-----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, KwmLh3s56+YwgBB0wJ2/Wk0sznISmB3mZONjkd8EeSiNrYHmkdqE96Gi30zKp16x K9siOswg7zhWnBlYPH2//w== 0000912057-00-007909.txt : 20000223 0000912057-00-007909.hdr.sgml : 20000223 ACCESSION NUMBER: 0000912057-00-007909 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 30 FILED AS OF DATE: 20000222 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: S-4 SEC ACT: SEC FILE NUMBER: 333-30842 FILM NUMBER: 550407 BUSINESS ADDRESS: STREET 1: ONE COMPUTER ASSOCIATES PLAZA CITY: ISLANDIA STATE: NY ZIP: 11788 BUSINESS PHONE: 5163425224 S-4 1 S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ COMPUTER ASSOCIATES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 7372 13-2857434 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
------------------------ COMPUTER ASSOCIATES INTERNATIONAL, INC. ONE COMPUTER ASSOCIATES PLAZA ISLANDIA, NEW YORK 11749-7000 (631) 342-5224 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ STEVEN M. WOGHIN, ESQ. SENIOR VICE PRESIDENT AND GENERAL COUNSEL COMPUTER ASSOCIATES INTERNATIONAL, INC. ONE COMPUTER ASSOCIATES PLAZA ISLANDIA, NEW YORK 11749-7000 (631) 342-5224 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ COPIES TO: SCOTT F. SMITH, ESQ. STEPHEN A. INFANTE, ESQ. J. D. WEINBERG, ESQ. COVINGTON & BURLING 1330 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (212) 841-1000 ------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after this registration statement becomes effective and upon consummation of the transactions described in the enclosed prospectus. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF TO BE REGISTERED (1) REGISTERED (2) PER UNIT (3) OFFERING PRICE (3) REGISTRATION FEE Common Stock, par value $.10 per Share (including the associated preferred stock purchase rights)........................... 56,340,000 shares N/A $3,615,625,000 $954,525
(1) This registration statement relates to securities of the registrant exchangeable for shares of common stock of Sterling Software, Inc., a Delaware corporation (Sterling Software), par value $.10 per share (Sterling Software common stock), and, unless and until redeemed by Sterling Software, the associated preferred stock purchase rights (Sterling Software rights) in the exchange offer (the offer) by registrant, through its wholly owned subsidiary, Silversmith Acquisition Corp., a Delaware corporation (Silversmith Acquisition Corp.), for all the outstanding shares of Sterling Software common stock and, unless and until redeemed by Sterling Software, the associated Sterling Software rights, and in the proposed merger of Silversmith Acquisition Corp. with and into Sterling Software (the merger). (2) Based on the maximum number of shares expected to be issued in connection with the offer and the merger, calculated as the product of (a) 100,000,000, representing the aggregate number of shares of Sterling Software common stock outstanding on February 9, 2000 (other than shares owned by Sterling Software, Silversmith Acquisition Corp. or the registrant) plus the maximum number of such shares expected to be issued pursuant to outstanding options prior to the date that the merger is expected to be completed and (b) the exchange ratio of 0.5634 shares of the registrant's common stock for each share of Sterling Software common stock. (3) Estimated solely for the purpose of calculating the registration fee in accordance with Rules 457(c) and 457(f) under the Securities Act of 1933, based upon (a) $36.15625, the average of the high and low prices per share of Sterling Software common stock on February 15, 2000 as reported on the New York Stock Exchange Composite Transaction Tape, multiplied by (b) 100,000,000, representing the aggregate number of shares of Sterling Software common stock outstanding on February 9, 2000 plus the maximum number of such shares expected to be issued pursuant to outstanding options prior to the date the merger is expected to be consummated. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED FEBRUARY 22, 2000 [LOGO] OFFER TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF STERLING SOFTWARE, INC. FOR SHARES OF COMMON STOCK OF COMPUTER ASSOCIATES INTERNATIONAL, INC. BASED ON THE EXCHANGE RATIO DESCRIBED BELOW ALONG WITH CASH UNDER THE CIRCUMSTANCES DESCRIBED BELOW The offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Monday, March 20, 2000 unless extended. Shares tendered pursuant to this offer may be withdrawn at any time prior to the expiration of the offer, but not during any subsequent offering period. On February 14, 2000, we entered into an Agreement and Plan of Merger with Sterling Software. The board of directors of Sterling Software has unanimously approved and declared advisable the merger agreement, determined that the offer is fair to, and in the best interests of, Sterling Software stockholders and recommends that Sterling Software stockholders accept the offer and tender their shares pursuant to the offer. Through Silversmith Acquisition Corp., our wholly owned subsidiary, we are offering to exchange 0.5634 shares of Computer Associates common stock (including the associated preferred stock purchase rights) for each outstanding share of common stock of Sterling Software that is validly tendered and not properly withdrawn (the exchange ratio). We will reset the exchange ratio if, at the time