements and end-user shrink wrap licenses. The Companys micro software products are licensed to end users upon payment of a fixed fee. Product revenue for licenses is recognized upon delivery of the product to the client. Usage and maintenance fees are recognized ratably over the term of the agreement. Where the client has elected to pay the license fees in monthly or annual installments, the present value of the license fee is recognized as product revenue upon delivery of the product. Maintenance is unbundled from the selling price and ratably recognized over the term of the agreement. See Note 1 of Notes to Consolidated Financial Statements for further discussion of revenue recognition policies. Under its standard form of license agreement, the Company warrants that its products will perform in accordance with specifications published in the product documentation. Competition and Risks The computer software business is highly competitive. It is marked by rapid, substantial technological change as well as the steady emergence of new companies and products. In addition, it is affected by such issues as the Year 2000 date change and the introduction by the European Monetary Union of the Euro, a new currency which seeks to replace certain country currencies. There are many companies, including IBM, Sun, HP, Compaq, and other large computer manufacturers, which have substantially greater resources, as well as the ability to develop and market software programs similar to and competitive with the products offered by the Company. Competitive products are also offered by numerous independent software companies, which specialize in specific aspects of the highly fragmented software industry. Some, like Microsoft, Oracle Corporation, and SAP AG, are the leading developers and vendors in their specialized markets. IBM, HP, Sun, and Compaq are by far the largest suppliers of systems software, and are the manufacturers of the computer hardware systems used by most of the Companys clients. Historically, these hardware manufacturers have modified or introduced new operating systems, systems software, and computer hardware. Such new products could in the future incorporate features which are currently performed by the Companys products or could require substantial modification of the Companys products to maintain compatibility with these companies hardware or software. Although the Company has to date been able to adapt its products and its business to changes introduced by hardware manufacturers, there can be no assurance that it will be able to do so in the future. 5 In the past, licensees using proprietary operating systems were furnished with source code, which makes the operating system generally understandable to programmers, or object code,which directly controls the hardware, and other technical documentation. Since the availability of source code facilitated the development of systems and applications software which must interface with the operating systems, independent software vendors such as the Company were able to develop and market compatible software. IBM and other hardware vendors have a policy of restricting the use or availability of the source code for some of its operating systems. To date, this policy has not had a material effect on the Company. However, such restrictions may, in the future, result in higher research and development costs for the Company in connection with the enhancement and modification of the Companys existing products and the development of new products. Although the Company does not expect such restrictions will have this effect on its products, there can be no assurance that such restrictions or other restrictions will not have a material adverse effect on the Companys business. The Company anticipates ongoing use of microcode or firmware provided by hardware manufacturers. Microcode and firmware are basically software programs in hardware form, and therefore are less flexible than pure software. The Company believes that such continued use will not have a significant impact on the Companys operations and that its products will remain compatible with any changes to such code. However, there can be no assurance that future technological developments will not have an adverse impact on the Companys operations. Although no company competes with the Company across its entire software product line or a significant portion thereof, the Company considers at least 75 firms to be directly competitive with one or more of the Companys systems software packages. In database management, graphics and applications software for the desktop, midrange and mainframe environments, there are hundreds of companies, whose primary business focus is on at least one but not all of these solutions. Certain of these companies have substantially larger operations than the Companys in these specific niches. Many companies, large and small, use their own technical personnel to develop programs similar to those of the Company; these may rightly be seen as competitors of the Company. The Company believes that the most important considerations for potential purchasers of software packages are: product capabilities; ease of installation and use; dependability and quality of technical support; documentation and training; the experience and financial stability of the vendor; integration of the product line; and, to a lesser extent, price. Price is a stronger factor in the client/server and microcomputer marketplace. Moreover, as the client/server market continues to expand and develop, competitors could be expected to form strategic alliances or acquire other companies to increase their presence in this market. The Companys future operating results may be adversely affected by a number of factors, including, but not limited to: its responsiveness to client needs; successful implementation of newly introduced products; uncertainties relative to global economic conditions; market acceptance of competing technologies; the availability and cost of new solutions; its ability to successfully maintain or increase market share in its core business while expanding its product base into other markets; its ability to recruit and retain qualified personnel; the strength of its distribution channels; its ability either internally or through third- party service providers to support client implementation of the Companys products; its ability to effectively manage fixed and variable expense growth relative to revenue growth; possible disruptions resulting from organizational changes; and its ability to effectively integrate acquired products and operations. There can be no assurance that the Companys products will continue to compete favorably or that it will be successful in the face of increasing competition from new and existing competitors. Year 2000 The millennium date change poses a challenge for software companies since many existing computer hardware and software systems may not support four-digit dates. This can result in errors in calculating date information and in system failures. The Company has designed the current versions of most of its existing programs to be Year 2000 compliant. There can be no assurances that there will not be claims asserted against it for damages for business interruption from products that were not Year 2000 ready. The Company has taken appropriate measures to prepare its internal systems for the Year 2000 and is not aware of any material operational issues or costs involved with this action. While the Company does not believe that matters relating to the Year 2000 would have a material impact on its business, financial condition or results of operation, it is uncertain whether or to what extent the Company may be affected by such matters. Product Protection The products of the Company are treated as trade secrets and confidential information. The Company relies for protection upon its contractual agreements with clients as well as its own security systems and confidentiality procedures. In addition to obtaining patent protection for new technology, the Company protects its products, their documentation, and other written materials under copyright law. The Company also obtains trademark protection for its various product names. The Company from time to time receives notices from third parties claiming infringement by the Companys products of third-party proprietary rights. The Company expects that software will be subject to such claims more frequently as the number of products and competitors in the Companys industry grows and the functionality of products overlap. Such claims could result in litigation, which can be costly, or licensing arrangements on terms not favorable to the Company, including the payment of royalties to third parties. The Companys business could be affected by such litigation and licensing arrangements and by its ability to develop substitute technology. 6 Clients No individual client accounted for a material portion of the Companys revenue during any of the past three fiscal years. Since the majority of the Companys software is used with relatively expensive com- puter hardware, most of its revenue is derived from companies which have the resources to make a substantial commitment to data processing and their computer installations. The majority of the worlds major companies use one or more of the Companys software packages. The Companys software products are generally used in a broad range of industries, businesses and applications. The Companys clients include manufacturers, financial service providers, banks, insurance companies, educational institutions, hospitals, and government agencies. The Companys products are also sold to and through microcomputer distributors and value-added resellers. Product Development The history of the computer industry has seen rapid changes in hardware and software technology. The Company must maintain the usefulness of its products as well as modify and enhance its products to accommodate changes to, and to ensure compatibility with, hardware and software. To date, the Company has been able to adapt its products to such changes and, as described more fully in Narrative Description Of Business Products, the Company believes that it will be able to do so in the future. Computer software vendors must also continually ensure that their products meet the needs of clients in the ever-changing marketplace. Accordingly, the Company has the policy of continually enhancing, improving, adapting and adding new features to its products, as well as developing additional products. The Company offers a facility for many of its software products whereby problem diagnosis, program fixes and other mainframe services can be provided online between the clients installation and the support facilities of the Company. Another service, CA-TCCSM (Total Client Care)SM, provides a major extension to existing support services of the Company by offering access to the Companys client support database. In addition, the Company offers support services online via the Internet. These services have contributed to the Companys ability to provide maintenance more efficiently. Product development work is primarily done at the Companys facilities in Alameda, California; San Diego, California; Santa Clara, California; Maitland, Florida; Chicago, Illinois; Andover, Massachusetts; Marlborough, Massachusetts; Mount Laurel, New Jersey; Princeton, New Jersey; Islandia, New York; Columbus, Ohio; Pittsburgh, Pennsylvania; Dallas, Texas; Herndon, Virginia; and Bellevue, Washington. The Company also performs product development in Sydney, Australia; Vienna, Austria; Brussels, Belgium; Vancouver, Canada; Slough, England; Paris, France; Darmstadt, Germany; Tel Aviv, Israel; and Milan, Italy. For its fiscal years ended March 31, 1998, 1997, and 1996, product development and enhancements charged to operations were $369 million, $318 million, and $285 million, respectively. In fiscal years 1998, 1997, and 1996, the Company capitalized $23 million, $18 million, and $16 million, respectively, of internally developed software costs. Certain of the Companys products were acquired from other companies and individuals. The Company continues to seek synergistic companies, products and partnerships. The purchase price of acquired products is capitalized and amortized over the useful life of such purchase or a period not exceeding five years. Employees As of March 31, 1998, the Company had approximately 11,400 employees of whom approximately 2,250 were located at its headquarters facilities in Islandia, New York; approximately 4,700 were located at other offices in the United States, and approximately 4,450 were located at its offices in foreign countries. Of the total employees, approximately 3,700 were engaged in product development efforts and 5,300 were engaged in sales and sales support functions. The Company believes its employee relations are excellent. (d) Financial Information About Foreign and Domestic Operations and Export Revenue See Note 4 of Notes to Consolidated Financial Statements for financial data pertaining to the geographic distribution of the Companys operations. Item 2. Properties The principal properties of the Company are geographically distributed to meet sales and operating requirements. All of the properties of the Company are considered to be both suitable and adequate to meet current operating requirements. The Company leases approximately 50 office facilities throughout the United States, and approximately 95 office facilities outside the United States. Expiration dates on material leases range from fiscal 1999 to 2021. The Company owns a 700,000 square-foot headquarters in Islandia, New York. The Companys subsidiary in Germany owns two buildings totaling approximately 120,000 square feet. The Company also owns various office facilities in the United States ranging from 50,000 to 250,000 square feet. The Company has begun construction of a significant facility in the United Kingdom. 7 The Company owns various computer, telecommunications and electronic equipment. It also leases IBM, DEC, HP, and DG computers located at the Companys facilities in Islandia, New York; Princeton, New Jersey; San Diego, California; and Chicago, Illinois. This equipment is used for the Companys internal product development, for technical support efforts and for administrative purposes. In addition, each of the Companys subsidiaries outside the U.S. leases certain computer hardware enabling them to communicate with all other offices of the Company through a dedicated worldwide network. The Company considers its computer and other equipment to be adequate for its needs. See Note 7 of Notes to Consolidated Financial Statements for information concerning lease obligations. Item 3. Legal Proceedings The Company, various subsidiaries and certain current and former officers have been named as defendants in various claims and lawsuits arising in the normal course of business. The Company believes that the facts do not support the plaintiffs claims and intends to vigorously contest each of them. Item 4. Submission of Matters to Vote of Security Holders None. Executive Officers of the Registrant The name, age, present position, and business experience of all executive officers of the Company as of May 19, 1998 are listed below:
Name Age Position Charles B. Wang (1) 53 Chairman, Chief Executive Officer and Director Sanjay Kumar (1) 36 President, Chief Operating Officer and Director Russell M. Artzt (1) 51 Executive Vice President Research and Development and Director Charles P. McWade 53 Senior Vice President Business Development Peter A. Schwartz 54 Senior Vice President Finance and Chief Financial Officer Ira Zar 36 Senior Vice President Finance Michael A. McElroy 53 Vice President and Secretary Lisa Savino 32 Vice President and Treasurer (1) Member of the Executive Committee. Mr. Charles B. Wang has been Chief Executive Officer and a Director of the Company since June 1976 and Chairman of the Board since April 1980. Mr. Kumar joined the Company with the acquisition of UCCEL in August 1987. He was elected President, Chief Operating Officer and a Director effective January 1994, having previously served as Executive Vice President Operations from January 1993 to December 1993, and Senior Vice President Planning from April 1989 to December 1992. Mr. Artzt has been with the Company since June 1976. He has been Executive Vice President Research and Development of the Company since April 1987 and a Director of the Company since November 1980. Mr. McWade has been Senior Vice President Business Development of the Company since April 1998, having previously served in various financial positions including Treasurer from April 1988 to March 1994. Mr. McWade joined the Company in October 1983. Mr. Schwartz has been Senior Vice President Finance and Chief Financial Officer of the Company since April 1987. He has served in various financial roles since joining the Company in July 1983. Mr. Zar has been Senior Vice President Finance since November 1997, having previously served as Senior Vice President and Treasurer from April 1994 to October 1997, and as Vice President Finance since April 1990. Mr. Zar joined the Company in June 1982. Mr. McElroy was elected Secretary of the Company effective January 1997, and has been a Vice President of the Company since April 1989. He joined the Company in January 1988 and served as Secretary from April 1988 through April 1991. Ms. Savino was elected Vice President and Treasurer effective November 1997, having previously served as Assistant Treasurer since April 1995. Ms. Savino joined the Company in May 1990. The officers are appointed annually and serve at the discretion of the Board of Directors. 8 PART II Item 5. Market for Registrants Common Equity and Related Stockholder Matters The Companys Common Stock is listed on the New York Stock Exchange. The following table sets forth, for the quarters indicated, the quarterly high and low closing prices on the New York Stock Exchange.
Fiscal Year 1998 Fiscal Year 1997 High Low High Low Fourth Quarter $ 58.06 $ 45.44 $ 32.67 $ 25.42 Third Quarter $ 56.94 $ 45.83 $ 44.83 $ 32.50 Second Quarter $ 48.88 $ 36.13 $ 42.09 $ 27.00 First Quarter $ 38.92 $ 25.33 $ 36.05 $ 29.33
On March 31, 1998, the closing price for the Companys Common Stock on the New York Stock Exchange was $ 57.75. The Company currently has approximately 10,000 record stockholders. The Company has paid cash dividends in July and January of each year since July 1990 and intends to continue that policy. The Companys most recent dividend, paid in January 1998, was $ .04 per share. References to prices per share have been adjusted to reflect three- for-two stock splits effective June 19, 1996 and November 5, 1997. Item 6. Selected Financial Data The information set forth below should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
Year Ended March 31, ------------------------------------------ INCOME STATEMENT DATA 1998(1) 1997(2) 1996(3) 1995(4) 1994 ------------------------------------------ (in millions, except per share amounts) Revenue $4,719 $4,040 $3,505 $2,623 $2,148 Net income (loss) 1,169 366 (56) 432 401 - - Basic earnings (loss) - - Per common share (5) $ 2.14 $ .67 $ (.10) $ .80 $ .72 - - Diluted earnings (loss) - - Per common share (5) 2.06 .64 (.10) .76 .69 Dividends declared Per common share(5) .073 .065 .061 .059 .041
March 31, ------------------------------------------ BALANCE SHEET DATA 1998(1) 1997(2) 1996(3) 1995(4) 1994 ------------------------------------------ (in millions) Cash from operations $ 1,040 $ 790 $ 619 $ 489 $ 480 Working capital(deficiency) 379 53 (53) 300 451 Total assets 6,706 6,084 5,016 3,269 2,492 Long-term debt (less current maturities) 1,027 1,663 945 50 71 Stockholders' equity 2,481 1,503 1,482 1,578 1,243 (1) Includes an after-tax charge of $21 million related to the Companys unsuccessful tender offer for Computer Sciences Corporation. (2) Includes an after-tax write-off of $598 million related to the acquisition of Cheyenne Software, Inc. in November 1996. See Note 2 of Notes to Consolidated Financial Statements for additional information. (3) Includes an after-tax write-off of $808 million related to the acquisition of Legent Corporation in August 1995. See Note 2 of Notes to Consolidated Financial Statements for additional information. (4) Includes an after-tax write-off of $154 million related to the acquisition of The ASK Group, Inc. in June 1994. (5) Adjusted to reflect three-for-two stock splits effective August 21, 1995, June 19, 1996 and November 5, 1997.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The Annual Report on Form 10-K contains certain forward-looking statements and information relating to the Company that are based on the beliefs and assumptions made by the Companys management as well as information currently available to management. When used in this document, the words anticipate, believe, estimate, expect and similar expressions, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements. 9 Fiscal Year 1998 Total revenue for fiscal year 1998 was $4.7 billion, an increase of 17% over the $4.0 billion recorded in fiscal year 1997. The growth is attributable to greater revenue derived from licensing fees on the midrange platforms as well as a modest increase in mainframe product revenue related to the continued demand for less restrictive enterprise licensing pricing options. The client/server business, including CA Arcserve R , Ingres, and Unicenter, showed strong growth, increasing 44% over fiscal year 1997. Unicenter TNG (The Next Generation), a family of integrated business solutions for monitoring and administering computer systems across platform environments, accounted for 23% of the Companys overall revenue. Total North American revenue increased 28% for fiscal year 1998 as a result of strong acceptance of the Companys client/server software solutions and enterprise pricing options. International revenue remained unchanged in fiscal year 1998 compared with fiscal year 1997 due partially to a strengthening of the U.S. Dollar against most currencies. This unfavorable foreign exchange environment decreased international revenue by $124 million when compared to fiscal year 1997. Maintenance revenue declined 1%, or $7 million in fiscal year 1998. This decrease reflects the Companys expanded client/server licensing which has generated lower maintenance revenues and the ongoing trend of site consolidations. Price changes did not have a material impact in either year. Selling, marketing, and administrative expenses for fiscal year 1998 increased to 37% of revenue compared to 36% in fiscal year 1997. The increase represents an investment by the Company in additional service and support personnel, as well as major promotional events, including the product launch for Jasmine, a pure object database solution, and the Unicenter TNGTM FrameworkTM release. In fiscal year 1998, new and existing product enhancement, research and development expenditures increased $51 million, or 16%. Continued emphasis on adapting and enhancing products for the client/server environment, in particular Unicenter TNG and Jasmine, a full fiscal year of Cheyenne product development personnel costs and broadening of the Companys Internet/Intranet product offerings were largely responsible for the increase. Commissions and royalties were approximately 5% of total revenue for both fiscal year 1998 and 1997. Depreciation and amortization expense decreased $75 million, or 18% in fiscal year 1998 over fiscal year 1997. The decrease was primarily due to completion of the amortization associated with the On-Line Software International, Inc. and Pansophic Systems, Inc. acquisitions, as well as the scheduled reduction in amortization associated with The ASK Group, Inc. and Legent Corporation acquisitions. This decrease was partially offset by a full year of purchased software amortization related to the Cheyenne Software, Inc. acquisition. For fiscal year 1998, net interest expense was $143 million, an increase of $41 million over fiscal year 1997. The increase is attributable to non-recurring financing charges associated with the unsuccessful Computer Sciences Corporation tender offer and higher debt levels associated with the Cheyenne acquisition. Fiscal year 1998 pre-tax profit was $1.87 billion compared to $932 million in fiscal year 1997. The pre-tax amount for fiscal year 1997 includes an after-tax charge of $598 million relating to the acquisition of Cheyenne for a write-off of purchased research and development technology (R&D) that had not reached the working model stage and had no alternative future use. Net income per share in fiscal year 1998, excluding the Computer Sciences Corporation pre-tax charge of $34 million, would have been $2.10 per share on a diluted basis, a 24% increase over fiscal year 1997 net income of $1.69 per share, excluding the Cheyenne purchased R&D charge of $598 million. The consolidated effective tax rate for fiscal year 1998, was 37.6% versus 37% in fiscal year 1997 (excluding the research and development charge). A total of 20.25 million restricted shares were made available for grant to three key executives under the 1995 Key Employee Stock Ownership Plan (the 1995 Stock Plan) approved by the stockholders at the August 1995 Annual Meeting. An initial grant of 6.75 million restricted shares was made to the executives at inception of the 1995 Stock Plan. In January 1996, based on the achievement of a price target for the Companys common stock, 1.35 million shares (20%) of the initial grant vested, subject to continued employment of the executives through March 31, 2000. Accordingly, the Company began recognizing compensation expense associated with the 1.35 million shares over the employment period. Annual compensation expense of $7 million has been charged against income for each of the years ended March 31, 1998, 1997, and 1996. Additional grants of the remaining 13.5 million shares available under the 1995 Stock Plan were made based on the achievement of certain price targets. These additional grants and the unvested portion of the initial grant are subject to risk of forfeiture through March 31, 2000, and further subject to significant limitations on transfer during the seven years following vesting. If the closing price of the Companys stock on the New York Stock Exchange exceeds $53.33 for 60 trading days within any twelve-month period, all 20.25 million shares under the 1995 Stock Plan will vest immediately, and will no longer be subject to forfeiture. A one-time pre-tax charge of approximately $1.2 billion will be recorded in the period in which the sixtieth trading day occurs. As of May 19, 1998, the closing price of the Companys common stock had exceeded $53.33 for 58 trading days beginning October 21, 1997. Fiscal Year 1997 Total revenue for fiscal year 1997 was $4.0 billion, an increase of 15% over the $3.5 billion recorded in fiscal year 1996. This increase reflects the expanded demand for the Companys products, particularly its Unicenter family. The Cheyenne desktop and local area network products acquired in November 1996 contributed marginally to the increase. Revenue in North America increased 40% for fiscal year 1997 due to strong acceptance of the Companys client/server software solutions and the ongoing increases in client computing capacity needs (as measured in MIPS). International revenue decreased 9% in fiscal year 1997 compared 10 with fiscal year 1996. This was caused by a combination of operational difficulties experienced in refocusing the European sales and marketing resources from mainframe to client/server sales opportunities exacerbated by local economic conditions including a weakening of the local currencies against the U.S. Dollar. Maintenance revenue increased 2%, or $11 million in fiscal year 1997. This increase is due in part to the addition of a full year of Legent maintenance revenue, partially offset by the ongoing trend of site consolidations, and escalating client/server revenue which generate lower maintenance revenue. Foreign exchange rate movements negatively affected total revenue in fiscal year 1997 by approximately $43 million or slightly more than 1%. Price changes did not have a material impact in either year. Selling, marketing, and administrative expenses for fiscal year 1997 decreased to 36% of revenue from 39% in fiscal year 1996. This reduction is a function of the continued corporate-wide effort to reduce fixed and administrative costs as well as operating efficiencies realized from integration of the Cheyenne and Legent acquisitions. In fiscal year 1997, net new product and enhancement research and development expenditures increased $33 million, or 12%. The continued emphasis on adapting products for the client/server environments and the addition of Cheyenne development personnel were largely responsible for this increase. Commissions and royalties were approximately 5% of total revenue for both fiscal year 1997 and 1996. Depreciation and amortization expense increased $20 million, or 5% in fiscal year 1997 over fiscal year 1996. This rise is largely the result of an additional $31 million associated with the Cheyenne acquisition partially offset by decreased amortization from previous acquisitions. For fiscal year 1997 net interest expense was $102 million, an increase of $31 million over fiscal year 1996. The increase is attributable to the higher debt levels associated with borrowings used to finance the Cheyenne acquisition. Fiscal year 1997 had a pre-tax profit of $932 million compared to the pre-tax loss of $100 million in fiscal year 1996. The pre-tax amounts for both fiscal years 1997 and 1996 include a write-off of purchased research and development technology that had not reached the working model stage and has no alternative future use relating to the acquisitions of Cheyenne and Legent of $598 million and $1,303 million, respectively. Excluding these charges, pre-tax income for fiscal year 1997 was $1,530 million compared to $1,203 million in fiscal year 1996, an increase of $327 million, or 27%. The consolidated effective tax rate, excluding the research and development charges for fiscal year 1997 was 37% versus 37.5% in fiscal year 1996. Including the aforementioned purchased research and development charge, net income for fiscal year 1997 was $366 million compared to a net loss of $56 million for fiscal year 1996. Without these charges in fiscal years 1997 and 1996, net income would have been $964 million, or $1.69 per share (diluted), and $752, or $1.32 per share (diluted), respectively.
Selected Unaudited Quarterly Information on a diluted basis (in millions, except per share amounts) 1998 Quarterly Results June 30 Sept. 30 Dec. 31 Mar. 31(1) Total Revenue $ 891 $1,122 $1,239 $1,467 $4,719 Percent of total revenue 19% 24% 26% 31% 100% Net income 156 272 340 401 1,169 Basic earnings per share(3) $ .29 $ .49 $ .62 $ .74 $ 2.14 Diluted earnings per share(3) $ .28 $ .48 $ .60 $ .71 $ 2.06 1997 Quarterly Results June 30 Sept. 30 Dec. 31(2) Mar. 31 Total Revenue $ 792 $ 990 $1,053 $1,205 $4,040 Percent of total revenue 20% 24% 26% 30% 100% Net income (loss) 120 223 (313) 336 366 Basic earnings (loss) per share(3) $ .22 $ .40 $(.57) $ .62 $ .67 Diluted earnings (loss) per share(3) $ .21 $ .39 $(.57) $ .60 $ .64 (1) Includes an after-tax charge of $21 million related to the Companys unsuccessful tender offer for Computer Sciences Corporation. (2) Includes an after-tax write-off of $598 million related to the acquisition of Cheyenne Software, Inc. in November 1996. See Note 2 of Notes to Consolidated Financial Statements for additional information. (3) Adjusted to reflect three-for-two stock split effective June 19, 1996 and November 5, 1997.
The Company has traditionally reported lower profit margins in the first two quarters of each fiscal year than those experienced in the third and fourth quarters. As part of the annual budget process, management establishes higher discretionary expense levels in relation to projected revenue for the first half of the year. Historically, the Companys combined third and fourth quarter revenue have been greater than the first half of the year, as these two quarters coincide with clients calendar year budget periods and culmination of the Companys annual sales plan. These historically higher second half revenue have resulted in significantly higher profit margins since total expenses have not increased in proportion to revenue. However, past financial performance should not be considered to be a reliable indicator of future performance. 11 The Companys products are designed to improve the productivity and efficiency of its clients information processing resources. Accordingly, in a recessionary environment, the Companys products are often a reasonable economic alternative to customers faced with the prospect of incurring expenditures to increase their existing information processing resources. However, a general or regional slowdown in the world economy could adversely affect the Companys operations. The Companys future operating results may be affected by a number of other factors, including, but not limited to: uncertainties relative to global economic conditions; the adequacy of the Companys internal administrative systems to efficiently process transactions, store and retrieve data subsequent to the year 2000; the Companys increasing reliance on a single family of products for a material portion of its sales; market acceptance of competing technologies; the availability and cost of new solutions; delays in delivery of new products or features; the Companys ability to update its business application products to conform with the new, common European currency known as the Euro; the Companys ability to successfully maintain or increase market share in its core business while expanding its product base into other markets; the strength of its distribution channels; the ability either internally or through third-party service providers to support client implementation of the Companys products; the Companys ability to manage fixed and variable expense growth relative to revenue growth; and the Companys ability to effectively integrate acquired products and operations. The Company may experience further uncertainties and unanticipated costs regarding Year 2000 compliance of its products. The Company has designed the current version of the vast majority of its product offerings to be Year 2000 compliant. However, there is currently a small minority of its product offerings that have not been updated to Year 2000 compliance specifications. The Company is making its best efforts to address this issue and will continue to update and test its products for Year 2000 compliance. The Company has publicly identified any products that will not be updated to be Year 2000 compliant and has been encouraging clients using these products to migrate to compliant versions or products. There can be no assurance that all the Companys products will be Year 2000 compliant prior to January 1, 2000 nor can there be assurances that the Companys currently compliant products do not contain undetected problems associated with Year 2000 compliance. Such problems may negatively affect future operating results. The Company recognizes the significance of the Year 2000 problem as it relates to its internal systems. It has an overall plan and a systematic process in place to make its internal financial and administrative systems Year 2000-ready within the next 12 to 18 months. The cost of this exercise is not viewed to have a material effect on the Companys results of operations or liquidity. Contingency plans have also been developed such that any failure to convert will not adversely affect overall performance. Foreign Currency Exchange Continued uncertainty in world economies and currency markets caused an additional strengthening of the U.S. Dollar during fiscal year 1998. Approximately 34% of the Companys total revenue in fiscal year 1998, 40% in fiscal year 1997, and 50% in fiscal year 1996, was derived from sales outside of North America. Western Europe is the Companys most important foreign market. The Company believes that its operations outside the U.S. are located in countries which are politically and economically stable, with the possible exception of financial volatility in certain Asian markets. The net income effect of foreign currency exchange rate fluctuations versus the U.S. Dollar on international revenue is largely offset to the extent expenses of the Companys international operations are incurred and paid for in the same currencies as those of its revenue. During fiscal year 1998, the net income effect of foreign exchange transaction losses was approximately $9 million. A foreign currency translation adjustment of $84 million was charged to Stockholders Equity in fiscal year 1998. As part of its risk management strategy and consistent with prior years, the Company did not enter into any foreign exchange derivative transactions during fiscal year 1998. Liquidity and Capital Resources The Companys cash, cash equivalents, and marketable securities of $310 million at March 31, 1998 increased by approximately $111 million from the prior fiscal year. Cash generated from operations totaled $1,040 million for the fiscal year ended March 31, 1998, a 32% increase over the prior year. The increase was driven by higher net income. Accounts receivable balances increased during fiscal 1998, as customers continued to demonstrate a preference for financing their licensing fees. The Company offers installment payment plans as a competitive advantage during the sales process. The Company used cash generated from operations primarily for bank debt repayments of $630 million and for treasury stock purchases of $163 million. At March 31, 1998, the cumulative number of shares purchased under the Companys various open market Common Stock repurchase programs was approximately 121 million shares, including approximately 3.7 million shares for the year just ended. The remaining number of shares authorized for repurchase under these programs at March 31, 1998 is approximately 42 million. All references to number of shares reflect the November 1997 three-for-two stock split. The Company employs a variety of financial alternatives to build a capital structure capable of supporting its strategic objectives. On June 30, 1997, the Company replaced its existing credit facilities with a $1.1 billion 364-day revolving credit facility and a $1.5 billion five-year revolving credit facility. In the quarter ended December 31, 1997, the Company started construction of its European headquarters in the United 12 Kingdom. On February 24, 1998, Quick Access Inc., (a wholly owned subsidiary) entered into an 85 million pound sterling (approximately U.S. $142 million) 364-day revolving credit facility to finance this construction. Under all of the above credit facilities, borrowings are subject to interest primarily at the prevailing London InterBank Offered Rate (LIBOR) subject to a fixed spread which is dependent on the achievement of certain financial ratios. The Company is also required to maintain certain financial conditions. Peak borrowings under these facilities during fiscal year 1998 totaled $2,070 million. At March 31, 1998, $1,233 million was outstanding under these credit facilities. In addition, $320 million remains outstanding under the Companys 6.77% Senior Notes. The weighted average interest rate for these borrowings was 6.31%. The Company also maintains $24 million of unsecured and uncommitted multicurrency lines of credit. These facilities were established to meet any short-term working capital requirements for subsidiaries located outside the U.S. In addition to the construction of the U.K. headquarters, capital resource requirements as of March 31, 1998 consisted of lease obligations for office space, computer equipment, mortgage or loan obligations, and amounts due as a result of product and company acquisitions. It is expected that existing cash, cash equivalents, short-term marketable securities, the availability of borrowings under credit lines, as well as cash provided from operations, will be sufficient to meet ongoing cash requirements. Refer to Notes 6 and 7 of Notes to Consolidated Financial Statements for details concerning commitments. On April 24, 1998, the Company issued $1.75 billion of unsecured Senior Notes. Amounts borrowed, rates and maturities for each issue were $575 million at 6-1/4% due April 15, 2003, $825 million at 6-3/8% due April 15, 2005 and $350 million at 6-1/2% due April 15, 2008. Proceeds were used to repay borrowings under the Companys revolving credit facilities and for general corporate purposes. These Senior Notes enabled the Company to extend the maturity of its debt, commit to an attractive fixed rate of interest and broaden the Companys sources of liquidity. Debt ratings for the Companys senior unsecured notes and its bank credit facilities are Baa1 and A- from Moodys Investor Services and Standard & Poors, respectively. Item 8. Financial Statements and Supplementary Data The Financial Statements of the Company are listed in the Index to Financial Statements filed as part of this Form 10-K. The Supplementary Data specified by Item 302 of Regulation S-K as it relates to selected quarterly data is included in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. Information on the effects of changing prices is not required. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant Reference is made to the Registrants definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrants fiscal year for information concerning directors and to Part I, page 7, of this Annual Report on Form 10-K for information concerning executive officers under the caption Executive Officers of the Registrant. Item 11. Executive Compensation Reference is made to the Registrants definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrants fiscal year for information concerning executive compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management Reference is made to the Registrants definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrants fiscal year for information concerning security ownership of each person known by the Company to own beneficially more than 5% of the Companys outstanding shares of Common Stock, of each director of the Company and all executive officers and directors as a group. Item 13. Certain Relationships and Related Transactions Reference is made to the Registrants definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrants fiscal year for information concerning certain relationships and related transactions. 13 PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) (1) The Registrants financial statements together with a separate table of contents are annexed hereto. (2) Financial Statement Schedules are listed in the separate table of contents annexed hereto. (3) Exhibits.
REGULATION S-K EXHIBIT NUMBER - -------------- 3(i) Restated Certificate of Previously filed as Exhibit 3.1 Incorporation, as (a)(f) to the Companys 10-Q for amended. the fiscal quarter ended September 30, 1996 and incorporated herein by reference. 3(ii) By-Laws. Previously filed as Exhibit to the Companys Form 10-Q for the fiscal quarter ended September 30, 1993 and incorporated herein by reference. 4(a) Indenture dated as of Previously filed as Exhibit 4.1 to March 1, 1987 between On-Line Software International, On-Line Software Inc.s Registration Statement on International, Inc. and Form S-2 (No. 33-12488) and Manufacturers Hanover incorporated herein by reference. Trust Company with respect to the 6 1/4% Convertible Subordinated Debentures due 2002 of the Companys wholly owned subsidiary. 4(b) Supplemental Indenture Previously filed as Exhibit A to the dated as of September Company's Annual Report on Form 10-K 25,1991 between On-Line for the fiscal year ended March 31, Software International, 1992 (File No. 0-10180) and Inc. and Manufacturers incorporated herein by reference. Hanover Trust Company with respect to the 6 1/4% Convertible Subordinated Debentures due 2002 of the Companys wholly owned subsidiary. 4(c) Certificate of Previously filed as Exhibit 3 to the Designation of Series One Companys Current Report on Form 8-K Junior Participating dated June 18, 1991 and incorporated Preferred Stock, Class herein by reference. A of the Company. 4(d) Rights Agreement dated as Previously filed as Exhibit 4 to the of June 18, 1991 between Company's Current Report on Form 8-K the Company and dated June 18, 1991 and Manufacturers Hanover incorporated herein by reference. Trust Company. 4(e) Amendment No.1 dated May Previously filed as Exhibit C to the 17, 1995 to Rights Company's Annual Report on Form 10-K Agreement dated as of for the fiscal year ended March 31, June 18, 1991. 1995 and incorporated herein by reference. 14 4(f) Indenture, with respect Filed herewith. To the Companys $1.75 Billion Senior Notes Dated April 24, 1998 Between the Company and The Chase Manhattan Bank, as Trustee. 4(g) Registration Rights Filed herewith. Agreement between the Company and the initial Purchasers of the Senior Notes. 10(a) 1981 Incentive Stock Previously filed as Exhibit 10.5 to Option Plan. the Company's Registration Statement on Form S-1 (Registration 2-74618) and incorporated herein by reference. 10(b) 1987 Non-Statutory Stock Previously filed as Appendix C to Option Plan. the Company's definitive Proxy Statement dated July 1, 1987 and incorporated herein by reference. 10(c) Amendment No. 1 to the Previously filed as Exhibit C to the 1987 Non-Statutory Stock Company's Annual Report on Form 10-K Option Plan dated for the fiscal year ended March 31, October 20, 1993. 1994 and incorporated herein by reference. 10(d) 1991 Stock Incentive Plan Previously filed as Exhibit 1 to the ,as amended. Companys Form 10-Q for the fiscal quarter ended September 30, 1997 and incorporated herein by reference. 10(e) 1993 Stock Option Plan Previously filed as Annex 1 to the for Non-Employee Companys definitive Proxy State- Directors. Ment dated July 7, 1993 and incorporated herein by reference. 10(f) Amendment No. 1 to the Previously filed as Exhibit E to the 1993 Stock Option Plan Companys Annual Report on Form 10-K for Non-Employee for the fiscal year ended March Directors dated October 31, 1994 and incorporated herein 20, 1993. By reference. 10(g) 1994 Annual Incentive Previously filed as Exhibit A to the Compensation Plan, as Companys definitive Proxy Statement Amended. dated July 7, 1995 and incorporated herein by reference. 10(h) 1995 Key Employee Stock Previously filed as Exhibit B to the Ownership Plan. Companys definitive Proxy State- ment dated July 7, 1995 and incorporated herein by reference. 15 10(i) Amended and Restated Previously filed as Exhibit 1 to $1.5 billion the Companys Form 10-Q for the Credit Agreement dated fiscal quarter ended June 30, 1997 as of June 30, 1997 and incorporated herein by reference. among the Company various banks and financial institutions and Credit Suisse, as agent. 10(j) Amended and Restated Previously filed as Exhibit 2 $1.1 billion to the Companys Form 10-Q for Credit Agreement dated the fiscal quarter ended June as of June 30, 1997 30, 1997 and incorporated among the Companys herein by reference. various banks and financial institutions and Credit Suisse, as Agent. 10(k) Note Purchase Agreement Previously filed as Exhibit D dated as of April 1, to the Companys Annual Report 1996. on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference. 10(l) 1996 Deferred Stock Plan Previously filed as Exhibit D for Non-Employee to the Companys Annual Report Directors. on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference. 21 Subsidiaries of the Filed herewith. Registrant. 23 Consent of Ernst & Young Filed herewith. LLP. 27 Financial Data Schedule, Filed electronically only. including Restated Financial Data Schedule. 16 (b) Reports on Form 8-K. The Registrant filed a Report on Form 8-K on April 23, 1998 reporting its expected revenue and earnings results for its fourth fiscal quarter and year ended March 31, 1998. (c) Exhibits: See Index to Exhibits. (d) Financial Statement Schedules: The response to this portion of Item 14 is submitted as a separate section of this report. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as amended, the undersigned Registrant hereby undertakes as set forth in the following paragraph, which undertaking shall be incorporated by reference into Registrants Registration Statements on Form S-8 Nos. 333-19071 (filed December 31, 1996), 33-64377 (filed November 17, 1995), 33-53915 (filed May 31, 1994), 33-53572(filed October 22, 1992), 33-34607 (filed April 27, 1990), 33-18322 (filed December 4, 1987), 33-20797 (filed December 19, 1988), 2-92355 (filed July 23, 1984), 2-87495 (filed October 28, 1983) and 2-79751 (filed October 6, 1982). Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ CHARLES B. WANG ------------------- Charles B. Wang Chairman Chief Executive Officer By /s/ PETER A. SCHWARTZ ---------------------- Peter A. Schwartz Senior Vice President Finance Principal Financial and Accounting Officer Dated: May 19, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated: Name Title /s/ CHARLES B. WANG Chairman, Chief Executive - -------------------- Officer, and Director Charles B. Wang /s/ SANJAY KUMAR Director - ------------------- Sanjay Kumar /s/ RUSSELL M. ARTZT Director - -------------------- Russell M. Artzt /s/ WILLEM F.P. de VOGEL Director - --------------------- Willem F.P. de Vogel /s/ IRVING GOLDSTEIN Director - --------------------- Irving Goldstein /s/ RICHARD A. GRASSO Director - --------------------- Richard A. Grasso /s/ SHIRLEY STRUM KENNY Director - ----------------------- Shirley Strum Kenny Dated: May 19, 1998 18 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES ISLANDIA, NEW YORK ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED MARCH 31, 1998 Page The following consolidated financial statements of Computer Associates International, Inc. and subsidiaries are included in Item 8: Report of Independent Auditors 19 Consolidated Balance Sheets March 31, 1998 and 1997 20 Consolidated Statements of Operations Years Ended March 31, 1998, 1997, and 1996 22 Consolidated Statements of Stockholders Equity Years Ended March 31, 1998, 1997, And 1996 23 Consolidated Statements of Cash Flows Years Ended March 31, 1998, 1997, and 1996 24 Notes to Consolidated Financial Statements 25 The following consolidated financial statement schedule of Computer Associates International, Inc. and subsidiaries is included in Item 14(d): Schedule II Valuation and Qualifying Accounts 35 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 19 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Computer Associates International, Inc. We have audited the accompanying consolidated balance sheets of Computer Associates International, Inc. and subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of operations, stockholders equity and cash flows for each of the three years in the period ended March 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and the schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Computer Associates International, Inc. and subsidiaries at March 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 1 to the consolidated financial statements, in fiscal year 1997, the Company changed its method of accounting for deferred income taxes relating to in-process research and development acquired in purchase business combinations. ERNST & YOUNG LLP New York, New York May 19, 1998 20
COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, 1998 1997 --------- --------- (Dollars in millions) CURRENT ASSETS Cash and cash equivalents $ 251 $ 143 Marketable securities 59 56 Trade and installment accounts Receivable, net 1,859 1,514 Other current assets 86 67 --------- --------- TOTAL CURRENT ASSETS 2,255 1,780 INSTALLMENT ACCOUNTS RECEIVABLE, net, due after one year 2,490 2,200 PROPERTY AND EQUIPMENT Land and buildings 357 349 Equipment, furniture and improvements 501 438 --------- --------- 858 787 Allowance for depreciation and amortization 399 349 --------- --------- TOTAL PROPERTY AND EQUIPMENT 459 438 PURCHASED SOFTWARE PRODUCTS, net of accumulated amortization of $1,305 and $1,079 289 440 EXCESS OF COST OVER NET ASSETS ACQUIRED, net of accumulated amortization of $205 and $139 1,099 1,159 OTHER ASSETS 114 67 --------- --------- TOTAL ASSETS $ 6,706 $ 6,084 ========= ========= See Notes to Consolidated Financial Statements.