that the waiting periods are cleared under antitrust laws applicable to the offer and the effectiveness of the registration statement of which this prospectus is a part has been declared by the SEC, the average of the daily average of the high and low sales price per share of Computer Associates common stock on the New York Stock Exchange ("NYSE") Composite Transaction Tape over the ten trading days immediately preceding the first day on which we have obtained all those regulatory clearances (which we call the "average Computer Associates trading price") is greater than $77.12 or less than $63.10. If at the end of that ten trading day period the average Computer Associates trading price is greater than $77.12, then the number of shares of Computer Associates common stock that we are offering to exchange for each share of Sterling Software common stock will be reset to be $43.45 divided by the average Computer Associates trading price. If at the end of the ten trading day period the average Computer Associates trading price is less than $63.10, then the number of shares of Computer Associates common stock that we are offering to exchange for each share of Sterling Software common stock will be reset to be $35.55 divided by the average Computer Associates trading price. If the average Computer Associates trading price is less than $63.10, we have the option when we reset the exchange ratio to reduce it by paying some cash in substitute for Computer Associates shares. The maximum amount of cash for each Sterling Software share that we may substitute for Computer Associates shares in that case is the amount by which the average Computer Associates trading price multiplied by the exchange ratio of 0.5634 falls short of $35.55. If we choose to elect the cash option, the exchange ratio will be reset to be the portion of $35.55 that we are not paying in cash, divided by the average Computer Associates trading price. Following the consummation of the offer, we intend to cause Silversmith Acquisition Corp. to merge with Sterling Software subject to the satisfaction or waiver of conditions to the merger. In the merger, each share of Sterling Software common stock will be converted into the right to receive the same number of Computer Associates shares (and same amount of cash, if any) per Sterling Software share as is paid in the offer, subject to any applicable appraisal rights. Our obligation to exchange Computer Associates common stock for Sterling Software common stock is subject to the conditions listed under "The Offer--Conditions of the Offer." Computer Associates common stock trades on the NYSE under the symbol "CA". Sterling Software common stock trades on the NYSE under the symbol "SSW." SEE "RISK FACTORS" BEGINNING ON PAGE 23 FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE OFFER. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. Any solicitation of proxies will be made only pursuant to separate proxy solicitation materials complying with the requirements of Section 14(a) of the Securities Exchange Act of 1934. ------------------------ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. The date of this prospectus is February , 2000 TABLE OF CONTENTS
PAGE -------- QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION........ 3 WHERE YOU CAN FIND MORE INFORMATION......................... 7 SUMMARY..................................................... 9 The Companies............................................. 9 The Proposed Combination.................................. 10 Reasons for the Proposed Combination...................... 10 Support of Sterling Software's Board of Directors and Management.............................................. 11 The Offer................................................. 11 Risk Factors.............................................. 16 Market Prices of Computer Associates and Sterling Software Common Stock............................................ 16 Material Federal Income Tax Consequences.................. 17 Selected Historical Consolidated Financial Data of Computer Associates and Selected Unaudited Pro Forma Combined Financial Data of Computer Associates and Sterling Software....................................... 18 Selected Historical Consolidated Financial Data of Sterling Software....................................... 19 Comparative Per Share Information......................... 21 Ratio of Earnings to Fixed Charges........................ 22 RISK FACTORS................................................ 23 THE COMPANIES............................................... 26 Computer Associates International, Inc.................... 26 Silversmith Acquisition Corp.............................. 26 Sterling Software, Inc.................................... 27 BACKGROUND OF THE OFFER..................................... 28 THE OFFER................................................... 30 Basic Terms............................................... 30 Timing of the Offer....................................... 32 Extension, Termination and Amendment...................... 33 Exchange of Sterling Software Shares; Delivery of Computer Associates Common Stock................................. 33 Cash Instead of Fractional Shares of Computer Associates Common Stock............................................ 34 Withdrawal Rights......................................... 34 Procedure for Tendering................................... 35 Purpose of the Offer; The Merger; Appraisal Rights........ 38 Conditions of the Offer................................... 39 Regulatory Approvals...................................... 42 Certain Effects of Offer.................................. 42 Source and Amount of Funds................................ 43 Relationships with Sterling Software...................... 43 Accounting Treatment...................................... 44 Fees and Expenses......................................... 44 Stock Exchange Listings................................... 44 THE MERGER AGREEMENT AND THE TENDER AGREEMENT............... 45 The Merger Agreement...................................... 45 The Offer............................................... 45 The Merger.............................................. 45 Effective Time of the Merger............................ 46 Additional Effects of the Merger........................ 46 Exchange Agent; Procedures for Exchange of Certificates........................................... 46 Sterling Software Board of Directors.................... 47 Other Provisions........................................ 47 The Tender Agreement...................................... 56 Parties................................................. 56
PAGE -------- Agreement to Tender..................................... 56 Proxy................................................... 57 No Solicitation......................................... 57 Termination............................................. 57 CHANGE OF CONTROL SEVERANCE AGREEMENTS...................... 58 MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................... 59 MARKET PRICES AND DIVIDENDS................................. 66 FINANCIAL PROJECTIONS....................................... 67 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............................................... 69 DESCRIPTION OF COMPUTER ASSOCIATES CAPITAL STOCK............ 75 Authorized Capital Stock.................................. 75 Computer Associates Common Stock.......................... 75 Transfer and Dividend Paying Agent and Registrar.......... 75 COMPARISON OF RIGHTS OF HOLDERS OF COMPUTER ASSOCIATES SHARES AND STERLING SOFTWARE SHARES....................... 76 Comparison of Charter and By-law Provisions............... 76 Summary of Certain Statutory Provisions................... 82 FORWARD-LOOKING STATEMENTS.................................. 84 LEGAL MATTERS............................................... 84 EXPERTS..................................................... 85 ANNEX A DIRECTORS AND EXECUTIVE OFFICERS OF COMPUTER ASSOCIATES......................................... A-1 DIRECTORS AND OFFICERS OF SILVERSMITH ACQUISITION CORP............................................. A-3
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT COMPUTER ASSOCIATES THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. THAT INFORMATION IS AVAILABLE WITHOUT CHARGE TO YOU UPON WRITTEN OR ORAL REQUEST. YOU MUST ADDRESS YOUR REQUEST TO INVESTOR RELATIONS, COMPUTER ASSOCIATES INTERNATIONAL, INC., ONE COMPUTER ASSOCIATES PLAZA, ISLANDIA, NEW YORK 11749-7000. TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO LATER THAN MARCH 13, 2000. THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT STERLING SOFTWARE THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. THAT INFORMATION IS AVAILABLE WITHOUT CHARGE TO YOU UPON WRITTEN OR ORAL REQUEST. YOU MUST ADDRESS YOUR REQUEST TO INVESTOR RELATIONS, STERLING SOFTWARE, INC., 300 CRESCENT COURT, SUITE 1200, DALLAS, TEXAS 75201. TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO LATER THAN MARCH 13, 2000. 2 QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION Q: WHAT ARE COMPUTER ASSOCIATES AND STERLING SOFTWARE PROPOSING? A: We have entered into a merger agreement with Sterling Software pursuant to which we are offering, through Silversmith Acquisition Corp., a wholly owned subsidiary of Computer Associates, to exchange shares of Computer Associates common stock and the associated preferred stock purchase rights and possibly some cash at our election under the circumstances described in the next answered question for each outstanding share of Sterling Software common stock and associated preferred stock purchase rights. After the offer is completed, Silversmith Acquisition Corp. will merge with Sterling Software. As a result of the offer and the merger, Sterling Software will become a wholly owned subsidiary of Computer Associates. Q: WHAT WOULD I RECEIVE IN EXCHANGE FOR MY STERLING SOFTWARE SHARES? A: We are offering to exchange 0.5634 shares of Computer Associates common stock for each outstanding share of common stock of Sterling Software that is validly tendered and not properly withdrawn. This exchange ratio will be reset if, at the time that the waiting periods are cleared under antitrust laws applicable to the offer and the SEC has declared effective the registration statement of which this prospectus is a part, the average Computer Associates trading price is less than $63.10 or greater than $77.12. We may elect to pay you some cash in exchange for your Sterling Software shares if the average Computer Associates trading price is below $63.10 at the time the exchange ratio is reset. The