21 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 --------- --------- (Dollars in millions) CURRENT LIABILITIES Loans payable and current portion of long-term debt $ 571 $ 548 Accounts payable 153 124 Salaries, wages and commissions 157 140 Accrued expenses and other liabilities 297 324 Taxes, other than income taxes 76 66 Federal, state and foreign income taxes payable 345 265 Deferred income taxes 277 260 --------- --------- TOTAL CURRENT LIABILITIES 1,876 1,727 LONG-TERM DEBT, net of current portion 1,027 1,663 DEFERRED INCOME TAXES 952 853 DEFERRED MAINTENANCE REVENUE 370 338 STOCKHOLDERS' EQUITY Common Stock, $.10 par value, 1,100,000,000 shares authorized, 630,920,576 shares issued* 63 63 Additional paid-in capital 523 497 Retained earnings 2,886 1,757 Equity adjustment (104) (27) Treasury stock, at cost-84,869,026 shares for 1998 and 87,967,888 shares for 1997* (887) (787) --------- --------- TOTAL STOCKHOLDERS' EQUITY 2,481 1,503 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,706 $ 6,084 ========= ========= *Share amounts adjusted for three-for-two stock splits effective June 19, 1996 and November 5, 1997. See Notes to Consolidated Financial Statements.
22 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31, 1998 1997 1996 ------- ------- ------- (In millions, except per share amounts) Product revenue and other related income $ 3,986 $ 3,300 $ 2,776 Maintenance fees 733 740 729 ------- ------- ------- TOTAL REVENUE 4,719 4,040 3,505 Costs and Expenses: Selling, marketing and administrative 1,751 1,465 1,368 Product development and enhancements 369 318 285 Commissions and royalties 233 201 174 Depreciation and amortization 349 424 404 Interest expense, net 143 102 71 Purchased research and development - 598 1,303 ------- ------- ------- TOTAL COSTS AND EXPENSES 2,845 3,108 3,605 ------- ------- ------- Income (loss) before income taxes 1,874 932 (100) Income taxes (benefit) 705 566 ( 44) ------- ------- ------- NET INCOME (LOSS) $ 1,169 $ 366 $ ( 56) ======= ======= ======= BASIC EARNINGS (LOSS) PER SHARE $ 2.14 $ .67 $ (.10) ======= ======= ======= Basic weighted average shares used In computation* 546 546 543 DILUTED EARNINGS (LOSS) PER SHARE $ 2.06 $ .64 $ (.10) ======= ======= ======= Diluted weighted average shares Used in computation* 566 569 543 *Share amounts adjusted for three-for-two stock splits effective August 21, 1995, June 19, 1996 and November 5, 1997. See Notes to Consolidated Financial Statements.
23 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Additional Total Common Paid-In Retained Equity Treasury Stockholders Stock(2) Capital(2) Earnings Adjustment Stock Equity -------- ---------- -------- ---------- -------- ------------- (Dollars in millions) Balance at March 31, 1995 $ 63 $ 479 $ 1,516 $ 57 $ (537) $ 1,578 Net loss (56) (56) Dividends declared ($.061 per share)(2) (34) (34) Exercise of Common Stock options and other (7) 7 32 32 401(k) discretionary contribution 10 5 15 Translation adjustment in 1996 (25) (25) Net change attributable to unrealized gain on marketable securities 2 2 Purchases of treasury stock (30) (30) -------- ----------- -------- ---------- -------- ------------ Balance at March 31, 1996 63 482 1,426 41 (530) 1,482 Net income 366 366 Dividends declared ($.065 per share)(2) (35) (35) Exercise of Common Stock options and other 2 7 57 66 401(k) discretionary contribution 13 3 16 Translation adjustment in 1997 (74) (74) Net change attributable to unrealized loss on marketable securities ( 1) ( 1) Purchases of treasury stock (317) (317) -------- ----------- -------- ---------- -------- ------------ Balance at March 31, 1997 63 497 1,757 (27) (787) 1,503 Net income 1,169 1,169 Dividends declared ($.073 per share)(2) (40) (40) Exercise of Common Stock options and other 18 7 59 84 401(k) discretionary contribution 8 4 12 Translation adjustment in 1998 (84) (84) Purchases of treasury stock (163) (163) -------- ----------- -------- ---------- -------- ------------ Balance at March 31, 1998 $ 63 $ 523 $ 2,886 $ (104)(1) $ (887) $2,481 ======== =========== ======== ========== ======== ============ (1) Represents foreign currency translation adjustment of $(124) million and $20 million of restricted stock. (2) Amounts adjusted for three-for-two stock splits effective August 21, 1995 and June 19, 1996 and November 5, 1997. See Notes to Consolidated Financial Statements.
24 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31, 1998 1997 1996 ------- ------- ------ (Dollars in millions) OPERATING ACTIVITIES: Net income (loss) $1,169 $ 366 $ (56) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 349 424 404 Provision for deferred income taxes (benefit) 141 221 (290) Charge for purchased research and development 598 1,303 Compensation expense related to stock and pension plans 21 22 19 Increase in noncurrent installment accounts receivable, net (377) (575) (590) Increase (decrease) in deferred maintenance revenue 41 (23) 37 Foreign currency transaction (gain) loss-before taxes 15 11 (2) Changes in other operating assets and liabilities, net of effects of acquisitions: Increase in trade and installment receivables (409) (341) (262) Other changes in operating assets and liabilities 90 87 56 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1040 790 619 INVESTING ACTIVITIES: Acquisitions, primarily purchased software, marketing rights and intangibles (61) (1,191) (1,787) Purchases of property and equipment (84) (53) (21) Purchases of marketable securities (42) (51) (54) Sales of marketable securities 39 99 136 Increase in capitalized development costs and other (23) (18) (16) ------- ------- ------- NET CASH USED IN INVESTING ACTIVITIES (171) (1,214) (1,742) FINANCING ACTIVITIES: Dividends (40) (35) (34) Purchases of treasury stock (163) (317) (30) Proceeds from borrowings 23 1,480 1,720 Repayments of borrowings (630) (710) (570) Exercise of common stock options and other 62 53 22 ------- ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (748) 471 1,108 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS BEFORE EFFECT OF EXCHANGE RATE CHANGES ON CASH 121 47 (15) Effect of exchange rate changes on cash (13) (1) (5) ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 108 46 (20) CASH AND CASH EQUIVALENTS- BEGINNING OF YEAR 143 97 117 ------- ------- ------- CASH AND CASH EQUIVALENTS-END OF YEAR $ 251 $ 143 $ 97 ======= ======= ======= See Notes to Consolidated Financial Statement
25 Note 1 Significant Accounting Policies Description of Business: Computer Associates International, Inc. and subsidiaries (the Company) designs, develops, markets, licenses, and supports a wide range of integrated computer software products. Principles of Consolidation: Significant intercompany items and transactions have been eliminated in consolidation. The Company has various investments which it accounts for under the equity method of accounting. These investments are not significant either individually or when considered collectively. The Companys share of investment income or loss is included in selling, marketing and administrative expenses. Basis of Revenue Recognition: Product license fee revenue is recognized after both acceptance by the client and delivery of the product. Maintenance revenue, whether bundled with product license or priced separately, is recognized ratably over the maintenance period. Accounts receivable resulting from product sales with extended payment terms are discounted to present value. The amounts of the discount credited to revenue for the years ended March 31, 1998, 1997, and 1996 were $356 million, $271 million, and $215 million, respectively. Marketable Securities: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company has evaluated its investment policies consistent with Financial Accounting Standards Board Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (FASB 115), and determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in Stockholders Equity under the caption Equity Adjustment. The amortized cost of debt securities is ad-justed for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than- temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. Property and Equipment: Land, buildings, equipment, furniture, and improvements are stated at cost. Depreciation and amortization are provided over the estimated useful lives of the assets by the straight- line method. Building and improvements are generally estimated to have 30-40 year lives and the remaining property and equipment are estimated to have 5-7 year lives. Intangibles: Excess of cost over net assets acquired is being amortized by the straight-line method over 20 years. Costs of purchased software, acquired rights to market software products, and software development costs (costs incurred after development of a working model or a detailed program design) are capitalized and amortized by the straight-line method over five years or based on the products useful economic life, commencing with product release. Unamortized capitalized development costs included in other assets at March 31, 1998 and 1997 were $62 million and $54 million, respectively. Amortization of capitalized development costs was $15 million, $17 million, and $19 million for the fiscal years ended March 31, 1998, 1997, and 1996, respectively. Net Income per Share: The Company adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share as of December 31, 1997. SFAS No. 128 requires the Company to present basic and diluted earnings per share (EPS) on the face of the income statement. Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding for the period plus the assumed exercise of all dilutive securities, such as stock options. Diluted earnings per share for the periods presented is not materially different from Net Income per share reported under Accounting Principles Board Opinion No. 15. 26 Note 1 Significant Accounting Policies (Continued)
Year Ended March 31, 1998 1997 1996 (In millions, except per share amounts) Net income (loss) $1,169 $366 $ (56) Diluted Earnings Per Share* Weighted average shares outstanding and,common share equivalents 566 569 543(1) ------ ----- ----- Diluted Earnings Per Share $ 2.06 $.64 $(.10) ------ ----- ----- Diluted Share Computation: Average common shares outstanding 546 546 543(1) Average options outstanding net 19 22 1995 Stock Plan average shares outstanding net 1 1 ------ ----- ----- Weighted average shares outstanding and, common share equivalents 566 569 543(1) ====== ====== ====== (1) For the year ended March 31, 1996, the Company reported a net loss. Common share equivalents are anti-dilutive and are, therefore, not reported. *Share and per share amounts adjusted to reflect three-for-two stock splits effective August 21, 1995, June 19, 1996, and November 5, 1997.
Statement of Cash Flows: Interest payments for the years ended March 31, 1998, 1997, and 1996 were $157 million, $89 million, and $76 million, respectively. Income taxes paid for these fiscal years were $470 million, $300 million, and $144 million, respectively. Translation of Foreign Currencies: In translating financial statements of foreign subsidiaries, all assets and liabilities are translated using the exchange rate in effect at the balance sheet date. All revenue, costs and expenses are translated using an average exchange rate. Net income (loss) includes exchange gains (losses) of approximately $(9) million in 1998, $(7) million in 1997, and $1 million in 1996. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on managements knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. New Accounting Pronouncements: In October 1997, the Accounting Standards Executive Committee issued Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended in March 1998 by Statement of Position 98-4. These SOPs provide guidance on applying generally accepted accounting principles in recognizing revenue on software transactions and are effective for the Companys transactions entered into subsequent to March 31, 1998. Definitive, detailed implementation guidelines for the new standards have not been issued. This guidance could lead to unanticipated changes in the Companys operational and revenue accounting practices. Such changes may affect sales or revenue recognition practices, increase administrative costs, and otherwise adversely modify existing operations. During fiscal 1997, the Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards (FAS) No. 123, Accounting for Stock-Based Compensation. In accordance with the provisions of FAS No. 123, the Company applies APB 25 and related interpretations in accounting for its stock based plans. Emerging Issues Task Force No. 96-7, Accounting for Deferred Taxes on In- Process Research and Development Activities Acquired in a Purchase Business Combination, became effective on May 23, 1996. As provided therein, deferred taxes will no longer be provided on the initial differences between the amounts assigned to in-process research and development costs acquired in a business purchase combination for financial reporting and tax purposes, and in-process research and development will be charged to expense on a gross basis at acquisition. 27 The effect of this change was to decrease net income by $221 million, or $.39 per share on a diluted basis, in fiscal year 1997 as a result of not providing a deferred tax benefit. Note 2 Acquisitions On November 11, 1996, the Company acquired 98% of the issued and outstanding shares of common stock of Cheyenne Software, Inc. (Cheyenne), and on December 2, 1996 merged into Cheyenne one of its wholly owned subsidiaries. The aggregate purchase price of approximately $1.2 billion was funded from drawings under the Companys $2 billion credit agreements. Cheyenne was engaged in the design, development, marketing, and support of storage, management, security, and communications software for desktops and distributed enterprise networks. The acquisition was accounted for as a purchase. The results of Cheyennes operations have been combined with those of the Company since the date of acquisition. The Company recorded a $598 million after-tax charge against earnings for the write-off of purchased Cheyenne research and development technology that had not reached the working model stage and had no alternative future use. Research and development charges are generally based upon a discounted cash flow analysis. Had this charge not been taken during the quarter ended December 31, 1996, net income and diluted earnings per share for the year ended March 31, 1997 would have been $964 million, or $1.69 per share. On August 1, 1995, the Company acquired 98% of the issued and outstanding shares of Common Stock of Legent Corporation (Legent), and on November 6, 1995 merged into Legent one of its wholly owned subsidiaries. The aggregate purchase price of approximately $1.8 billion was funded from drawings under the Companys $2 billion credit agreement dated as of July 24, 1995. Legent was engaged in the design, development, marketing, and support of a broad range of computer software products for the management of information systems used to manage mainframe, midrange, server, workstation and PC systems deployed throughout a business enterprise. The acquisition was accounted for as a purchase. The results of Legents operations have been combined with those of the Company since the date of the acquisition. The Company recorded an $808 million after-tax charge against earnings for the write-off of purchased Legent research and development technology that had not reached the working model stage and has no alternative future use. Had this charge not been taken, net income for the fiscal year ended March 31, 1996 would have been $752 million, or diluted earnings per share of $1.32. The following table reflects pro forma combined results of operations of the Company, Legent, and Cheyenne on the basis that the acquisitions had taken place at the beginning of fiscal year 1996. The after-tax charges of $598 million and $808 million related to the Cheyenne and Legent acquisitions are reflected in only the fiscal year 1996 pro forma combined results of operations:
Year Ended March 31, 1998(1) 1997 1996 (Amounts in millions, except per share amounts) Revenue $ 4,719 $ 4,175 $ 3,789 Net income (loss) 1,169 920 (775) Basic earnings(loss) per share $ 2.14 $ 1.68 $ (1.43) Shares used in computation* 546 546 543 Diluted earnings (loss)per share $ 2.06 $ 1.62 $ (1.43) Shares used in computation* 566 569 543 (1) There were no significant acquisitions in fiscal year 1998. Fiscal year 1998 results include full year operations of the Company,Legent and Cheyenne and are presented for comparison purposes only. *Adjusted for three-for-two stock splits effective August 21, 1995, June 19, 1996, and November 5, 1997.
In managements opinion, the pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of fiscal year 1996 or of future operations of the combined companies under the ownership and operation of the Company. 28 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 3 - Investments The following is a summary of cash equivalents and marketable securities classified as available-for-sale securities as required by FASB 115:
Gross Estimated Unrealized Fair Cost Gains Value ------ ------------- ------------ (Dollars in millions) March 31, 1998: Debt securities $ 59 $ 59 March 31, 1997: Debt securities $ 56 $ 56 March 31, 1996: Debt securities $ 104 $1 $ 105 ==== ==== ===== For years ended March 31, 1998, 1997, and 1996, no debt securities were deemed to be Cash and Cash Equivalents.
The gross and net realized gains on sales of available-for-sale securities totaled $3 million for the years ended March 31, 1998, and $1 million each for the years ended March 31, 1997 and 1996. No unrealized gains or losses existed at March 31, 1998 and an unrealized gain of $1 million existed at March 31, 1997. The amortized cost and estimated fair value based on published closing prices of debt securities at March 31, 1998, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
March 31, 1998 Estimated Fair Cost Value ------ ----------- Available-for-Sale: (Dollars in millions) Due in one year or less $ 9 $ 9 Due one through three years 29 29 Due in three through five years 11 11 Due after five years 10 10 ---- ---- $ 59 $ 59
29 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 4 - Geographic Area Information & Foreign Operations
United States Foreign (a) Eliminations Total --------------- ------------ ------------ -------- (Dollars in millions) March 31, 1998: Revenue: To unaffiliated customers $ 2,994 $ 1,725 $ 4,719 Between geographic areas (b) 373 $ (373) ---------- ----------- ---------- ---------- Total Revenue 3,367 1,725 (373) 4,719 Net income 990 179 1,169 Identifiable assets 5,326 1,874 (494) 6,706 Total liabilities 3,373 1,346 (494) 4,225 March 31, 1997: Revenue: To unaffiliated customers $ 2,315 $ 1,725 $ 4,040 Between geographic areas (b) 335 $ (335) ---------- ----------- ---------- ---------- Total Revenue 2,650 1,725 (335) 4,040 Net income 101 265 366 Identifiable assets 4,584 2,014 (514) 6,084 Total liabilities 3,791 1,304 (514) 4,581 March 31, 1996: Revenue: To unaffiliated customers $ 1,678 $ 1,827 $ 3,505 Between geographic areas (b) 403 $ (403) ---------- ----------- ---------- ---------- Total Revenue 2,081 1,827 (403) 3,505 Net (loss) income (281) 225 (56) Identifiable assets 3,709 1,897 (590) 5,016 Total liabilities 2,767 1,357 (590) 3,534 (a) The Company operates wholly owned subsidiaries in Canada and 42 foreign countries located in the Middle East, Africa, Europe (22), South America (6) and the Pacific Rim (12). (b) Represents royalties from foreign subsidiaries generally determined as a percentage of certain amounts invoiced to customers.
For the years ended March 31, 1998, 1997, and 1996, $14 million, $36 million, and $39 million, respectively, of export sales to unaffiliated customers are included in United States revenue. 30 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 5 - Trade and Installment Accounts Receivable Trade and installment accounts receivable consist of the following:
March 31, 1998 1997 ------- ------ (Dollars in millions) Current receivables $ 2,655 $ 2,220 Less: Allowance for uncollectible amounts (210) (191) Unamortized discount and maintenance fees (586) (515) -------- -------- $ 1,859 $ 1,514 ======== ======== Non-current receivables $ 3,719 $ 3,244 Less: Allowance for uncollectible amounts (36) (36) Unamortized discount and maintenance fees (1,193) (1,008) -------- -------- $ 2,490 $ 2,200 ======== ========
The provisions for uncollectible amounts for the years ended March 31, 1998, 1997 and 1996 were $71 million, $110 million, and $71 million, respectively, and are included in selling, marketing and administrative expenses. Note 6 Debt In fiscal year 1998, the Company replaced $2 billion of its unsecured credit facilities with a $1.1 billion 364-day credit facility and a $1.5 billion five-year revolving credit facility. These credit facilities provide for interest at the prevailing London InterBank Offered Rate (LIBOR) plus a margin, and require the Company to maintain certain financial ratios. Interest margins and committment fees are based upon the Companys achievement of certain financial ratios. At March 31, 1998 and March 31, 1997, $1,210 million and $1,840 million, respectively, was outstanding under the credit facilities then available. The effective pre-tax interest rate at March 31, 1998 was approximately 6%. On February 24, 1998, Quick Access Inc., (a wholly owned subsidiary of the Company) entered into an 85 million pounds sterling (approximately U.S. $142 million) 364-day revolving credit facility to finance the construction of a European headquarters in the United Kingdom. The facility requires the Company to maintain certain financial conditions, and borrowing costs and fees are based upon achievement of certain financial ratios. The credit facilitys interest is calculated at the prevailing LIBOR for pounds sterling plus a margin. At March 31, 1998, $14 million pounds sterling (approximately U.S. $23 million) was outstanding under this credit facility with an interest rate of approximately 7.8%. At March 31, 1998 and 1997, the Company had $320 million of unsecured Senior Notes outstanding at a fixed rate of interest of 6.77%. The final maturity of this debt (less required amortization) is due in the year 2003. Unsecured and uncommitted multicurrency credit facilities of $24 million are also available to meet any short-term working capital requirements and can be drawn upon, up to a predefined limit, by most subsidiaries. Under these multicurrency facilities, approximately $3 million and $5 million was drawn at March 31, 1998 and 1997, respectively. At March 31, 1998 and 1997, the Company had various other fixed rate debt obligations outstanding carrying annual interest rates ranging from 6% to 7-1/2% totaling approximately $42 million and $46 million, respectively. The Company conducts an ongoing review of its capital structure and debt obligations as part of its risk management strategy. To date, the Company has not entered into any form of derivative transactions related to its debt instruments. The fair market value of long-term debt approximates its carrying value. The maturities of long-term debt outstanding for the next five fiscal years are as follows: 1999-$571 million, 2000-$738 million, 2001-$69 million, 2002-$80 million, and 2003-$65 million. Interest expense for the years ended March 31, 1998, 1997, and 1996 was $147 million, $104 million, and $81 million, respectively. On April 24, 1998, the Company issued $1.75 billion of unsecured Senior Notes in a transaction governed by Rule 144A under the Securities Act of 1933. The Company intends to promptly register the Notes with the Securities and Exchange Commission. $575 million of the Notes are due 2003, $825 million of the Notes are due 2005, and $350 million of the Notes are due 2008. The 2003 Notes pay interest at 6-1/4%, the 2005 Notes pay interest at 6-3/8%, and the 2008 Notes pay interest at 6-1/2%. All interest is paid semiannually. The proceeds were used to repay all indebtedness outstanding under the Companys $1.1 billion and $1.5 billion credit facilities and for other general corporate purposes. 31 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 7 - Commitments and Contingencies The Company leases real estate and certain data processing and other equipment with lease terms expiring through 2021. The leases are operating leases and generally provide for renewal options and additional rental based on escalation in operating expenses and real estate taxes. The Company has no material capital leases. The Company has begun construction of a facility in the United Kingdom with an estimated total cost of $142 million. Rental expense under operating leases for the years ended March 31, 1998, 1997, and 1996 was $140 million, $132 million, and $165 million, respectively. Future minimum lease payments are: 1999-$89 million; 2000- $71 million; 2001-$56 million; 2002-$42 million; 2003-$35 million; and thereafter-$101 million. Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of marketable securities and accounts receivable. The Companys marketable securities consist primarily of high quality debt securities with limited exposure to any single instrument. The Companys accounts receivable balances have limited exposure to concentration of credit risk due to the diverse client base and geographic areas covered by operations. The Company, various subsidiaries and certain current and former officers have been named as defendants in various claims and lawsuits arising in the normal course of business. The Company believes that the facts do not support the plaintiffs claims and intends to vigorously contest each of them. Note 8 - Income Taxes The amounts of income (loss) before income taxes attributable to domestic and foreign operations are as follows:
Year Ended March 31, 1998 1997 1996 ------ ------ ------ (Dollars in millions) Domestic $1,611 $ 520 $ (464) Foreign 263 412 364 ------ ------ ------ $1,874 $ 932 $ (100) ====== ===== ======
The provision for income taxes (benefit) consists of the following:
Year Ended March 31, 1998 1997 1996 ------ ------ ------ (Dollars in millions) Current: Federal $ 446 $ 256 $ 160 State 44 38 30 Foreign 74 51 56 ------ ------ ------ 564 345 246 ====== ====== ====== Deferred: Federal 119 106 (337) State 12 19 ( 36) Foreign 10 96 83 ------ ------ ------ 141 221 (290) ====== ====== ====== Total: Federal 565 362 (177) State 56 57 (6) Foreign 84 147 139 ------ ------ ------ $ 705 $ 566 $ (44) ====== ====== ======
32 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 8 - Income Taxes (Continued) Under Financial Accounting Standards Board Statement No. 109, deferred income taxes have been provided for the differences between financial statement and tax basis of assets and liabilities. The cumulative impact of temporary differences, primarily due to the modified accrual basis (approximately $1.2 billion in 1998 and $.9 billion in 1997) is shown on the Consolidated Balance Sheets under the captions Deferred Income Taxes. The provision for income taxes (benefit) is reconciled to the tax provision computed at the federal statutory rate as follows:
Year Ended March 31, 1998 1997 1996 ------ ------ ------ (Dollars in millions) Statutory rate $ 656 $ 326 $ (35) State taxes, net of federal tax effect 36 37 (4) Purchased research and development 209 Other, net 13 (6) (5) ------ ------ ------ $ 705 $ 566 $ (44)
Note 9 - Stock Plans The Company has a 1981 Incentive Stock Option Plan (the 1981 Plan) pursuant to which options to purchase up to 27 million shares of Common Stock of the Company were available for grant to employees (including officers of the Company). The 1981 Plan expired on October 23, 1991. Therefore, from and after that date no new options can be granted under the 1981 Plan. Pursuant to the 1981 Plan, the exercise price could not be less than the Fair Market Value (FMV) of each share at the date of grant. Options granted thereunder may be exercised in annual increments commencing one year after the date of grant and become fully exercisable after the expiration of five years. All options expire ten years from date of grant unless otherwise terminated. All of the 800,000 options which are outstanding under the 1981 Plan were exercisable at March 31, 1998 at $2.22-$4.09 per share. The Company has a 1987 Non-Statutory Stock Option Plan (the 1987 Plan) pursuant to which options to purchase up to 17 million shares of Common Stock of the Company may be granted to select officers and key employees of the Company. Pursuant to the 1987 Plan, the exercise price shall not be less than the FMV of each share at the date of the grant. The option period shall not exceed 12 years. Each option may be exercised only in accordance with a vesting schedule established by the Stock Option and Compensation Committee. As of March 31, 1998, 30,375 shares of the Companys Common Stock were available for future grants. All of the 7.9 million options which are outstanding under the 1987 Plan were exercisable as of that date. These options are exercisable at $2.22- $4.26 per share. The Companys 1991 Stock Incentive Plan (the 1991 Plan) provides that stock appreciation rights and/or options, both qualified and non- statutory, to purchase up to 67.5 million shares of Common Stock of the Company may be granted to employees (including officers of the Company) under conditions similar to the 1981 Plan. As of March 31, 1998, no stock appreciation rights have been granted under this plan and 45.4 million options have been granted. At March 31, 1998, 7.9 million of the 33.8 million options which are outstanding under the 1991 Plan were exercisable. These options are exercisable at $3.33-$47.25 per share. The 1993 Stock Option Plan for Non-Employee Directors (the 1993 Plan) provides for non-statutory options to purchase up to a total of 337,500 shares of Common Stock of the Company to be available for grant to each member of the Board of Directors who is not otherwise an employee of the Company. Pursuant to the 1993 Plan, the exercise price shall be the FMV of the shares covered by the option at the date of grant. The option period shall not exceed ten years, and each option may be exercised in whole or in part on the first anniversary date of its grant. As of March 31, 1997, 141,750 options have been granted under this plan. 74,250 of the 94,500 options which are outstanding under the 1993 Plan were exercisable as of that date. These options are exercisable at $7.59-$43.08 per share. 33 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 9 - Stock Plans (Continued)
The following table summarizes the activity under these plans (shares in millions): 1998 1997 1996 ----------------- ---------------- ---------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ------- ------ ------ ------- ------- Beginning of year 40.2 $13.96 41.2 $ 8.71 38.8 $ 5.52 Granted 8.9 37.58 9.3 31.51 9.3 19.34 Exercised (5.8) 10.46 (7.9) 6.71 (5.1) 3.98 Terminated (.7) 15.82 (2.4) 16.62 (1.8) 8.21 ------- ------- ------- End of year 42.6 19.36 40.2 13.96 41.2 8.71 Options exercisable at end of year 16.7 $ 7.84 15.8 $ 7.06 14.7 $ 3.83
The following table summarizes information about these plans at March 31, 1998 (shares in millions): Options Outstanding Options Exercisable ------------------- ------------------- Weighted- Average Weighted Range of Remaining Average Weighted Exercise Contractual Exercise Average Prices Shares Life Price Shares Exercise Price - ---------- -------- ------------- ---------- --------- -------------- $ 2.22 -$10.00 19.8 4.9 years $ 6.04 14.2 $ 5.04 $10.01 -$20.00 7.3 7.1 years 19.16 1.7 18.89 $20.01 -$30.00 4.9 9.0 years 29.27 .1 25.85 $30.01 -$40.00 6.5 8.1 years 34.97 .7 34.59 $40.01 -$47.25 4.1 9.9 years 47.14 40.88 ------ ----- 42.6 16.7
Under the 1995 Key Employee Stock Ownership Plan (1995 Stock Plan), 20.25 million restricted shares are available for grant to three key executives. An initial grant of 6.75 million restricted shares was made to the executives at inception of the 1995 Stock Plan. In January 1996, based on the achievement of a price target for the Companys common stock, 1.35 million shares of the initial grant vested, subject to continued employment of the executives through March 31, 2000. Accordingly, the Company began recognizing compensation expense associated with the 1.35 million shares over the employment period. Annual compensation expense of $7 million has been charged against income for each of the years ended March 31, 1998,1997 and 1996. Additional grants of the remaining 13.5 million shares available under the 1995 Stock Plan have been reserved pending the achievement of the certain price targets. These additional grants and the unvested portion of the initial grant are subject to risk of forfeiture through March 31, 2000, and further subject to significant limitations on transfer during the seven years following vesting. If the closing price of the Companys stock on the New York Stock Exchange exceeds $53.33 for 60 trading days within any twelve-month period, all 20.25 million shares under the 1995 Stock Plan will vest immediately, and will no longer be subject to forfeiture. A one-time charge of approximately $1.2 billion will be recorded in the period in which the sixtieth trading day occurs. As of May 19, 1998, the closing price of the Companys common stock had exceeded $53.33 for 58 trading days beginning October 21, 1997. 34 COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Note 9 - Stock Plans (Continued) If the Company had elected to recognize compensation expense based on the fair value of stock plans as prescribed by FAS No. 123, net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts in the table below:
Year ended March 31, 1998 1997 1996 ------ ------ ------ (Amounts in millions, except per share amounts) Net income (loss)-as reported $1169 $ 366 $ (56) Net income (loss)-pro forma 1085 301 (94) Basic earnings (loss) per share $2.14 $ .67 $(.10) Basic earnings (loss) per share-pro forma 1.99 .55 (.18) Diluted earnings (loss) per share $2.06 $ .64 $(.10) Diluted earnings (loss) per share-pro forma 1.94 .54 (.18)
The weighted-average fair value at date of grant for options granted in 1997 and 1996 were $20.44, $19.34, $10.52, respectively. The fair value of each option grant is estimated on the date of grant using the Black- Scholes option pricing model. The following weighted average assumptions were used for option grants in 1998,1997 and 1996, respectively; dividend yield of .22%,.19% and .34%; expected volatility factors of .50; risk- free interest rates of 6.2%,6.5% and 6.5% and an expected life of six years. The compensation expense and pro forma net income (loss) may not be indicative of amounts to be included in future periods. All references to the number of shares under option and option prices have been adjusted to reflect three-for-two stock splits effective August 21, 1995, June 19, 1996 and November 5, 1997. Note 10 Profit Sharing Plan The Company maintains a profit sharing plan, the Computer Associates Savings Harvest Plan (CASH Plan), for the benefit of employees of the Company. The CASH Plan is intended to be a qualified plan under Section 401(a) of the Internal Revenue Code of 1986 (the Code) and contains a qualified cash or deferred arrangement as described under Section 401(k) of the Code. Pursuant to the CASH Plan, eligible participants may elect to contribute a percentage of their annual gross salary. Matching contributions to the CASH Plan for each of the years ended March 31, 1998, 1997, and 1996 were $5 million. In addition, the Company may make discretionary contributions to the CASH Plan. Discretionary contributions to the CASH Plan for each of the years ended March 31, 1998, 1997, and 1996 approximated $17 million. Note 11 Rights Plan Each outstanding share of the Companys Common Stock carries a stock purchase right issued under the Companys Rights Agreement, dated June 18, 1991 and amended May 17, 1995 (the Rights Agreement). Under certain circumstances, each right may be exercised to purchase one one-thousandth of a share of Series One Junior Participating Preferred Stock, Class A, for $300. Under certain circumstances, following (i) the acquisition of 20% or more of the Companys outstanding Common Stock by an Acquiring Person (as defined in the Rights Agreement), (ii) the commencement of a tender offer or exchange offer which would result in a person or group owning 20% or more of the Companys outstanding common stock or (iii) the determination by the Companys Board of Directors and a majority of the Disinterested Directors (as defined in the Rights Agreement) that a 15% stockholder is an Adverse Person (as defined in the Rights Agreement), each right (other than rights held by an Acquiring Person or Adverse Person) may be exercised to purchase common stock of the Company or a successor company with a market value of twice the $300 exercise price. The rights, which are redeemable by the Company at one cent per right, expire in June 2001. 35 SCHEDULE II COMPUTER ASSOCIATES INTERNATIONAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
Additions Balance at charged to Charged Balance beginning costs and to other at end Description of period expenses accounts(a) Deductions(b) of period - -------------- --------- ---------- ----------- ------------- --------- (Dollars in millions) Reserves and allowances deducted from assets to which they apply: Allowance for uncollectible amounts Year ended March 31, 1998 $ 227 $ 71 $ 2 $ 54 $ 246 Year ended March 31, 1997 $ 182 $ 110 $ 13 $ 78 $ 227 Year ended March 31, 1996 $ 182 $ 71 $ 5 $ 76 $ 182 (a) Reserves of acquired companies. (b) Write-offs of amounts against allowance provided.
EX-21 2 Exhibit A Subsidiaries of the Registrant Name of Subsidiary Jurisdiction of Incorporation ACCPAC International, Inc. Delaware AI Ware, Inc. Ohio C.A. Caribbean, Inc. Puerto Rico C.A. Computer Associates GmbH Germany C.A. Computer Associates Israel Ltd. Israel C.A. Computer Associates S.A. Spain C.A. Computer Associates India Private Limited India CA Islandia Realty, Inc. New York CA Management, Inc. Delaware CA Real Estate, Inc. Delaware CA Research, Inc. Delaware CA Services, Inc. Delaware CA Think, Inc. Delaware Cheyenne Software, Inc. Delaware Computer Associates AG Switzerland Computer Associates Canada Ltd. Canada Computer Associates CIS Ltd. Russia Computer Associates de Argentina S.A. Argentina Computer Associates do Brasil Ltda. Brazil Computer Associates de Chile Ltd. Chile Computer Associates de Colombia S.A. Colombia Computer Associates de Mexico, S.A. de C.V. Mexico Computer Associates de Venezuela, C.A. Venezuela Computer Associates Finland OY Finland Computer Associates, Inc. Delaware Computer Associates International (China) Ltd. China Computer Associates International G.m.b.H. Austria Computer Associates International GmbH Hungary Computer Associates International GmbH Organizaeni Slozka The Czech Republic Computer Associates International Limited Hong Kong Computer Associates Japan Ltd. Japan Computer Associates Korea Ltd. Korea Computer Associates Ltd. Sti. Turkey Computer Associates (M) Sdn. Bhd. Malaysia Computer Associates Middle East WLL Bahrain Computer Associates Norway A/S Norway Computer Associates (N.Z.) Ltd. New Zealand Computer Associates Plc United Kingdom Computer Associates Products Nederland B.V. The Netherlands Computer Associates Pte. Ltd. Indonesia Indonesia Computer Associates Pte. Ltd. Singapore Computer Associates Pty. Ltd. Australia Computer Associates Real Estate BV Netherlands Computer Associates S.A. Belgium Computer Associates S.A. France Computer Associates Scandinavia A/S Denmark Computer Associates Africa (Pty.) Ltd. South Africa Computer Associates S.p.A. Italy Computer Associates Sp. z o.o. Poland Computer Associates Sucursal en Portugal Portugal Computer Associates Sweden AB Sweden Computer Associates Taiwan Ltd. Taiwan Computer Associates (Thailand) Co. Ltd. Thailand Cullinet Software, Inc. Massachusetts Infresco Corporation Delaware Ingres Corporation Delaware Legent Corporation Delaware On-Line Software International, Inc. Delaware Pansophic Systems, Incorporated Illinois Philippine Computer Associates International, Inc. Philippines Quick Access, Inc. Delaware Shanmore Ltd. Ireland The ASK-Group, Inc. Delaware All of the subsidiaries are 100%-owned by the Registrant or by a wholly owned subsidiary of the Registrant other than directors qualifying shares which are held in trust for the Registrant or for such wholly owned subsidiary.
EX-23 3 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-19071 pertaining to the Cheyenne Software, Inc. 1987 Non-Qualified Stock Option Plan and the Cheyenne Software, Inc. 1992 Stock Option Plan for Outside Directors; Form S-8 No. 33-53915 pertaining to the Computer Associates International, Inc. 1993 Non- Employee Director Stock Option Plan; Form S-8 Nos. 33-64377 and 33-53572 pertaining to the Computer Associates International, Inc. 1991 Stock Incentive Plan; Form S-4, No. 33-30347, and Form S-8 Nos. 33-34607, 33- 18322, 2-92355, 2-87495 and 2-79751 pertaining to the 1981 Incentive Stock Option Plan, Non-Statutory Stock Option Plan and Affiliated Plans; and Form S-8 No 33-20797 pertaining to the Computer Associates Savings Harvest Plan) of Computer Associates International, Inc. and related prospectuses of our report dated May 19, 1998, with respect to the consolidated financial statements and schedule of Computer Associates International, Inc. included in its Annual Report on Form 10-K for the year ended March 31, 1998. ERNST & YOUNG LLP May 19, 1998 New York, New York EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000,000 12-MOS MAR-31-1998 APR-01-1997 MAR-31-1998 251 59 1859 0 86 2255 858 399 6706 1876 1027 0 0 63 2418 6706 3986 4719 0 2845 0 0 143 1874 705 1169 0 0 0 1169 2.14 2.06
EX-27.2 5 FINANCIAL DATA SCHEDULE
5 1,000,000 9-MOS 6-MOS 3-MOS MAR-31-1998 MAR-31-1998 MAR-31-1998 APR-01-1997 APR-01-1997 APR-01-1997 DEC-31-1997 SEP-30-1997 JUN-30-1997 175 127 132 60 59 57 1720 1486 1314 0 0 0 71 68 60 2026 1740 1563 457 446 437 0 0 0 6429 6098 5879 1799 1693 1558 1258 1307 1494 0 0 0 0 0 0 0 0 0 2123 1896 1648 6429 6098 5879 2707 1651 712 3252 2013 891 0 0 0 2024 1329 642 0 0 0 0 0 0 90 61 32 1228 684 249 461 256 93 767 428 156 0 0 0 0 0 0 0 0 0 767 428 156 1.41 0.78 0.29 1.36 0.76 0.28 THIS STATEMENT HAS BEEN RESTATED AS A RESULT OF SFAS 128, EARNINGS PER SHARE, AND APPLICABLE STOCK SPLITS.
EX-27.3 6 FINANCIAL DATA SCHEDULE
5 1,000,000 YEAR 9-MOS 6-MOS 3-MOS MAR-31-1997 MAR-31-1997 MAR-31-1997 MAR-31-1997 APR-01-1996 APR-01-1996 APR-01-1996 APR-01-1996 MAR-31-1997 DEC-31-1996 SEP-30-1996 JUN-30-1996 143 199 116 101 56 41 85 102 1514 1341 1129 987 0 0 0 0 67 74 63 58 1780 1655 1393 1248 787 451 422 422 349 0 0 0 6084 6041 5142 4876 1727 1658 1494 1381 1663 1666 740 845 0 0 0 0 0 0 0 0 63 0 0 0 1440 1512 1813 1593 6084 6041 5142 4876 3300 2272 1403 603 4040 2835 1782 792 0 0 0 0 3108 2436 1237 602 0 0 0 0 0 0 0 0 102 70 44 23 932 399 545 190 566 369 202 70 366 30 343 120 0 0 0 0 0 0 0 0 0 0 0 0 366 30 343 120 0.67 0.06 0.63 0.22 0.64 0.05 0.60 0.21 THIS STATEMENT HAS BEEN RESTATED AS A RESULT OF SFAS 128, EARNINGS PER SHARE, AND APPLICABLE STOCK SPLITS.