formula for resetting the exchange ratio and setting the range of the cash amount that we may choose to pay to you is summarized on the front cover of this prospectus and is explained in more detail under "The Offer--Basic Terms" beginning on page 30. For more information on how the exchange ratio works and certain inherent risks, it is important for you to read the detailed information contained in the "Summary" beginning on page 9, "Risk Factors" beginning on page 23 and "The Offer" beginning on page 30. Q: HOW CAN I FIND OUT THE FINAL EXCHANGE RATIO? A: We will notify you by issuing a press release announcing the final exchange ratio and filing that press release with the SEC. The press release will state how much cash, if any, we have elected to pay in partial consideration for your Sterling Software shares under the cash option, if we exercise it. Sterling Software stockholders can call our information agent, MacKenzie Partners, Inc., at any time toll free at (800) 322-2885 for the average Computer Associates trading price for the preceding ten trading days and the exchange ratio that would be in effect based on that price (assuming we do not choose the cash option) and for the exchange ratio, as it may be reset, and any cash payable pursuant to the offer. For more information on the exchange ratio and for a table setting forth a range of average Computer Associates trading prices, the resulting exchange ratio and illustrations of the value you would receive for your Sterling Software shares, please see "The Offer" beginning on page 30. Q: HOW LONG WILL IT TAKE TO COMPLETE THE OFFER AND THE MERGER? A: We hope to complete the offer by March 31, 2000, which is the end of our fiscal year, or soon thereafter. We expect to complete the merger shortly after we complete the offer. Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS? A: If you are the record owner of your shares and you tender your shares in the offer, you will not have to pay brokerage fees or incur similar expenses. If you own your shares through a broker or other nominee, and your broker tenders the shares on your behalf, your broker may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. 3 Q: DOES STERLING SOFTWARE SUPPORT THE OFFER AND THE MERGER? A: Yes. Sterling Software's board of directors has unanimously determined that the offer is fair to, and in the best interests of, Sterling Software stockholders, and recommends that Sterling Software stockholders accept the offer and tender their shares pursuant to the offer. Sterling Software's board of directors has unanimously approved and declared advisable the merger agreement and the merger. Information about the recommendation of Sterling Software's board of directors is more fully set forth in Sterling Software's Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed to Sterling Software stockholders together with this prospectus. Q: HAS STERLING SOFTWARE RECEIVED A FAIRNESS OPINION IN CONNECTION WITH THE OFFER AND THE MERGER? A: Yes. Sterling Software has received an opinion from Goldman, Sachs & Co. dated February 14, 2000 substantially to the effect that, as of such date, the consideration to be received by Sterling Software stockholders pursuant to the merger agreement is fair from a financial point of view to the stockholders of Sterling Software. The opinion is attached as an exhibit to Sterling Software's Schedule 14D-9, which is being mailed to the stockholders of Sterling Software with this prospectus. Q: HAVE ANY STERLING SOFTWARE STOCKHOLDERS AGREED TO TENDER THEIR SHARES? A: Yes. Stockholders of Sterling Software, who we understand consist of all of its directors and senior executive officers and who collectively own outstanding shares representing approximately 2.4% of the fully-diluted common stock of Sterling Software as of February 9, 2000, have agreed to tender their shares in the offer. Q: WHAT PERCENTAGE OF COMPUTER ASSOCIATES COMMON STOCK WILL STERLING SOFTWARE STOCKHOLDERS OWN AFTER THE OFFER AND THE MERGER? A: If we obtain all of the shares of Sterling Software pursuant to the offer and the merger, former stockholders of Sterling Software would own approximately 8% of the shares of common stock of Computer Associates, based upon the number of shares of Computer Associates common stock outstanding on February 7, 2000 and of Sterling Software common stock outstanding on February 9, 2000, assuming that the exchange ratio is not reset. Q: WHAT ARE THE CONDITIONS TO THE OFFER? A: The offer is subject to several conditions, including: - a majority of the outstanding Sterling Software shares, on a fully-diluted basis, having been tendered and not withdrawn - waiting periods under applicable antitrust laws having expired or been terminated - the registration statement of which this prospectus is a part having been declared effective by the SEC and - Sterling Software having not breached any covenant, representation or warranty in a material manner. These conditions and other conditions to the offer are discussed in this prospectus under "The Offer--Conditions of the Offer" beginning on page 39. 