EX-27.4 7 FINANCIAL DATA SCHEDULE
5 1,000,000 YEAR 9-MOS 6-MOS 3-MOS MAR-31-1996 MAR-31-1996 MAR-31-1996 MAR-31-1996 APR-01-1995 APR-01-1995 APR-01-1995 APR-01-1995 MAR-31-1996 DEC-31-1995 SEP-30-1995 JUN-30-1995 97 55 78 65 105 107 130 182 1182 1148 969 665 0 0 0 0 64 68 68 60 1448 1378 1245 972 720 426 438 334 300 0 0 0 5016 4882 4674 3168 1501 1532 1478 686 945 1146 1247 48 0 0 0 0 0 0 0 0 63 0 0 0 1419 1222 1016 1665 5016 4882 4674 3168 2776 1849 1027 397 3505 2394 1390 577 0 0 0 0 3605 2919 2279 437 0 0 0 0 0 0 0 0 71 46 19 1 (100) (525) (889) 141 (44) (203) (341) 52 (56) (321) (549) 89 0 0 0 0 0 0 0 0 0 0 0 0 (56) (321) (549) 89 (0.10) (.59) (1.01) 0.16 (0.10) (.59) (1.01) 0.16 THIS STATEMENT HAS BEEN RESTATED AS A RESULT OF SFAS 128, EARNINGS PER SHARE, AND APPLICABLE STOCK SPLITS.
EX-4.F 8 INDENTURE, dated as of April 24, 1998, between Computer Associates International, Inc., a Delaware corporation (the Company), and The Chase Manhattan Bank, a New York banking corporation, as trustee (the Trustee). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of (i) Holders of the Companys 61/4% Senior Notes Due 2003 (the 2003 Initial Securities) and, if and when issued in exchange for 2003 Initial Securities as provided in the Registration Rights Agreement (as hereinafter defined), the Companys Series B 61/4% Senior Notes Due 2003 (the 2003 Exchange Securities) and if and when issued pursuant to a private exchange for 2003 Initial Securities, the Companys Series C 61/4% Senior Notes Due 2003 (the 2003 Private Exchange Securities and, together with the 2003 Initial Securities and the 2003 Exchange Securities, the 2003 Securities), (ii) Holders of the Companys 6 3/8% Senior Notes Due 2005 (the 2005 Initial Securities) and, if and when issued in exchange for 2005 Initial Securities as provided in the Registration Rights Agreement, the Companys Series B 6 3/8% Senior Notes Due 2005 (the 2005 Exchange Securities) and, if and when issued pursuant to a private exchange for 2005 Initial Securities, the Companys Series C 6 3/8% Senior Notes Due 2005(the 2005 Private Exchange Securities and, together with the 2005 Initial Securities and the 2005 Exchange Securities, the 2005 Securities) and (iii) Holders of the Companys 61/2% Senior Notes Due 2008 (the 2008 Initial Securities) and, if and when issued in exchange for 2008 Initial Securities as provided in the Registration Rights Agreement, the Companys Series B 61/2% Senior Notes Due 2008 (the 2008 Exchange Securities) and, if and when issued pursuant to a private exchange for 2008 Initial Securities, the Companys Series C 61/2% Senior Notes Due 2008 (the 2008 Private Exchange Securities and, together with the 2008 Initial Securities and the 2008 Exchange Securities, the 2008 Securities): ARTICLE I Definitions and Incorporation by Reference SECTION I.1. Definitions. Additional Interest shall have the meaning assigned to such term in the Registration Rights Agreement. Board of Directors means, with respect to any Person, the Board of Directors of such Person or any committee thereof duly authorized to act on behalf of such Board of Directors. Business Day means a day which is not, in New York City, a Saturday, Sunday, legal holiday or other day on which banking institutions are authorized or obligated by law to close. Code means the Internal Revenue Code of 1986, as amended. 2 Consolidated Net Assets means as of any particular time the aggregate amount of assets at the end of the most recently completed fiscal quarter after deducting therefrom all current liabilities except for (a) notes and loans payable, (b) current maturities of long-term debt and (c) current maturities of obligations under capital leases, all as set forth on the most recent quarter end (which may be year end) consolidated balance sheet of the Company and its consolidated Subsidiaries and computed in accordance with GAAP. Default means any event which is, or after notice or passage of time or both would be, an Event of Default. Exchange Act means the Securities Exchange Act of 1934, as amended. Exchange Securities means collectively the 2003 Exchange Securities, the 2005 Exchange Securities and the 2008 Exchange Securities. GAAP means generally accepted accounting principles in the United States of America as in effect as of the Issue Date. Holder or Securityholder means the Person in whose name a Security is registered on the Registrar's books. Indenture means this Indenture, as amended or supplemented from time to time. Initial Purchasers means Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc., BancAmerica Robertson Stephens Inc., Chase Securities Inc. and NationsBanc Montgomery Securities LLC. Initial Securities means collectively the 2003 Initial Securities, the 2005 Initial Securities and the 2008 Initial Securities. Issue Date means the date on which the Initial Securities are originally issued. Nonrecourse Obligation means indebtedness or other obligations substantially related to (i) the acquisition of assets not previously owned by the Company or any Restricted Subsidiary or (ii) the financing of a project involving the development or expansion of properties of the Company or any Restricted Subsidiary, as to which the obligee with respect to such indebtedness or obligation has no recourse to the Company or any Restricted Subsidiary or any assets of the Company or any Restricted Subsidiary other than the assets which were acquired with the proceeds of such transaction or the project financed with the proceeds of such transaction (and the proceeds thereof). Officer means the Chairman of the Board, the President, any Vice President, the Treasurer, any assistant Treasurer, the Controller, any assistant Controller, the Secretary or any Assistant Secretary of the Company, as applicable. Officers Certificate means a certificate signed by any two Officers. 3 Opinion of Counsel means a written opinion from Howard, Darby & Levin or any other legal counsel to the Company who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company. Person means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. Principal of a Security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time; provided, however, that for purposes of calculating any such premium, the term principal shall not include the premium with respect to which such calculation is being made. Principal Property shall mean the land, land improvements, buildings and fixtures (to the extent they constitute real property interests) (including any leasehold interest therein)constituting the principal corporate office, any manufacturing plant or any manufacturing facility (whether now owned or hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b) is located within any of the present 50 States of the United States of America (or the District of Columbia); (c) has not been determined in good faith by the Board of Directors of the Company not to be materially important to the total business conducted by the Company and its Subsidiaries taken as a whole; and (d) has a book value on the date as of which the determination is being made in excess of 0.75% of Consolidated Net Assets of the Company as most recently determined on or prior to such date (including for purposes of such calculation the land, land improvements, buildings and such fixtures comprising such office, plant or facility, as the case may be). Private Exchange Securities means collectively the 2003 Private Exchange Securities, the 2005 Private Exchange Securities and the 2008 Private Exchange Securities. Registration Rights Agreement means the Registration Rights Agreement dated as of April 21, 1998 among the Company and the Initial Purchasers. Restricted Subsidiary shall mean any Subsidiary which owns any Principal Property; provided, however, that the term Restricted Subsidiary shall not include (a) any Subsidiary which is principally engaged in leasing or in financing receivables,or which is principally engaged in financing the Companys operations outside the United States of America; or (b) any Subsidiary less than 80% of the voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries if the common stock of such Subsidiary is traded on any national securities exchange or quoted on the Nasdaq National Market or in the over-the-counter market. For purposes of this definition, voting stock has the meaning specified in the definition of Subsidiary, below. SEC means the U.S. Securities and Exchange Commission, or any successor agency. 4 Securities means the Initial Securities, the Exchange Securities and the Private Exchange Securities issued or to be issued under this Indenture. Stated Maturity means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable,including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the Company unless such contingency has occurred). Subsidiary means a Person (other than an individual), a majority of the outstanding voting stock, partnership interests, membership interests or other equity interest, as the case may be, of which is owned or controlled, directly or indirectly, by the Company or by one or more other Subsidiaries of the Company. For the purposes of this definition, voting stock means stock having voting power for the election of directors, trustees or managers, as the case may be, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. TIA means the Trust Indenture Act of 1939 (15 U.S.C. 77aaa-77bbbb) as in effect on the date of this Indenture; provided, however, that, in the event the Trust Indenture Act of 1939 is amended after such date, TIA means, to the extent required by any such amendments, the Trust Indenture Act of 1939 as so amended. Trustee means the party named as such in this Indenture until a successor replaces it and, thereafter, means such successor. Trust Officer means, when used with respect to the Trustee, any officer in the office of the Trustee including any Senior Trust Officer, vice president, assistant vice president,assistant secretary, treasurer, assistant treasurer, or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such officers knowledge of and familiarity with the particular subject. Uniform Commercial Code means the New York Uniform Commercial Code as in effect from time to time. U.S. Government Obligations means direct obliga- tions (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuers option. 5 SECTION I.2. Other Definitions. Defined in Term Section Affiliate 10.6 Appendix 2.1 Attributable Debt 4.3 Authenticating Agent 2.2 Bankruptcy Law 6.1 covenant defeasance option 8.1(b) Custodian 6.1 Event of Default 6.1 legal defeasance option 8.1(b) Registrar 2.3 Sale and Lease-Back 4.3 Successor Company 5.1 SECTION I.3. Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: Commission means the SEC. indenture securities means the Securities. indenture security holder means a Holder. indenture to be qualified means this Indenture. indenture trustee or institutional trustee means the Trustee. obligor on the indenture securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by the TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION I.4. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; 6 (3) or is not exclusive; (4) including means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) all references to the date the Securities were originally issued shall refer to the date the Initial Securities were originally issued. SECTION I.5. One Class of Securities. (a) The 2003 Initial Securities, the 2003 Private Exchange Securities and the 2003 Exchange Securities shall vote and consent together on all matters as one class and none of the 2003 Initial Securities, the 2003 Private Exchange Securities or the 2003 Exchange Securities shall have the right to vote or consent as a separate class on any matter. The 2003 Initial Securities, the 2003 Private Exchange Securities and the 2003 Exchange Securities shall together be deemed to be a separate series under this Indenture. (b) The 2005 Initial Securities, the 2005 Private Exchange Securities and the 2005 Exchange Securities shall vote and consent together on all matters as one class and none of the 2005 Initial Securities, the 2005 Private Exchange Securities or the 2005 Exchange Securities shall have the right to vote or consent as a separate class on any matter. The 2005 Initial Securities, the 2005 Private Exchange Securities and the 2005 Exchange Securities shall together be deemed to be a separate series under this Indenture. (c) The 2008 Initial Securities, the 2008 Private Exchange Securities and the 2008 Exchange Securities shall vote and consent together on all matters as one class and none of the 2008 Initial Securities, the 2008 Private Exchange Securities or the 2008 Exchange Securities shall have the right to vote or consent as a separate class on any matter. The 2008 Initial Securities, the 2008 Private Exchange Securities and the 2008 Exchange Securities shall together be deemed to be a separate series under this Indenture. ARTICLE II The Securities SECTION II.1. Form and Dating. Certain provisions relating to the Initial Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto (the Appendix), which is hereby incorporated in and expressly made a part of this Indenture. The Initial Securities and the Trustees certificate of authentication shall be substantially in the form of Exhibit 1 to the Appendix, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities, the Private Exchange Securities and the Trustees certificate of authentication shall be substantially in the form of Exhibit A, which is hereby incorporated by reference and expressly made a part of this Indenture. The Securities may have notations, legends or 7 endorsements required by law, rule of any securities exchange or over the counter market on which such Securities are then listed or quoted, or usage, which shall be provided by the Company in writing in addition to those set forth on the Appendix and Exhibit A. The Company and the Trustee shall approve the forms of the Securities and any notation, endorsement or legend on them in writing and the Company shall deliver to the Trustee in writing the form of such notation, endorsement or legend. Each Security shall be dated the date of its authentication. The terms of the Securities set forth in the Appendix and Exhibit A are part of the terms of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to be bound by such terms. SECTION II.2. Execution and Authentication. Two Officers shall sign the Securities for the Company by manual or facsimile signature and may be imprinted or otherwise reproduced. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually authenticates the Security. The signature of the Trustee on a Security shall be conclusive evidence that such Security has been duly and validly authenticated and issued under this Indenture. The Trustee may appoint an agent (the Authenticating Agent) reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, any such Authenticating Agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. SECTION II.3. Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the Registrar) and an office or agency where Securities may be presented for payment (the Paying Agent). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more additional paying agents. The term Paying Agent includes any such additional paying agent. In the event the Company shall retain any Person not a party to this Indenture as an agent hereunder, the Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of each such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.7. The Company shall be responsible for the fees and compensations of all agents appointed or approved by it. The Company or any of its domestically incorporated wholly owned Subsidiaries may act as Paying Agent. The Company initially appoints the Trustee as Registrar and Paying Agent for the Securities. SECTION II.4. Paying Agent To Hold Money in Trust. By no later than 1:00 p.m. (New York City time) on the date on which any Principal or interest (including any Additional Interest) on any Security is due and payable, the Company shall deposit with the Paying Agent a sum sufficient to pay such Principal or interest (including any Additional Interest) when due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by such Paying Agent for the payment of Principal of or interest (including any Additional Interest) on the Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon complying with this Section, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money delivered to the Trustee. Upon any bankruptcy, reorganization or similar proceeding with respect to the Company, the Trustee shall serve as Paying Agent for the Securities. SECTION II.5. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall cause the Registrar to furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION II.6. Business Days. If a payment date is on a date that is not a Business Day, payment shall be made on the next succeeding day that is a Business Day, and no interest shall accrue on such payment for the intervening period. If a regular record date is on a day that is not a Business Day, the record date shall not be affected. SECTION II.7. Replacement Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security shall provide the Company and the Trustee with evidence to their satisfaction that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. In addition, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent and the Registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security is an additional obligation of the Company. SECTION II.8. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled, those delivered for cancellation and those described in this Section 2.8 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.7, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all Principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION II.9. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency maintained by the Company for that purpose and such exchange shall be without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute, and the Trustee shall authenticate and deliver in exchange therefor, one or more definitive Securities representing an equal principal amount of Securities. Until so exchanged, the Holder of temporary Securities shall in all respects be entitled to the same benefits under this Indenture as a Holder of definitive Securities. SECTION II.10. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee for cancellation any Securities surrendered to them for registration of transfer or exchange or payment. The Trustee and no one else shall cancel and destroy (subject to the record retention requirements of the Exchange Act) all Securities surrendered for registration of transfer or exchange, payment or cancellation and deliver a certificate of such destruction to the Company. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation, which shall not prohibit the Company from issuing Exchange Securities or Private Exchange Securities in exchange for Initial Securities. SECTION II.11. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, the Company shall pay defaulted interest plus interest on such defaulted interest to the extent lawful at the rate specified therefor in the Securities in any lawful manner. The Company may pay the defaulted interest to the Persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee which specified record date shall not be less than 10 days prior to the payment date for such defaulted interest and shall promptly mail or cause to be mailed to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when so deposited to be held in trust for the benefit of the Person entitled to such defaulted interest as provided in this Section 2.11. SECTION II.12. CUSIP Numbers. The Company in issuing the Securities may use CUSIP numbers (if then generally in use) and, if so, the Trustee shall use CUSIP numbers in notices of redemption as a convenience to Holders, provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE III Redemption SECTION III.1. Notices to Trustee. If the Company elects to redeem Securities pursuant to Section 5 of the Securities, it shall notify the Trustee in writing of the redemption date and the principal amount of Securities to be redeemed. The Company shall give each notice to the Trustee provided for in this Section at least 60 days (45 days in the case of redemption of all the Securities of any series) before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers Certificate from the Company to the effect that such redemption will comply with the conditions herein. The record date relating to such redemption shall be selected by the Company and set forth in the related notice given to the Trustee, which record date shall be not less than 15 days prior to the date selected for redemption by the Company. SECTION III.2. Selection of Securities To Be Redeemed. If fewer than all the Securities of any series then outstanding are to be redeemed, the Trustee shall select the Securities of such series to be redeemed by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee considers to be fair and appropriate in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities of such series not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them that the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company of the Securities or portions of Securities to be redeemed. SECTION III.3. Notice of Redemption. At least 30 days but not more than 60 days before a date for redemption of Securities, notice of redemption shall be mailed by first-class mail to each Holder of Securities to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price (or the method of calculating such price) and the amount of accrued interest to be paid, if any; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price plus accrued and unpaid interest, if any; (5) if fewer than all the outstanding Securities of any series are to be redeemed, the Bond No. (if certificated) and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the CUSIP number, if any, printed on the Securities being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Companys request, the Trustee shall give the notice of redemption in the Companys name and at the Companys expense. In such event, the Company shall provide the Trustee with the information required by this Section 3.3. SECTION III.4. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3, Securities called for redemption shall become due and payable on the redemption date and at the redemption price as stated in the notice. Upon surrender to the Paying Agent on or after the redemption date, such Securities shall be paid at the redemption price stated in the notice, plus accrued and unpaid interest to the redemption date; provided that the Company shall have deposited the redemption price with the Paying Agent or the Trustee on or before 1:00 p.m. (New York City time) on the date of redemption; provided, further, that if the redemption date is after a regular record date and on or prior to the interest payment date, the accrued and unpaid interest shall be payable to the Securityholder of the redeemed Securities registered on the relevant record date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION III.5. Deposit of Redemption Price. By no later than 1:00 p.m. (New York City time) on the date of redemption, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which are owned by the Company or a Subsidiary and have been delivered by the Company or such Subsidiary to the Trustee for cancellation. Unless the Company defaults in the payment of such redemption price, interest on the Securities to be redeemed will cease to accrue on and after the applicable redemption date, whether or not such Securities are presented for payment. SECTION III.6. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder thereof (at the Companys expense) a new Security of the same series, equal in a principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV Covenants SECTION IV.1. Payment of Securities. The Company shall promptly pay the Principal of and interest (including Additional Interest) on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest (including Additional Interest) shall be considered paid on the date due if, on or before 1:00 p.m. (New York City time) on such date, the Trustee or the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, the segregated account or separate trust fund maintained by the Company or such Subsidiary pursuant to Section 2.4) holds in accordance with this Indenture money sufficient to pay all Principal and interest (including Additional Interest) then due. If any Additional Interest is due, the Company shall deliver an Officers Certificate to the Trustee setting forth the Additional Interest per $1,000 aggregate principal amount of Securities. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful as provided in Section 2.11. Notwithstanding anything to the contrary contained in this Indenture, the Company or the Paying Agent may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America or other domestic or foreign taxing authorities from Principal or interest payments hereunder. SECTION IV.2. Limitations on Liens. (a) So long as any Securities remain outstanding, the Company will not, nor will it permit any Restricted Subsidiary to, issue, incur, create, assume or guarantee any debt for borrowed money(hereinafter in this Article 4 referred to as Debt) secured by a mortgage, security interest, pledge, lien, charge or other encumbrance (mortgages, security interests, pledges, liens, charges and other encumbrances being hereinafter in this Article 4 referred to as mortgage or mortgages) upon any Principal Property of the Company or any Restricted Subsidiary or upon any shares of stock or Debt of any Restricted Subsidiary (whether such Principal Property, shares of stock or Debt are now existing or owed or hereafter created or acquired) without in any such case effectively providing, concurrently with the issuance, incurrence, creation, assumption or guaranty of any such secured Debt, or the grant of a mortgage with respect to any such Debt to be so secured, that the Securities (together with, if the Company shall so determine, any other indebtedness of or guarantee by the Company or such Restricted Subsidiary ranking equally with the Securities) shall be secured equally and ratably with (or, at the Companys option, prior to) such Debt to be so secured; provided, however, that the foregoing restrictions shall not apply to: (1) mortgages on property, shares of stock or indebtedness or other assets of any corporation existing at the time such corporation becomes a Restricted Subsidiary, provided that such mortgages or liens are not incurred in anticipation of such corporation becoming a Restricted Subsidiary; (2) mortgages on property, shares of stock or indebtedness existing at the time of acquisition thereof by the Company or a Restricted Subsidiary (which may include property previously leased by the Company and leasehold interests thereon; provided that the lease terminates prior to or upon the acquisition) or mortgages thereon to secure the payment of all or any part of the purchase price thereof, or mortgages on property, shares of stock or indebtedness to secure any Debt incurred prior to, at the time of, or within 270 days after, the latest of the acquisition thereof, or, in the case of property, the completion of construction, the completion of improvements or the commencement of substantial commercial operation of such property for the purpose of financing all or any part of the purchase price thereof, such construction or the making of such improvements; (3) mortgages securing Debt owing to the Company or to a Restricted Subsidiary; (4) mortgages existing on the Issue Date; (5) mortgages on property or other assets of a corporation existing at the time such corporation is merged into or consolidated with the Company or a Restricted Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation as an entirety or substantially as an entirety to the Company or a Restricted Subsidiary, provided that such mortgage was not incurred in anticipation of such merger or consolidation or sale, lease or other disposition; (6) mortgages in favor of the United States of America or any State, territory or possession thereof (or the District of Columbia), or any department, agency, instrumentality or political subdivision of the United States of America or any State, territory or possession thereof (or the District of Columbia), to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any Debt incurred for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of the property subject to such mortgages; (7) mortgages created in connection with a project financed with, and created to secure, a Nonrecourse Obligation; (8) mortgages securing all of the Securities; or (9) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any mortgage referred to in the foregoing clauses (1) to (8), inclusive, without increase of the principal of the Debt secured thereby; provided, however, that such extension, renewal or replacement shall be limited to all or a part of the property which secured the mortgage extended, renewed or replaced (plus improvements on such property). (b) Notwithstanding the foregoing provisions of this Section 4.2, the Company and any one or more Restricted Subsidiaries may (without equally and ratably securing the Securities) issue, incur, create, assume or guarantee Debt secured by mortgages which would otherwise be subject to the foregoing restrictions (Exempted Secured Debt), in an aggregate amount which, together with all other outstanding Debt of the Company and its Restricted Subsidiaries secured by mortgages which (if originally issued, incurred, created, assumed or guaranteed at such time) would otherwise be subject to the foregoing restrictions (not including such Debt which is permitted to be secured under any of clauses (1) through (9) above), does not at the time exceed the greater of $300,000,000 and 10% of Consolidated Net Assets of the Company. SECTION IV.3. Limitation on Sale and Lease-Back Transactions. (a) So long as any Securities remain outstanding the Company will not, nor will it permit any Restricted Subsidiary to, enter into any direct or indirect arrangement with any person that provides for the leasing to the Company or any Restricted Subsidiary of any Principal Property (except for such transactions (i) entered into prior to the Issue Date; (ii) between the Company and a Restricted Subsidiary or between Restricted Subsidiaries; (iii) under which the rent payable pursuant to such lease is to be reimbursed under a contract with the United States Government or any instrumentality or agency thereof; (iv) involving leases for no longer than three years; or (v) in which the lease for the property or asset is entered into within 270 days after the later of the date of acquisition, completion of construction or commencement of full operations of such property or asset), which Principal Property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such person (subject to such exceptions in the preceding clauses (i) through (v), such arrangement being referred to as a "Sale and Lease- Back"), unless: (1) the Company or such Restricted Subsidiary would be entitled, pursuant to the provisions of Section 4.2, to issue, incur, create, assume or guarantee Debt secured by a mortgage upon such property at least equal in amount to the Attributable Debt in respect of such Sale and Lease- Back without equally and ratably securing the Securities; or (2) the proceeds of the sale of the Principal Property to be leased are at least equal to their fair market value and such proceeds are applied within 180 days of the effective date of such Sale and Lease-Back to the purchase, construction, development or acquisition of assets or to the repayment of indebtedness of the Company. (b) For the purposes of this Section 4.3, the term Attributable Debt with respect to a Sale and Lease- Back involving a Principal Property means, at the time of determination, the lesser of: (1) the fair value of the property which is the subject of such Sale and Lease-Back (as determined in good faith by the Board of Directors of the Company); or (2) the present value of the total net amount of rent required to be paid under such Sale and Lease-Back during the remaining term thereof (including any renewal term or period for which such lease has been extended), discounted at the rate of interest set forth or implicit in the terms of such Sale and Lease-Back or, if not practicable to determine such rate, the weighted average interest rate per annum borne by the Securities of each series outstanding pursuant to this Indenture compounded semi-annually in either case as determined by the principal accounting or financial officer of the Company. For purposes of this definition, rent shall not include amounts required to be paid by the lessee, whether or not designated as rent or additional rent, on account of or contingent upon maintenance and repairs, insurance, taxes, assessments, water rates and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall be the lesser of (i) the net amount determined assuming termination upon the first date such lease may be terminated (in which case the net amount shall also include the amount of the penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated) or (ii) the net amount determined assuming no such termination. SECTION IV.4. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers Certificate signed by the chief executive officer, the chief financial officer or the chief accounting officer stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default or Event of Default and whether or not the signers know of any Default or Event of Default that occurred during such period. If they do, the certificate shall describe the Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA 314(a)(4). SECTION IV.5. Further Instruments and Acts. Upon reasonable request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. SECTION IV.6. Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.3. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 10.2. SECTION IV.7. Corporate Existence. Except as otherwise permitted by Article V, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. SECTION IV.8. SEC Reports. The Company will comply with all the applicable provisions of TIA 314(a). ARTICLE V Successor Company SECTION V.1. When the Company May Merge or Transfer Assets. The Company will not consolidate with or sell, lease or convey its assets as, or substantially as, an entirety, to, or merge with or into, in one transaction or a series of related transactions, any other Person, unless: (i) the Company shall be the continuing entity, or the resulting, surviving or transferee Person (the Successor) shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor (if not the Company) shall expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iii) the Company shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture and that such supplemental indenture constitutes the legal valid and binding obligation of the Company subject to customary exceptions. Upon any consolidation or merger, or any sale or lease of the assets of the Company as, or substantially as, an entirety in accordance with the provisions of this Indenture, the entity formed by such consolidation or into which the Company shall have been merged or to which such sale or lease shall have been made shall succeed to and be substituted for the Company with the same effect as if it had been named in the Indenture as a party thereto and thereafter from time to time such successor entity may exercise each and every right and power of the Company under the Indenture in the name of the Company or in its own name; and any act or proceeding by any provision of the Indenture required or permitted to be done by the Board of Directors or any Officer of the Company may be done with like force and effect by the like board (or other governing body) or officer (or comparable authorized person) of any entity that shall at the time be the successor of the Company hereunder. In the event of the sale by the Company of its assets as, or substantially as, an entirety upon the terms and conditions of the Indenture, the Company shall be released from all its liabilities and obligations under the Indenture and the Securities, but the predecessor Company in the case of a lease of all its assets or substantially all its assets will not be released from the obligation to pay the Principal of and interest on the Securities. ARTICLE VI Defaults and Remedies SECTION VI.1. Events of Default. An Event of Default occurs with respect to any series of Securities if: (1) the Company defaults in any payment of interest on any Security of such series when the same becomes due and payable, and such default continues for a period of 30 days; (2) the Company defaults in the payment of the principal of any Security of such series when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon declaration or otherwise; (3) the Company fails to comply with any of its agreements in the Securities of such series or this Indenture as it relates to such series (other than those referred to in (1) or (2) above) and such failure continues for 90 days after the notice specified below; (4) the Company fails to make any payment at maturity, including any applicable grace period, in respect of obligations (other than the Securities of such series or non-recourse obligations) of the Company for borrowed money or evidenced by bonds, debentures, notes or similar instruments (Indebtedness) in an amount in excess of $25,000,000 or the equivalent thereof in any other currency or composite currency and such failure shall have continued for 30 days after the notice specified below; (5) a default with respect to any Indebtedness, which default results in the acceleration of Indebtedness in an amount in excess of $25,000,000 or the equivalent thereof in any other currency or composite currency without such Indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled for a period of 30 days after the notice specified below; (6) the Company pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case in which it is the debtor; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company in an involuntary case; (B) appoints a Custodian of the Company or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company;(or any similar relief is granted under any foreign laws) and the order, decree or relief remains unstayed and in effect for 60 consecutive days; The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term Bankruptcy Law means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term Custodian means any receiver, trustee,assignee, liquidator, custodian or similar official under any Bankruptcy Law. If any failure, default or acceleration referred to in clauses (4) or (5) above shall cease or be cured, waived, rescinded or annulled, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon cured. A Default with respect to any series of Securities under clauses (3), (4) or (5) of this Section 6.1 is not an Event of Default with respect to such series until the Trustee (by notice to the Company) or the Holders of at least 25% in aggregate principal amount of the outstanding Securities of such series (by notice to the Company and the Trustee) gives notice of the Default and the Company does not cure such Default within the time specified in said clause (3), (4) or (5) after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a Notice of Default. The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers Certificate of any event which with the giving of notice or the lapse of time would become an Event of Default under clause (3), (4) or (5) of this Section 6.1 and what action the Company is taking or proposes to take with respect thereto. SECTION VI.2. Acceleration. If an Event of Default with respect to any series of Securities (other than an Event of Default specified in Section 6.1(6) or (7)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the outstanding Securities of such series by notice to the Company and the Trustee, may declare the Principal of and accrued but unpaid interest on all the Securities of such series to be due and payable. Upon such a declaration, such Principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.1(6) or (7) occurs and is continuing, the Principal of and accrued interest on all the Securities of such series shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in aggregate principal amount of the outstanding Securities of such series by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree (other than a judgment or decree for the payment of Principal or interest or monies due on the Securities) and if all existing Events of Default have been cured or waived except nonpayment of Principal or interest that has become due solely because of such acceleration and the Trustee has been paid all amounts due to it pursuant to Section 7.7. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION VI.3. Other Remedies. If an Event of Default with respect to any series of Securities occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of Principal of or interest on the Securities of such series or to enforce the performance of any provision of the Securities of such series or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities of such series or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are, to the extent permitted by law, cumulative. SECTION VI.4. Waiver of Past Defaults. The Holders of a majority in aggregate principal amount of the Securities of any series then outstanding by notice to the Trustee may waive any past or existing Default with respect to such series and its consequences except (i) a Default in the payment of the Principal of or interest on a Security of such series or (ii) a Default in respect of a provision that under Section 9.2 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, and any Event of Default arising therefrom shall be deemed to have been cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION VI.5. Control by Majority. Upon provision of reasonable indemnity to the Trustee satisfactory to the Trustee, the Holders of a majority in aggregate principal amount of the Securities of any series then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee with respect to such series or of exercising any trust or power conferred on the Trustee with respect to such series. However, the Trustee, which may rely on opinions of counsel, may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.1, that the Trustee determines is unduly rejudicial to the rights of other Securityholders of such series or any other series or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. SECTION VI.6. Limitation on Suits. A Holder of Securities of any series may not pursue any remedy with respect to this Indenture or the Securities of such series unless: (i) the Holder gives to the Trustee previous written notice stating that an Event of Default with respect to such series is continuing; (ii) the Holders of at least 25% in aggregate principal amount of the Securities of such series then outstanding make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (v) the Holders of a majority in aggregate principal amount of the Securities of such series then outstanding do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION VI.7. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of Principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION VI.8. Collection Suit by Trustee. If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.7. SECTION VI.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.7. SECTION VI.10. Priorities. If the Trustee collects any money or property pursuant to this Article VI, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.7; SECOND: to Securityholders for amounts due and unpaid on the Securities for Principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for Principal and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION VI.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more than 10% in aggregate principal amount of the outstanding Securities of any series. SECTION VI.12. Waiver of Stay or Extension Laws. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VII Trustee SECTION VII.1. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Persons own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon Officers Certificates and Opinions of Counsel furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such Officers Certificates and Opinions of Counsel which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such Officers Certificates and Opinions of Counsel to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.1; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or ffording protection to the Trustee shall be subject to the provisions of this Section 7.1 and to the provisions of the TIA. SECTION VII.2. Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustees conduct does not constitute wilful misconduct or negligence. 24 (e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Securities unless either (1) a Trust Officer shall have actual knowledge of such Default or Event of Default or (2)written notice of such Default or Event of Default shall have been given to a Trust Officer of the Trustee by the Company or any other obligor on the Securities or by any Holder of the Securities. SECTION VII.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION VII.4. Trustees Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities or any offering document, it shall not be accountable for the Companys use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustees certificate of authentication. SECTION VII.5. Notice of Defaults. If a Default or an Event of Default occurs with respect to any series of Securities and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder of such series notice of the Default within 90 days after it is known to a Trust Officer or written notice of it is received by a Trust Officer of the Trustee. Except in the case of a Default in payment of Principal of or interest on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is not opposed to the interests of Securityholders. SECTION VII.6. Reports by Trustee to Holders. If required and as promptly as practicable after each May 15 beginning with the May 15 following the date of this Indenture, and in any event prior to July 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with TIA 313(a). The Trustee also shall comply with TIA 313(b). The Trustee shall promptly deliver to the Company a copy of any report it delivers to Holders pursuant to this Section 7.6. 25 A copy of each report at the time of its mailing to Securityholders shall be filed by the Trustee with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION VII.7. Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation for its services as the Company and the Trustee shall from time to time agree in writing. The Trustees compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out of pocket expenses incurred or made by it in accordance with the provisions of this Indenture, including costs of collection, in addition to such compensation for its services, except any such expense, disbursement or advance as may arise from its negligence, wilful misconduct or bad faith. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustees agents and counsel. The Trustee shall provide the Company reasonable notice of any expenditure not in the ordinary course of business; provided that prior approval by the Company of any such expenditure shall not be a requirement for the making of such expenditure nor for reimbursement by the Company thereof. The Company shall indemnify each of the Trustee, its officers, directors, employees and any predecessor Trustees against any and all loss, damage, claim, liability or expense (including reasonable attorneys fees and expenses) (other than taxes applicable to the Trustees compensation hereunder) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee so to notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and, if (in the opinion of counsel to the Trustee) the facts and/or issues surrounding the claim are reasonably likely to create a conflict with the Company, the Company shall pay the reasonable fees and expenses of separate counsel to the Trustee. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustees own wilful misconduct, negligence or bad faith. To secure the Companys payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay Principal of and interest on particular Securities. The Companys payment obligations pursuant to this Section 7.7 shall survive the resignation or removal of the Trustee and any discharge of this Indenture including any discharge under any bankruptcy law. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.1(6) or (7) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. SECTION VII.8. Replacement of Trustee. The Trustee may resign at any time with 30 days notice to the Company. The Holders of a majority in principal amount of the Securities of any series then outstanding, may remove the Trustee with respect to such series with 30 days notice to the Trustee and 26 may appoint a successor Trustee. The Company shall remove the Trustee if: (i) the Trustee fails to comply with Section 7.10; (ii) the Trustee is adjudged bankrupt or insolvent; (iii) a receiver or other public officer takes Charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting. If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities of any series and such Holders do not reasonably promptly appoint a successor Trustee with respect to such series, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company and the Company shall pay all amounts due and owing to the Trustee under Section 7.7 of the Indenture. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders of any series affected by such resignation or removal. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.7. If a successor Trustee does not take office with respect to any series of Securities within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities of such series may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section 7.8, the Companys obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. SECTION VII.9. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee, provided that such corporation shall be eligible under this Article Seven and TIA Section 3.10(a). 27 In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION VII.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA 310(a). The Trustee shall have a combined capital and surplus of at least $250,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA 310(b); provided, however, that there shall be excluded from the operation of TIA 310(b)(1), with respect to any series, this Indenture with respect to any other series of Securities and any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA 310(b)(1) are met. SECTION VII.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA 311(a), excluding any creditor relationship listed in TIA 311(b). A Trustee who has resigned or been removed shall be subject to TIA 311(a) to the extent indicated. ARTICLE VIII Discharge of Indenture; Defeasance SECTION VIII.1. Discharge of Liability on Securities; Defeasance. With respect to any series of Securities, (a) when (i) the Company delivers to the Trustee all outstanding Securities of such series (other than Securities replaced pursuant to Section 2.7) for cancellation or (ii) all outstanding Securities of such series have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article 3 hereof or the Securities of such series will become due and payable at their Stated Maturity within one year, or the Securities of such series are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and, in each case of this clause (ii), the Company irrevocably deposits or causes to be deposited with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities of such series, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.7), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 8.1(c), cease to be of further effect with respect to such series. The Trustee shall acknowledge satisfaction and discharge of this Indenture with respect to such series on demand of the Company accompanied by an Officers Certificate and an Opinion of Counsel from the Company that all conditions precedent provided herein for relating to satisfaction and discharge of this Indenture have 28 been complied with and at the cost and expense of the Company. (b) Subject to Sections 8.1(c) and 8.2, the Company at any time may terminate (i) all of its obligations under the Securities of any series and this Indenture with respect to such series (legal defeasance option) or (ii) its obligations under Sections 4.2 and 4.3 and the operation of Sections 6.1(3) (other than any obligations under Article V hereof), 6.1(4) and 6.1(5) with respect to such series (covenant defeasance option). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option with respect to any series of Securities, payment of the Securities of such series may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Securities of such series may not be accelerated because of an Event of Default specified in Section 6.1(3) (except with respect to obligations under Article V hereof), 6.1(4) or 6.1(5). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Companys obligations in Sections 2.3, 2.4, 2.5, 2.7, 4.1, 4.6, 4.7,7.7, 7.8, 8.4, 8.5 and 8.6 and Section 2.3 of the Appendix with respect to such series shall survive until the Securities of such series have been paid in full. Thereafter, the Companys and the Trustees obligations in Sections 7.7, 8.4 and 8.5 shall survive. SECTION VIII.2. Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option with respect to any series of Securities only if: (i) the Company irrevocably deposits or causes to be deposited in trust with the Trustee money or U.S. Government Obligations which through the scheduled payment of Principal and interest in respect thereof in accordance with their terms will provide cash at such times and in such amounts as will be sufficient to pay Principal and interest when due on all outstanding Securities of such series (except Securities replaced pursuant to Section 2.7) to maturity or redemption, as the case may be; (ii) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of Principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay Principal and interest when due on all outstanding Securities of such series (except Securities replaced pursuant to Section 2.7) to maturity or redemption, as the case may be; 29 (iii) 91 days pass after the deposit is made and during the 91-day period no Default specified in Section 6.1(6) or (7) occurs which is continuing at the end of the period; (iv) the deposit does not constitute a default under any other material agreement binding on the Company; (v) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (vi) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (vii) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders of such series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; and (viii) the Company delivers to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities of such series as contemplated by this Article 8 have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. SECTION VIII.3. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations either directly or through the Paying Agent as the Trustee may determine and in accordance with this Indenture to the payment of Principal of and interest on the Securities. SECTION VIII.4. Repayment to Company. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them at any time. 30 Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of Principal or interest that remains unclaimed for two years after the date of payment of such Principal and interest, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION VIII.5. Indemnity for Government Obligations. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations other than any such tax, fee or other charge which by law is for the account of the Holders of the defeased Securities; provided that the Trustee shall be entitled to charge any such tax, fee or other charge to such Holders account. SECTION VIII.6. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Companys obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; provided, however, that, (a) if the Company has made any payment of interest on or Principal of any Securities following the reinstatement of their obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent and (b) unless otherwise required by any legal proceeding or any order or judgment of any court or governmental authority, the Trustee or Paying Agent shall return all such money and U.S. Government Obligations to the Company promptly after receiving a written request therefor at any time, if such reinstatement of the Companys obligations has occurred and continues to be in effect. ARTICLE IX Amendments SECTION IX.1. Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to comply with Article 5; (iii) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are as described in Section 163(f)(2)(B) of the Code; (iv) to add guarantees with respect to the Securities of all or any series; (v) to add security for the Securities of all or any series; (vi) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities or to surrender any right or power herein conferred upon the Company; (vii) to make any change that does not adversely affect the rights of any Securityholder; and (viii)to comply with any requirements of the SEC in connection with qualifying this Indenture under the TIA. After an amendment under this Section 9.1 becomes effective, the Company shall mail to Securityholders of the applicable series a notice briefly describing such amendment. The failure to give such notice to all Securityholders of such series, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.1. SECTION IX.2. With Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding of each series affected thereby (including consents obtained in connection with a tender offer or exchange for Securities). However, without the consent of each Securityholder affected, an amendment may not: (i) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the rate of or extend the time for payment of interest on any Security; (iii) reduce the principal of or extend the Stated Maturity of any Security; (iv) reduce the premium payable upon the redemption of any Security or change the time at which any Security may be redeemed in accordance with Article 3; (v) make any Security payable in money other than that stated in the Security; (vi) impair the right of any Holder to receive payment of Principal of and interest on such Holders Securities on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holders Securities; 32 (vii) make any changes that would affect the ranking for the Securities in a manner adverse to the Holders; or (viii) make any change in the second sentence of this Section 9.2. It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section 9.2 becomes effective, the Company shall mail to Securityholders of the applicable series a notice briefly describing such amendment. The failure to give such notice to all Securityholders of such series, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.2. SECTION IX.3. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION IX.4. Revocation and Effect of Consents and Waivers. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. After an amendment or waiver becomes effective with respect any series of Securities, it shall bind every Securityholder of such series. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. SECTION IX.5. Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Company shall provide in writing to the Trustee an appropriate notation to be placed on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determine, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. 