4 Q: HOW DO I PARTICIPATE IN THE OFFER? A: To tender your shares, you should do the following: - If you hold your shares in your own name, complete and sign the enclosed letter of transmittal and return it with your share certificates to ChaseMellon Shareholder Services L.L.C., the depositary for the offer at one of its addresses on the back cover of this prospectus. - If you hold your shares in "street name" through a broker, ask your broker to tender your shares. - For more information on the timing of the offer, extensions of the offer period and your rights to withdraw your shares from the offer before the expiration date, please refer to "The Offer" beginning on page 30. Q: WILL I BE TAXED ON THE COMPUTER ASSOCIATES SHARES I RECEIVE? A: If the offer and the merger are consummated pursuant to the current terms of the merger agreement, and if Sterling Software either continues its software business or continues to use a significant portion of its software assets in its business and if Sterling Software stockholders receive from Computer Associates only Computer Associates shares in exchange for Sterling Software shares, without regard to any cash received in lieu of a fraction of a Computer Associates share, then the offer and the merger should be tax free to you, except to the extent that you receive any cash in lieu of a fraction of a Computer Associates share. However, the determination of whether the exchange of Sterling Software shares for Computer Associates shares pursuant to the offer or the merger, or both, will be tax free depends upon facts and circumstances that will not be known prior to the consummation of the offer and the merger, including: - whether the merger will be consummated - whether the offer and the merger will be treated as a single integrated transaction or as two separate transactions for federal income tax purposes - whether after the consummation of the offer and merger, Sterling Software will either continue its software business or continue to use a significant portion of its software assets in its business - what percentage of the total number of outstanding Sterling Software shares will be held by Computer Associates immediately after the consummation of the offer and - what percentage of the aggregate amount of consideration received from Computer Associates in exchange for Sterling Software shares will consist of Computer Associates shares. The tax consequences that will apply to you in connection with the offer and the merger will also depend on your particular circumstances. For a more detailed discussion of the tax consequences of the offer and the merger, see "Material Federal Income Tax Consequences" beginning on page 59. You are urged to consult your tax advisors for a full understanding of these tax consequences. Q: DO THE STATEMENTS ON THE COVER PAGE REGARDING THIS PROSPECTUS BEING INCOMPLETE AND THE REGISTRATION STATEMENT FILED WITH THE SEC NOT YET BEING EFFECTIVE MEAN THAT THE OFFER HAS NOT COMMENCED? A: No. The offer has commenced and completion of this prospectus and effectiveness of the registration statement are not necessary for you to tender Sterling Software shares. The SEC recently changed its rules to permit exchange offers to begin before the related registration statement has become effective, and we are taking advantage of the rule changes with the goal of combining Computer Associates and Sterling Software faster than similar combinations could 5 previously be accomplished. We cannot, however, accept any shares tendered in the offer until the registration statement is declared effective by the SEC. Q: IS COMPUTER ASSOCIATES' FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER MY SHARES IN THE OFFER? A: Yes. Shares of Sterling Software accepted in the offer will be exchanged for shares of Computer Associates and so you should consider our financial condition before you decide to become one of our stockholders through the offer. In considering Computer Associates' financial condition, you should review the documents incorporated by reference in this prospectus, because they contain detailed business, financial and other information about us. Q: ARE COMPUTER ASSOCIATES' CASH RESOURCES RELEVANT TO MY DECISION TO TENDER MY SHARES IN THE OFFER? A: If our right to exercise the cash election is triggered and we choose to exercise the election, we do not expect the amount of cash payable to exceed an amount that we would have in our general corporate funds. Q: WHERE CAN I FIND MORE INFORMATION ABOUT COMPUTER ASSOCIATES AND STERLING SOFTWARE? A: You can find more information about Computer Associates and Sterling Software as described under "Where You Can Find More Information" on page 7. Q: WHAT SHOULD I DO IF I HAVE QUESTIONS? A: If you have any questions about the offer or the proposed combination of Computer Associates and Sterling Software, please call our information agent, MacKenzie Partners, Inc., toll-free at (800) 322-2885. 