33 SECTION IX.6. Trustee To Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.1) shall be fully protected in relying upon, in addition to the documents required by Section 10.4, an Officers Certificate and an Opinion of Counsel stating that such amendment complies with the provisions of this Article 9 and that such supplemental indenture constitutes the legal valid and binding obligation of the Company in accordance with its terms subject to customary exceptions. SECTION IX.7. Payment for Consent. Neither the Company nor any affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of a Security of any series for, or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders of a Securities of such series that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. ARTICLE X Miscellaneous SECTION X.1. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the provision required by the TIA shall control. SECTION X.2. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to the Company: Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11788 Facsimile Number: (516) 342-4854 Attention: Treasurer 34 if to the Trustee: The Chase Manhattan Bank 450 W. 33rd Street 15th Floor New York, New York 10001 Facsimile Number: (212) 946-8159 Attention: Corporate Trustee Any notices between the Company and the Trustee may be by facsimile, with telephone confirmation of receipt and the original to follow by guaranteed overnight courier. The Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholders address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION X.3. Communication by Holders with other Holders. Securityholders may communicate pursuant to TIA 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA 312(c). SECTION X.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (i) an Officers Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. 35 SECTION X.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (i) a statement that the individual making such certificate or opinion has read such covenant or condition; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION X.6. When Securities Disregarded. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company (an Affiliate)shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which a Trust Officer of the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION X.7. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION X.8. Governing Law. This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION X.9. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. 36 SECTION X.10. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION X.11. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION X.12. Variable Provisions. The Company initially appoints the Trustee as Paying Agent and Registrar and custodian with respect to any Global Securities (as defined in the Appendix hereto). SECTION X.13. Qualification of Indenture. The Company shall qualify this Indenture under the TIA in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys fees for the Company, the Trustee and the Holders) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of this Indenture and the Securities and printing this Indenture and the Securities. The Trustee shall be entitled to receive from the Company any such Officers Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the TIA. SECTION X.14. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 37 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. COMPUTER ASSOCIATES INTERNATIONAL, INC. By: Name: Title: THE CHASE MANHATTAN BANK as Trustee By: Name: Title: 38 RULE 144A/REGULATION S APPENDIX FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S. PROVISIONS RELATING TO INITIAL SECURITIES, PRIVATE EXCHANGE SECURITIES AND EXCHANGE SECURITIES 1. Definitions. 1.1 Definitions. For the purposes of this Appendix the following terms shall have the meanings indicated below: Depositary means The Depository Trust Company, its nominees and their respective successors and assigns. Exchange Securities means the Series B 61/4% Senior Notes Due 2003, Series B 6 3/8% Senior Notes Due 2005 and Series B 61/2% Senior Notes Due 2008 to be issued pursuant to this Indenture in connection with a Registered Exchange Offer pursuant to the Registration Rights Agreement. Indenture means the Indenture dated as of April 24, 1998 between the Company and the Trustee, of which this Appendix is incorporated therein and forms a part thereof. Initial Purchasers means Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc., BancAmerica Robertson Stephens Inc., Chase Securities Inc. and NationsBanc Montgomery Securities LLC. Initial Securities means the 61/4% Senior Notes Due 2003, 6 3/8% Senior Notes Due 2005 and 61/2% Senior Notes Due 2008, issued under this Indenture on the date hereof. Private Exchange means the offer by the Company, pursuant to the Registration Rights Agreement, to the Initial Purchasers to issue and deliver to each Initial Purchaser, in exchange for the Initial Securities held by the Initial Purchaser as part of its initial distribution, a like aggregate principal amount of Private Exchange Securities. Private Exchange Securities means the Series C 61/4% Senior Notes Due 2003, Series C 6 3/8% Senior Notes Due 2005 and Series C 61/2% Senior Notes Due 2008, if any, to be issued pursuant to this Indenture to the Initial Purchasers in a Private Exchange. Purchase Agreement means the Purchase Agreement dated April 21, 1998, among the Company and the Initial Purchasers. 39 QIB means a qualified institutional buyer as defined in Rule 144A. Registered Exchange Offer means the offer by the Company, pursuant to the Registration Rights Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. Registration Rights Agreement means the Registration Rights Agreement dated as of April 21, 1998 among the Company and the Initial Purchasers. SEC means the U.S. Securities and Exchange Commission, or any successor agency. Securities means the Initial Securities, the Exchange Securities and the Private Exchange Securities. Securities Act means the Securities Act of 1933, as amended. Securities Custodian means the custodian with respect to a Global Security (as appointed by the Depositary), or any successor person thereto and shall initially be the Trustee. Shelf Registration Statement means the registration statement issued by the Company, in connection with the offer and sale of Initial Securities or Private Exchange Securities, pursuant to the Registration Rights Agreement. Transfer Restricted Securities means Securities that bear or are required to bear the legend set forth in Section 2.3(b) hereto. 1.2 Other Definitions Defined in Term Section: Agent Members 2.1(b) Global Security 2.1(a) Regulation S 2.1(a) Rule 144A 2.1(a) Other terms used and not defined in this Appendix are used as defined in the Indenture. 40 2. The Securities. 2.1 Form and Dating. The Initial Securities are being offered and sold by the Company pursuant to the Purchase Agreement. (a) Global Securities. Initial Securities offered and sold to a QIB in reliance on Rule 144A under the Securities Act (Rule 144A) or in reliance on Regulation S under the Securities Act (Regulation S), in each case as provided in the Purchase Agreement, shall be issued initially in the form of a unified permanent global Security for both Rule 144A and Regulation S purchases, in definitive, fully registered form without interest coupons with the global securities legend and restricted securities legend set forth in Exhibit 1 hereto (each, a Global Security), which shall be deposited on behalf of the purchasers of the Initial Securities represented thereby with the Trustee as custodian for the Depositary (or with such other custodian as the Depositary may direct), and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Upon the issuance of the Exchange Securities, the aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global Security deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b), authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depositary for such Global Securities or the nominee of such Depositary and (b) shall be delivered by the Trustee to such Depositary or pursuant to such Depositarys instructions or held by the Trustee as custodian for the Depositary. Members of, or participants in, the Depositary (Agent Members) shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or shall impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (c) Certificated Securities. Except as provided in this Section 2.1 or Section 2.3 or 2.4, owners of beneficial interests in Global Securities will not be entitled to receive physical delivery of certificated Securities. 41 2.2 Authentication. The Trustee shall authenticate and deliver: (1) Initial Securities for original issue in an aggregate principal amount of U.S. $575 million with respect to the 2003 Initial Securities, U.S. $825 million with respect to the 2005 Initial Securities and U.S. $350 million with respect to the 2008 Initial Securities and (2) Exchange Securities or Private Exchange Securities for issue only in a Registered Exchange Offer or a Private Exchange, respectively, pursuant to the Registration Rights Agreement, for a like principal amount of Initial Securities, in each case upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the series of Securities to be authenticated, amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities, Exchange Securities or Private Exchange Securities. In the case of the issuance of Exchange Securities, the Company shall also provide an Officers Certificate stating that all conditions precedent to the Registered Exchange Offer have been complied with and the related Registration Statement has been declared effective by the SEC. The aggregate principal amount of Securities outstanding at any time under the Indenture may not exceed U.S. $575 million with respect to the 2003 Securities, U.S. $825 million with respect to the 2005 Securities and U.S. $350 million with respect to the 2008 Securities except as provided in Section 2.7 of this Indenture. 2.3 Transfer and Exchange. (a) Transfer and Exchange of Global Securities. (i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Security shall deliver to the Registrar a written order given in accordance with the Depositarys procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in the Global Security. The Registrar shall, in accordance with such instructions instruct the Depositary to credit to the account of the Person specified in such instructions a beneficial interest in the Global Security and to debit the account of the Person making the transfer the beneficial interest in the Global Security being transferred. (ii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in Section 2.4), a Global Security may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (iii) In the event that a Global Security is exchanged for Securities in definitive registered form pursuant to Section 2.4 of this Appendix or Section 2.9 of this Indenture, prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Securities intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be) and such other procedures as may from time to time be adopted by the Company. 42 (b) Legend. (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each Security certificate evidencing the Global Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE SECURITIES ACT), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS NOTE MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act, in the case of any Transfer Restricted Security that is represented by a Global Security, the Trustee shall permit the Holder thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder certifies in writing to the Trustee that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Security). 43 (iii) After a transfer of any Initial Securities or Private Exchange Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities or Private Exchange Securities, as the case may be, which transfer complies with the plan of distribution set forth in such Shelf Registration Statement, all requirements pertaining to legends on such Initial Securities or such Private Exchange Securities will cease to apply, but the requirements requiring such Initial Securities or such Private Exchange Securities issued to certain Holders be issued in global form will continue to apply, and Initial Securities or Private Exchange Securities in global form without legends will be available to the transferee of the Holder of such Initial Securities or Private Exchange Securities upon exchange of such transferring Holders Initial Securities or Private Exchange Securities or directions to transfer such Holder's interest in the Global Security, as applicable. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will continue to apply and Initial Securities in global form with the restricted securities legend set forth in Exhibit 1 hereto will be available to Holders of such Initial Securities that do not exchange their Initial Securities, and Exchange Securities in global form will be available to Holders that exchange such Initial Securities in such Registered Exchange Offer. (v) Upon the consummation of a Private Exchange with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Private Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will still apply, and Private Exchange Securities in global form with the Restricted Securities Legend set forth in Exhibit 1 hereto will be available to Holders that exchange such Initial Securities in such Private Exchange. (c) Cancellation or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for certificated Securities, redeemed, repurchased or canceled, such Global Security shall be returned to the Depositary for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for certificated Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. 44 (d) Obligations with Respect to Transfers and Exchanges of Securities. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate certificated Securities and Global Securities at the Registrars request in accordance with the terms of the Indenture (including this Appendix). (ii) No service charge shall be made for any registration of transfer or exchange, but the Company or the Registrar may require a Holder to furnish appropriate endorsements and transfer documents and payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.6 and 9.5 of this Indenture). (iii) The Registrar shall not be required to register the transfer of or exchange of any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) for a period beginning 15 days before a selection of Securities to be redeemed and ending on the date of such selection. (iv) Prior to the due presentation for registration of transfer of any Certificated Security, the Company, the Trustee, the Paying Agent and the Registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of Principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue and notwithstanding any notation of ownership or other writing on such Security made by anyone other than the Company or the Registrar, and none of the Company, the Trustee, the Paying Agent or the Registrar shall be affected by notice to the contrary. (v) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar. (e) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depositary or other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including 45 any notice of redemption) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants, members or beneficial owners in any Global Security) other than with respect to certificated Securities to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture on the form provided herein. 2.4 Certificated Securities. (a) A Global Security deposited with the Depositary or with the Trustee as custodian for the Depositary pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of certificated Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time such Depositary ceases to be a clearing agency registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Securities under this Indenture or (iv) pursuant to Section 2.3(b)(ii). (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depositary to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of certificated Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any certificated Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.3(b), bear the restricted securities legend set forth in Exhibit 1 hereto. (c) Subject to the provisions of Section 2.1(b), the registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. 46 (d) In the event of the occurrence of any of the events specified in Section 2.4(a), the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form without interest coupons. 48 OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. 49 COMPUTER ASSOCIATES INTERNATIONAL, INC. No. __ Principal Amount$ __ CUSIP NO. _________ ISIN NO. _________ [6 1/4% Senior Notes Due 2003] [6 3/8% Senior Notes Due 2005] [6 1/2% Senior Notes Due 2008] Computer Associates International, Inc., a Delaware corporation, for value received, promises to pay to _, or registered assigns, the principal sum of ________________________ Dollars on _________ __, [2003] [2005] [2008]. Interest Payment Dates: April 15 and October 15, commencing October 15, 1998. Record Dates: April 1 and October 1. 50 Additional provisions of this Security are set forth on the other side of this Security. Dated: April 24, 1998 COMPUTER ASSOCIATES INTERNATIONAL,INC. by by TRUSTEES CERTIFICATE OF Dated: April 24, 1998 AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, as Trustee by Authorized Officer 51 [FORM OF REVERSE SIDE OF INITIAL SECURITY] (Reverse of Security) [6 1/4% Senior Notes Due 2003] [6 3/8% Senior Notes Due 2005] [6 1/2% Senior Notes Due 2008] 1. Interest Computer Associates International, Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the Company), promises to pay interest on the principal amount of this Security at the rate per annum shown above; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional cash interest will accrue on this Security at a rate of 0.50% per annum from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured, calculated on the principal amount of this Security as of the date on which such interest is payable. Such additional cash interest of 0.50% per annum is payable in addition to any other interest payable from time to time with respect to this Security. The Trustee will not be deemed to have notice of a Registration Default until it shall have received actual notice of such Registration Default. The Company will pay interest semiannually on April 15 and October 15 of each year (each such date, an Interest Payment Date), commencing October 15, 1998. Interest on the Securities will accrue from April 24, 1998, or from the most recent date to which interest has been paid on the Securities. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By no later than 1:00 p.m. (New York City time) on the date on which any Principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such Principal and/or interest. The Company will pay interest (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the April 1 or October 1 next preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay Principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay Principal and interest by check payable in such money. It may mail an interest check to a Holders registered address. 52 3. Paying Agent and Registrar Initially, The Chase Manhattan Bank, a New York banking corporation (the Trustee), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent or Registrar without notice to any Securityholder. The Company or any of its domestically incorporated wholly owned Subsidiaries may act as Paying Agent. 4. Indenture The Company issued the Securities under an Indenture dated as of April 24, 1998 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the Indenture), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. 77aaa- 77bbbb) as in effect on the date of the Indenture (the Act). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are senior obligations of the Company limited to $[575,000,000] [825,000,000] [350,000,000] aggregate principal amount (subject to Section 2.7 of the Indenture). The Security is one of the [2003][2005][2008] Initial Securities referred to in the Indenture. The Securities include the [2003][2005][2008] Initial Securities and any [2003][2005][2008] Private Exchange Securities and [2003][2005][2008] Exchange Securities issued in exchange for the [2003][2005][2008] Initial Securities pursuant to the Indenture and the Registration Rights Agreement. The [2003][2005][2008] Initial Securities, [2003][2005][2008] the Private Exchange Securities and the [2003][2005][2008] Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company to create liens, enter into sale and leaseback transactions and enter into mergers and consolidations. 5. Optional Redemption The Securities are redeemable, in whole or in part, at any time and from time to time, at the option of the Company, at a redemption price equal to the greater of (i) 100% of the principal amount of such Securities and (ii) the sum of the present values of the Remaining Scheduled Payments, discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate [plus [12.5] [15] basis points,] plus accrued interest thereon to the date of redemption. Treasury Rate means, with respect to any redemption date for the Securities, the rate per annum equal to the semiannual equivalent yield to maturity (computed as of the second business day immediately preceding such redemption date) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. 53 Comparable Treasury Issue means the United States Treasury security selected by an Independent Investment Banker that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities to be redeemed. Independent Investment Banker means one of the Reference Treasury Dealers appointed by the Company. Comparable Treasury Price means, with respect to any redemption date for the Securities, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated Composite 3:30 p.m. Quotations for U.S. Government Securities or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (a) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (b) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations. Reference Treasury Dealer Quotations means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer as of 3:30 p.m., New York time, on the third business day preceding such redemption date. Reference Treasury Dealer means each of Credit Suisse First Boston Corporation (and its successors) and three other nationally recognized investment banking firms that are Primary Treasury Dealers specified from time to time by the Company; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a Primary Treasury Dealer), the Company shall substitute therefor another nationally recognized investment banking firm that is a Primary Treasury Dealer. Remaining Scheduled Payments means, with respect to each Security to be redeemed, the remaining scheduled payments of the Principal thereof and interest thereon that would be due after the related redemption date but for such redemption; provided, however, that, if such redemption date is not an Interest Payment Date with respect to such Security, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to such redemption date. Except as set forth above, the Securities will not be redeemable by the Company prior to maturity and will not be entitled to the benefit of any sinking fund. 54 6. Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date by first class mail to each Holder of Securities to be redeemed at his registered address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Registration Rights The Company is party to a Registration Rights Agreement, dated as of April 21, 1998, among the Company, Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc., BancAmerica Robertson Stephens Inc., Chase Securities Inc. and NationsBanc Montgomery Securities LLC pursuant to which it is obligated to pay Additional Interest (as defined therein) upon the occurrence of certain Registration Defaults (as defined therein). 8. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may register, transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed)for a period beginning 15 days before a selection of Securities to be redeemed and ending on the date of such selection. 9. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 10. Unclaimed Money If money for the payment of Principal or interest remains unclaimed for two years after the date of payment of Principal and interest, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 55 11. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities of this series and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of Principal of and interest on the Securities of this series to redemption or maturity, as the case may be. 12. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities of this series may be amended with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities of this series and (ii) with respect to this series, any default or noncompliance with any provision of the Indenture or the Securities of this series may be waived with the written consent of the Holders of a majority in principal amount of the outstanding Securities of this series. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities of this series in addition to or in place of certificated Securities of this series, or to add guarantees with respect to the Securities of this series or to add security for the Securities of this series, or to add additional covenants of or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder of this series. 13. Defaults and Remedies Under the Indenture, Events of Default with respect to this series include (i) default for 30 days in payment of interest on the Securities of this series; (ii) default in payment of Principal on the Securities of this series at maturity, upon redemption pursuant to paragraph 5 of the Securities of this series, upon declaration or otherwise; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities of this series, subject to notice and lapse of time; (iv) a failure to pay within any grace period after final maturity other indebtedness of the Company in an amount in excess of $25 million; (v) certain accelerations of other indebtedness of the Company if the amount accelerated exceeds $25 million; and (vi) certain events of bankruptcy or insolvency involving the Company. If an Event of Default with respect to this series occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities of this series may declare all the 56 Securities of this series to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities of this series being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities of this series except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities of this series unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities of this series may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders of this series notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of Principal or interest) if it determines that withholding notice is not opposed to their interest. 14. Trustee Dealings with the Company Subject to certain limitations set forth in this Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company and may otherwise deal with the Company with the same rights it would have if it were not Trustee. 15. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 16. Authentication This Security shall not be valid until an authorized officer of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 17. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 57 18. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 19. Governing Law This Security shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: Signature Guarantee: (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) Sign exactly as your name appears on the other side of this Security. In connection with any transfer or exchange of any of the certificated Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred: CHECK ONE BOX BELOW: (1) to the Company; or (2) pursuant to an effective registration statement under the Securities Act of 1933; or (3) inside the United States to a qualified institutional buyer (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (4) outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or 58 (5) pursuant to the exemption from registration provided by Rule 144 under the Securities act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the certificated Securities evidenced by this certificate in the name of any Person other than the registered holder thereof; provided, however, that if box (4) or (5) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. Signature Signature Guarantee: Signature (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) 59 TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this certificated Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigneds foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ______________________________ NOTICE: To be executed by an executive officer Signature Guarantee: Signature (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) 60 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made: Date of Exchange Amount of decrease in Principal Amount of this Global Security Amount of increase in Principal Amount of this Global Security Principal Amount of this Global Security following such decrease or increase Signature of authorized officer of Trustee or Securities Custodian 61 EXHIBIT A [FORM OF FACE OF EXCHANGE SECURITY [OR PRIVATE EXCHANGE SECURITY]] COMPUTER ASSOCIATES INTERNATIONAL, INC. No. Principal Amount $ CUSIP NO. ISIN NO. [Series [B][C] 61/4% Senior Notes Due 2003] [Series [B][C] 63/8% Senior Notes Due 2005] [Series [B][C] 61/2% Senior Notes Due 2008] Computer Associates International, Inc., a Delaware corporation, for value received, promises to pay to __________, or registered assigns, the principal sum of ___________________________ Dollars on ________ __,[2003] [2005] [2008]. Interest Payment Dates: April 15 and October 15. Record Dates: April 1 and October 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: __________ COMPUTER ASSOCIATES INTERNATIONAL,INC. by by TRUSTEES CERTIFICATE OF Dated: AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE CHASE MANHATTAN BANK by Authorized Officer 62 [FORM OF REVERSE SIDE OF EXCHANGE SECURITY [OR PRIVATE EXCHANGE SECURITY]] [Series [B][C] 61/4% Senior Notes Due 2003] [Series [B][C] 63/8% Senior Notes Due 2005] [Series [B][C] 61/2% Senior Notes Due 2008] 1. Interest Computer Associates International, Inc., a Delaware corporation (such corporation, and its successors and assigns under this Indenture hereinafter referred to, being herein called the Company), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on April 15 and October 15 of each year (each such date, an Interest Payment Date), commencing October 15, 1998 Interest on the Securities will accrue from April 24, 1998, or from the most recent date to which interest has been paid on the Securities. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By no later than 1:00 p.m. (New York City time) on the date on which any Principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such Principal and/or interest. The Company will pay interest (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the April 1 or October 1 next preceding the Interest Payment Date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the Interest Payment Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay Principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay Principal and interest by check payable in such money. It may mail an interest check to a Holders registered address. 3. Paying Agent and Registrar Initially, The Chase Manhattan Bank, a New York banking corporation (the Trustee), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent or Registrar without notice to any Securityholder. The Company or any of its domestically incorporated wholly owned Subsidiaries may act as Paying Agent. 63 4. Indenture The Company issued the Securities under an Indenture dated as of April 24, 1998 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the Indenture), between the Company and the Trustee. The terms of the Securities include those stated in this Indenture and those made part of this Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. 77aaa- 77bbbb) as in effect on the date of this Indenture (the Act). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in this Indenture. The Securities are subject to all such terms, and Securityholders are referred to this Indenture and the Act for a statement of those terms. The Securities are senior obligations of the Company limited to $[575,000,000] [825,000,000] [350,000,000] aggregate principal amount (subject to Section 2.7 of the Indenture). The Security is one of the [2003][2005][2008] [Private] Exchange Securities referred to in the Indenture. The Securities include the [2003][2005][2008] Initial Securities and any [2003][2005][2008] Private Exchange Securities and [2003][2005][2008] Exchange Securities issued in exchange for the [2003][2005][2008] Initial Securities pursuant to the Indenture and the Registration Rights Agreement. The [2003][2005][2008] Initial Securities, the [2003][2005][2008] Private Exchange Securities and the [2003][2005][2008] Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company to create liens, enter into sale and leaseback transactions and enter into mergers and consolidations. 5. Optional Redemption The Securities are redeemable, in whole or in part, at any time and from time to time, at the option of the Company, at a redemption price equal to the greater of (i) 100% of the principal amount of such Securities and (ii) the sum of the present values of the Remaining Scheduled Payments of Principal, discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate [plus [12.5] [15] basis points,] plus accrued interest thereon to the date of redemption. Treasury Rate means, with respect to any redemption date for the Securities, the rate per annum equal to the semiannual equivalent yield to maturity (computed as of the second business day immediately preceding such redemption date) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. Comparable Treasury Issue means the United States Treasury security selected by an Independent Investment Banker that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities to be redeemed. Independent Investment Banker means one of the Reference Treasury Dealers appointed by the Company. 64 Comparable Treasury Price means, with respect to any redemption date for the Securities, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release)published by the Federal Reserve Bank of New York and designated Composite 3:30 p.m. Quotations for U.S. Government Securities or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (a) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (b) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations. Reference Treasury Dealer Quotations means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer as of 3:30 p.m., New York time, on the third business day preceding such redemption date. Reference Treasury Dealer means each of Credit Suisse First Boston Corporation (and its successors) and three other nationally recognized investment banking firms that are Primary Treasury Dealers specified from time to time by the Company; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a Primary Treasury Dealer), the Company shall substitute therefor another nationally recognized investment banking firm that is a Primary Treasury Dealer. Remaining Scheduled Payments means, with respect to each Security to be redeemed, the remaining scheduled payments of the Principal thereof and interest thereon that would be due after the related redemption date but for such redemption; provided, however, that, if such redemption date is not an Interest Payment Date with respect to such Security, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to such redemption date. Except as set forth above, the Securities will not be redeemable by the Company prior to maturity and will not be entitled to the benefit of any sinking fund. 6. Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date by first-class mail to each Holder of Securities to be redeemed at his registered address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) 65 to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may register transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed)for a period beginning 15 days before a selection of Securities to be redeemed and ending on the date of such selection. 8. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 9. Unclaimed Money If money for the payment of Principal or interest remains unclaimed for two years after the date of payment of Principal and interest, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 10. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities of this series and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of Principal of and interest on the Securities of this series to redemption or maturity, as the case may be. 11. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities of this series may be amended with the written consent of the Holders of at least a majority in principal 66 amount of the outstanding Securities of this series and (ii) with respect to this series, any default or noncompliance with any provision of the Indenture or the Securities of this series may be waived with the written consent of the Holders of a majority in principal amount of the outstanding Securities of this series. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or nconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities of this series in addition to or in place of certificated Securities of this series, or to add guarantees with respect to the Securities of this series or to add security for the Securities of this series, or to add additional covenants of or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder of this series. 12. Defaults and Remedies Under the Indenture, Events of Default with respect to this series include (i) default for 30 days in payment of interest on the Securities of this series; (ii) default in payment of principal on the Securities of this series at maturity, upon redemption pursuant to paragraph 5 of the Securities of this series, upon declaration or otherwise; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities of this series, subject to notice and lapse of time; (iv) failure to pay within any grace period after final maturity other indebtedness of the Company in an amount in excess of $25 million; (v) certain accelerations of other indebtedness of the Company if the amount accelerated exceeds $25 million; or (vi) certain events of bankruptcy or insolvency with respect to the Company. If an Event of Default with respect to this series occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities of this series may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities of this series being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities of this series except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities of this series unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities of this series may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of Principal or interest) if it determines that withholding notice is not opposed to their interest. 67 13. Trustee Dealings with the Company Subject to certain limitations set forth in this Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company and may otherwise deal with the Company with the same rights it would have if it were not Trustee. 14. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 15. Authentication This Security shall not be valid until an authorized officer of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 16. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 17. CUSIP Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 69 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignees name, address and zip code) (Insert assignees soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: ____________________ Your Signature: ___________________ Signature Guarantee: ______________________________ (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) Sign exactly as your name appears on the other side of this Security. COMPUTER ASSOCIATES INTERNATIONAL, INC. Issuer 6 1/4% Senior Notes Due 2003 6 3/8% Senior Notes Due 2005 6 1/2% Senior Notes Due 2008 INDENTURE Dated as of April 24, 1998 THE CHASE MANHATTAN BANK, Trustee 70 CROSS-REFERENCE TABLE Certain Sections of this Indenture relating to Sections 310 through 318, inclusive, of the Trust Indenture Act of 1939: TIA Indenture Section Section 310(a)(1) 7.10 (a)(2) 7.10 (a)(3) N.A. (a)(4) N.A. (b) 7.8; 7.10 (c) N.A. 311(a) 7.11 (b) 7.11 (c) N.A. 312(a) 2.5 (b) 10.3 (c) 10.3 313(a) 7.6 (b)(1) N.A. (b)(2) 7.6 (c) 7.6 (d) 7.6 314(a) 4.8 4.4; 10.2 (b) N.A. (c)(1) 10.4 (c)(2) 10.4 (c)(3) N.A. (d) N.A. (e) 10.5 (f) 4.8 315(a) 7.1 (b) 7.5 (c) 7.1 (d) 7.1 (e) 6.11 316(a)(last sentence) 10.6 (a)(1)(A) 6.5 (a)(1)(B) 6.4 (a)(2) N.A. (b) 6.7 317(a)(1) 6.8 (a)(2) 6.9 (b) 2.4 318(a) 10.1 N.A. means Not Applicable. Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of this Indenture. 71 TABLE OF CONTENTS ARTICLE I Definitions and Incorporation by Reference 1 SECTION 1.1. Definitions 1 SECTION 1.2. Other Definitions 5 SECTION 1.3. Incorporation by Reference of Trust Indenture Act 5 SECTION 1.4. Rules of Construction 5 SECTION 1.5. One Class of Securities 6 ARTICLE II The Securities 6 SECTION 2.1. Form and Dating 6 SECTION 2.2. Execution and Authentication 7 SECTION 2.3. Registrar and Paying Agent 7 SECTION 2.4. Paying Agent To Hold Money in Trust 8 SECTION 2.5. Securityholder Lists 8 SECTION 2.6. Business Days 8 SECTION 2.7. Replacement Securities 8 SECTION 2.8. Outstanding Securities 9 SECTION 2.9. Temporary Securities 9 SECTION 2.10. Cancellation 9 SECTION 2.11. Defaulted Interest 9 SECTION 2.12. CUSIP Numbers 10 ARTICLE III Redemption 10 SECTION 3.1. Notices to Trustee 10 SECTION 3.2. Selection of Securities To Be Redeemed 10 SECTION 3.3. Notice of Redemption 11 SECTION 3.4. Effect of Notice of Redemption 11 SECTION 3.5. Deposit of Redemption Price 12 SECTION 3.6. Securities Redeemed in Part 12 ARTICLE IV Covenants 12 SECTION 4.1. Payment of Securities 12 SECTION 4.2. Limitations on Liens. 13 SECTION 4.3. Limitation on Sale and Lease-Back Transactions. 14 SECTION 4.4. Compliance Certificate 15 SECTION 4.5. Further Instruments and Acts 16 72 SECTION 4.6. Maintenance of Office or Agency 16 SECTION 4.7. Corporate Existence 16 SECTION 4.8. SEC Reports 16 ARTICLE V Successor Company 16 SECTION 5.1. When the Company May Merge or Transfer Assets 16 ARTICLE VI Defaults and Remedies 17 SECTION 6.1. Events of Default 17 SECTION 6.2. Acceleration 19 SECTION 6.3. Other Remedies 19 SECTION 6.4. Waiver of Past Defaults 20 SECTION 6.5. Control by Majority 20 SECTION 6.6. Limitation on Suits 20 SECTION 6.7. Rights of Holders To Receive Payment 21 SECTION 6.8. Collection Suit by Trustee 21 SECTION 6.9. Trustee May File Proofs of Claim 21 SECTION 6.10. Priorities 21 SECTION 6.11. Undertaking for Costs 22 SECTION 6.12. Waiver of Stay or Extension Laws 22 ARTICLE VII Trustee 22 SECTION 7.1. Duties of Trustee 22 SECTION 7.2. Rights of Trustee 23 SECTION 7.3. Individual Rights of Trustee 24 SECTION 7.4. Trustee's Disclaimer 24 SECTION 7.5. Notice of Defaults 24 SECTION 7.6. Reports by Trustee to Holders 24 SECTION 7.7. Compensation and Indemnity 25 SECTION 7.8. Replacement of Trustee 25 SECTION 7.9. Successor Trustee by Merger 26 SECTION 7.10. Eligibility; Disqualification 27 SECTION 7.11. Preferential Collection of Claims Against Company 27 ARTICLE VIII Discharge of Indenture; Defeasance 27 SECTION 8.1. Discharge of Liability on Securities; Defeasance 27 SECTION 8.2. Conditions to Defeasance 28 EX-4.G 9 $1,750,000,000 COMPUTER ASSOCIATES INTERNATIONAL, INC. $575,000,000 6.250% Senior Notes due 2003 $825,000,000 6.375% Senior Notes due 2005 $350,000,000 6.500% Senior Notes due 2008 REGISTRATION RIGHTS AGREEMENT as of April 21, 1998 CREDIT SUISSE FIRST BOSTON CORPORATION BEAR, STEARNS & CO. INC. BANCAMERICA ROBERTSON STEPHENS CHASE SECURITIES INC. NATIONSBANC MONTGOMERY SECURITIES LLC c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Dear Sirs: Computer Associates International, Inc., a Delaware corporation (the Company), proposes to issue and sell to Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc., BancAmerica Robertson Stephens, Chase Securities Inc. and NationsBanc Montgomery Securities LLC (collectively, the Initial Purchasers), upon the terms set forth in a purchase agreement of even date herewith (the Purchase Agreement), U.S.$575,000,000 principal amount of its 6.25% Senior Notes due 2003 (the 2003 Notes), U.S.$825,000,000 principal amount of its 6.375% Senior Notes due 2005 (the 2005 Notes) and U.S.$350,000,000 principal amount of its 6.5% Senior Notes due 2008 (the 2008 Notes and, together with the 2003 Notes and the 2005 Notes, the Initial Securities). The Initial Securities will be issued pursuant to an Indenture, to be dated as of April 24, 1998 (the Indenture) among the Company and The Chase Manhattan Bank (the Trustee). As an inducement to the Initial Purchasers, the Company agrees with the Initial Purchasers, for the benefit of the holders of the Initial Securities (including, without limitation, the Initial Purchasers), the Exchange Securities (as defined below) and the Private Exchange Securities (as defined below) (collectively the Holders), as follows: 1. Registered Exchange Offer. The Company shall, at its own cost, prepare and, not later than 90 days after (or if the 90th day is not a business day, the first business day thereafter) the date of original issue of the Initial Securities (the Issue Date), file with the Securities and Exchange Commission (the Commission) a registration statement (the Exchange Offer Registration Statement) on an appropriate form under the Securities Act of 1933, as amended (the Securities Act), with respect to a proposed offer (the Registered Exchange Offer) to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities (the Exchange Securities) of the Company issued under the Indenture and identical in all material respects to the Initial Securities (except for the transfer restrictions relating to the Initial Securities and the provisions relating to the matters described in Section 6 hereof) that would be registered under the Securities Act. The Company shall use its best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 150 days (or if the 150th day is not a business day, the first business day thereafter) after the Issue Date of the Initial Securities and shall keep the Exchange Offer Registration Statement effective for not less than 20 business days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the Exchange Offer Registration Period). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 20 business days after the commencement thereof provided that the Company has accepted all the Initial Securities theretofore validly tendered in accordance with the terms of the Registered Exchange Offer. Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities (as defined in Section 6 hereof) electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an Exchanging Dealer), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the Exchange Offer Procedures section and the Purpose of the Exchange Offer section, and (c) Annex C hereto in the Plan of Distribution section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Exchange Securities acquired in exchange for Securities constituting any portion of an unsold allotment is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto, available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 90 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the Private Exchange)for the Initial Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States, but excluding provisions relating to the matters described in Section 6 hereof) to the Initial Securities (the Private Exchange Securities). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the Securities. In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 20 business days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (x) accept for exchange all the Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancellation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities of each series will vote and consent together on all matters as one class and that none of the Securities of a particular series will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the date of original issue of the Initial Securities. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an affiliate, as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within 180 days of the Issue Date, (or, if not a business day, the first business day thereafter) (iii) any Initial Purchaser so requests with respect to the Initial Securities (or the Private Exchange Securities) not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Securities on the date of the exchange, the Company shall take the following actions: (a) The Company shall, at its cost, as promptly as practicable (but in no event more than 60 days after so required or requested pursuant to this Section 2) file with the Commission and thereafter shall use its best efforts to cause to be declared effective a registration statement (the Shelf Registration Statement and, together with the Exchange Offer Registration Statement, a Registration Statement) on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the Shelf Registration); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the Issue Date or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof). The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Notwithstanding anything to the contrary set forth in this Agreement, if the Company is required to file a Shelf Registration Statement pursuant to this Section 2, the Company may postpone or suspend the filing or effectiveness of such Shelf Registration Statement (or any amendment or supplements thereto) (i) if such action is required by applicable law or (ii) for up to an aggregate of 60 days (but for not more than 30 consecutive days) during any consecutive 365 day period, if such action is taken by the Company in good faith and for valid business reasons (not including the avoidance of the Companys obligations hereunder), including the premature disclosure of material nonpublic information which, if disclosed at such time, would be materially harmful to the interests of the Company and its shareholders, so long as the Company promptly thereafter complies with the requirements of this Section 2. This 2(d) shall not affect the Companys obligations, if any, to pay Additional Interest pursuant to Section 6 of this Agreement. 3. Registration Procedures. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its reasonable efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the Exchange Offer Procedures section and the Purpose of the Exchange Offer section and in Annex C hereto in the Plan of Distribution section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled Plan of Distribution, reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential underwriter status of any broker-dealer that is the beneficial owner (as defined in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended (the Exchange Act)) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a Participating Broker- Dealer), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in- house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders, who propose to sell Securities pursuant to the Shelf Registration Statement, as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus does not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post- effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker- Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities, pursuant to any Registration Statement, the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post- effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will obtain a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12- month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, the Company shall (subject to entering into customary confidentiality arrangements) (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Companys officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel (which may be its in-house counsel) to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that such opinion may contain customary qualifications and assumptions and that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good standing of the Company and its significant subsidiaries; the qualification of the Company and its significant subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel (which may be its in-house counsel) to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion in the form set forth in Section 6(c) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) only if permitted by Statement of Auditing Standards No. 72, its independent public accountants to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. (t) The Company will use its reasonable efforts to (i) if the Initial Securities have been rated prior to the initial sale of such Initial Securities, confirm such ratings will apply to the Securities covered by a Registration Statement, or (ii) if the Initial Securities were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing Underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or assist in the distribution (within the meaning of the Conduct Rules (the Rules) of the National Association of Securities Dealers, Inc. (NASD)) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses, if any, of Simpson Thacher & Bartlett, counsel for the Initial Purchasers, incurred in connection with the Registered Exchange Offer), whether or not the Registered Exchange Offer or a Shelf Registration is filed or becomes effective, and, in the event of a Shelf Registration, shall bear or reimburse the Holders of the Securities covered thereby for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Initial Securities covered thereby to act as counsel for the Holders of the Initial Securities in connection therewith. 5. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the Indemnified Parties) from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them (including, without limitation, the fees and expenses of a single counsel (in addition to any local counsel) to all Indemnified Parties collectively in connection with any proceeding or related proceedings in the same jurisdiction) in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker- Dealer from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker- Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker- Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above, except to the extent the Indemnified Party is prejudiced thereby. The Indemnifying Party shall not be liable for any settlement of any proceeding without its written consent. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (it being understood that, except with the consent of the indemnified party, the indemnifying party and the indemnified party shall have separate counsel), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, which consent shall not be unreasonable withheld, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Securities, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal (including, without limitation, the fees and expenses of a single counsel (in addition to any local counsel) to all indemnified parties collectively in connection with any proceeding or related proceedings in the same jurisdiction) or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. Additional Interest Under Certain Circumstances. (a) Additional interest (the Additional Interest) with respect to the Initial Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iii) below a Registration Default): (i) If by July 23, 1998, neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; (ii) If by September 21, 1998, neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (iii) If after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective during the period specified herein; or (B) such Registration Statement or the related prospectus ceases to be usable (except as permitted in paragraph (b) below) in connection with resales of Transfer Restricted Securities during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Interest shall accrue on the Initial Securities over and above the interest set forth in the title of the Securities from and including the date on which any one or more such Registration Defaults shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.50% per annum. (b) A Registration Default referred to in Section 6(a)(iii)(B) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events, with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (c) Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) of Section 6(a) above will be payable in cash on the regular interest payment dates with respect to the Initial Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Initial Securities, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (d) Transfer Restricted Securities means each Security until (i) the date on which such Transfer Restricted Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of a Initial Security for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Initial Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Initial Securities is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. Rules 144 and 144A. The Company shall use its reasonable efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Initial Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Initial Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Initial Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Initial Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering (Managing Underwriters) will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering, subject to the Companys approval, which shall not be unreasonably withheld. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such persons Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers; Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Fax No.: (212) 455-2502 Attention: Charles Garner (3) if to the Company, at its address as follows: One Computer Associates Plaza Islandia, New York 11788 Fax No.: (516) 342-4854 Attention: Treasurer with a copy to: Howard, Darby & Levin 1330 Avenue of the Americas New York, NY 10019 Fax No.: (212) 841-1010 Attention: Stephen A. Infante All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (c) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (d) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (e) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (h) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (i) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers and the Company in accordance with its terms. Very truly yours, Computer Associates International, Inc. by:____________________________ Name: Title: The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION BEAR, STEARNS & CO. INC. BANCAMERICA ROBERTSON STEPHENS CHASE SECURITIES INC. NATIONSBANC MONTGOMERY SECURITIES LLC by: CREDIT SUISSE FIRST BOSTON CORPORATION By:_____________________________ Name: Title: ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker-dealer as a result of market- making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker- dealer for use in connection with any such resale. See Plan of Distribution. ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See Plan of Distribution. ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 199 , all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus.( ) The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker- dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities)other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. ANNEX D 1 CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker- dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. ( ) In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Exchange Offer prospectus. (..continued) 13 -----END PRIVACY-ENHANCED MESSAGE-----