6 WHERE YOU CAN FIND MORE INFORMATION Computer Associates and Sterling Software file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the SEC). You may read and copy any reports, statements or other information we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's public reference rooms in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from commercial document retrieval services and at the Internet world wide web site maintained by the SEC at www.sec.gov. Computer Associates filed a registration statement on Form S-4 to register with the SEC the shares of Computer Associates common stock to be issued pursuant to the offer and the merger. This prospectus is a part of that registration statement. As allowed by SEC rules, this prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement. We also filed with the SEC a statement on Schedule TO pursuant to rule 14d-3 under the Securities Exchange Act of 1934 furnishing certain information about the offer. You may read and copy the Schedule TO and any amendments to it at the SEC's public reference rooms referred to above. The SEC allows us to "incorporate by reference" information into this prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information contained directly in this prospectus. This prospectus incorporates by reference the documents set forth below that Computer Associates or Sterling Software have previously filed with the SEC. These documents contain important information about Computer Associates and Sterling Software and their financial condition. DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO: INVESTOR RELATIONS, COMPUTER ASSOCIATES INTERNATIONAL, INC., ONE COMPUTER ASSOCIATES PLAZA, ISLANDIA, NEW YORK 11749-7000. IN ORDER TO ENSURE TIMELY DELIVERY, ANY REQUEST FOR DOCUMENTS SHOULD BE SUBMITTED NO LATER THAN MARCH 13, 2000. The following documents filed by Computer Associates with the SEC are hereby incorporated by reference: - Annual Report on Form 10-K for the fiscal year ended March 31, 1999, which contains consolidated financial statements beginning on page 21 of the report - Proxy Statement for the Annual Meeting of Stockholders held on August 25, 1999 - Quarterly Reports on Form 10-Q for the periods ended June 30, 1999, September 30, 1999 and December 31, 1999, which each contain consolidated financial statements beginning on page 1 of the report - Current Reports on Form 8-K or 8-K/A filed June 14, 1999, June 18, 1999, July 2, 1999 and November 22, 1999 - Forms 8-A filed February 17, 1982 and August 25, 1986, which in turn incorporate by reference the description of Computer Associates common stock, par value $.10 per share, in Computer Associates' registration statement on Form S-1 (Registration No. 2-74618) filed under the Securities Act and - Current Report on Form 8-K filed June 18, 1991 and the portion of the Annual Report on Form 10-K for the fiscal year ended March 31, 1995 amending that Form 8-K, which includes a description of our preferred stock purchase rights associated with our common stock. 7 The following documents filed by Sterling Software with the SEC are hereby incorporated by reference: - Annual Report on Form 10-K for the fiscal year ended September 30, 1999, as amended by the Form 10-K/A dated January 28, 2000 - Proxy Statement for the Annual Meeting of Stockholders held on March 31, 1999 - Quarterly Report on Form 10-Q for the period ended December 31, 1999 - Current Report on Form 8-K dated February 18, 2000 and - Form 8-A/A filed on May 27, 1998, which supersedes in its entirety the Form 8-A filed on March 7, 1990, with respect to the shares of common stock, par value $.10 per share, of Sterling Software, and Forms 8-A and 8-A/A filed December 18, 1996, April 3, 1998 and February 17, 2000 with respect to the preferred stock purchase rights of Sterling Software. All documents filed by Computer Associates or Sterling Software pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 from the date of this prospectus to the date that shares are accepted for exchange pursuant to the offer (or the date that the offer is terminated) and, if later, until the earlier of the day a meeting of the Sterling Software stockholders to approve the merger is held and the day on which the merger is consummated shall also be deemed to be incorporated in this prospectus by reference. 8 SUMMARY THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS, AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO BETTER UNDERSTAND THE OFFER AND THE PROPOSED MERGER, YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY, AS WELL AS THOSE ADDITIONAL DOCUMENTS TO WHICH WE REFER YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 7. THE COMPANIES COMPUTER ASSOCIATES INTERNATIONAL, INC. One Computer Associates Plaza Islandia, New York 11749-7000 (631) 342-5224 Computer Associates is a leading provider of enterprise management, information management and business applications software products for use on a variety of hardware platforms. Because of its independence from hardware manufacturers, Computer Associates has been able to offer products for use on most of the existing major operating systems and application development environments. Computer Associates licenses and supports more than 600 integrated products for both the mainframe and client/server environments. Computer Associates is currently the third largest independent vendor in the software industry and services a blue-chip client list of approximately 90% of the Fortune 500. No single customer represents more than 5% of Computer Associates' annual revenues. Approximately 40% of Computer Associates' revenues were generated outside of North America in fiscal year 1999. In May 1999, Computer Associates acquired Platinum TECHNOLOGY International, INC. Platinum was engaged in providing software products in the areas of database management, e-commerce, application infrastructure management, decision support, data warehousing and knowledge management. During fiscal year 1999, Computer Associates formed a professional services organization now known as CA Services to expand its service offerings on behalf of clients and partners around the world. CA Services offers a broad spectrum of services ranging from consulting to implementation to comprehensive outsourcing and custom developing leading-edge information technology (IT) solutions. CA Services offers services both in support of and independent of Computer Associates products. Computer Associates' believes its software applications are among the most sophisticated software products on the market. Enterprise management, information management and business applications software are critical to keeping large computer systems and databases running. As a result, companies do not routinely switch to another vendor's products. This helps create a stable base of revenue from software upgrades, expansion of license rights and maintenance. On average, Computer Associates' customers have been licensing software from the company for approximately eight years, and the average mainframe and midrange client of the company licenses 16 separate software products. As of December 31, 1999, Computer Associates had approximately 18,000 employees in 195 offices worldwide. For the fiscal year ended March 31, 1999, Computer Associates reported revenues of $5.3 billion and net income of $626 million (11.9% of revenues). 9 SILVERSMITH ACQUISITION CORP. c/o Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11749-7000 (631) 342-5224 Silversmith Acquisition Corp. is a wholly owned subsidiary of Computer Associates. Silversmith Acquisition Corp. was organized on February 11, 2000 for the purposes of acquiring the Sterling Software shares tendered in the offer and merging with Sterling Software in the merger. It has not carried on any activities other than in connection with the merger agreement. STERLING SOFTWARE, INC. 300 Crescent Court, Suite 1200 Dallas, Texas 75201 (214) 981-1000 Sterling Software is a worldwide developer and provider of systems management, business intelligence and application development software products and services, as well as a supplier of specialized IT services for sectors of the federal government. Founded in 1981, Sterling Software's customers include approximately 90% of the Fortune 100 and encompass a worldwide installed base of more than 20,000 customer sites. Sterling Software operates through four principal business segments: systems management, application development, business intelligence and federal systems. Worldwide revenue from Sterling Software's systems management, application development, business intelligence and federal systems business segments represented 36%, 34%, 10% and 20%, respectively, of Sterling Software's total fiscal year 1999 revenues. Approximately 37% of Sterling Software's revenues were generated outside of the United States in fiscal year 1999. As of December 31, 1999, Sterling Software employed approximately 3,800 employees in 90 offices worldwide. Sterling Software has direct sales offices in 21 countries and distributors and agents in approximately 40 additional countries. Sterling Software reported $807 million in revenues for the fiscal year ended September 30, 1999. THE PROPOSED COMBINATION Computer Associates and Sterling Software have entered into a merger agreement pursuant to which we are making this offer through Silversmith Acquisition Corp., our wholly owned subsidiary. After the offer is completed, Silversmith Acquisition Corp. will be merged with Sterling Software, subject to satisfaction or waiver of the conditions to the merger. As a result of the offer and the merger, Sterling Software will become a wholly owned subsidiary of Computer Associates. The merger agreement is filed as an exhibit to the registration statement of which this prospectus is a part and is incorporated by reference in this prospectus. We encourage you to read the merger agreement. It is the principal document governing the merger. See "The Offer" beginning on page 30 and "The Merger Agreement and the Tender Agreement" beginning on page 45. REASONS FOR THE PROPOSED COMBINATION We believe that the proposed combination of Computer Associates and Sterling Software will produce the following benefits: - ACCESS TO NEW PRODUCT AREAS. Sterling Software's disk storage management and object oriented application development tools provide Computer Associates with technology to complement its existing enterprise management solutions. 10 - INCREASED DIVERSIFICATION INTO NEW MARKETS. The combination of Computer Associates and Sterling Software provides the combined entity with the opportunity for diversification into new markets and access to new customers. - INCREASED MARKET PRESENCE AND OPPORTUNITIES. The combination of Computer Associates and Sterling Software provides the combined entity with increased market presence and opportunities for growth that will allow it to be better able to respond to the needs of customers, the increased competitiveness of the marketplace and opportunities that changes in the market might bring. - PRODUCT MIX. The complementary nature of Computer Associates' and Sterling Software's products will benefit clients of both companies. - OPERATING EFFICIENCIES. The combination of Computer Associates and Sterling Software provides the opportunity for potential economies of scale and cost savings. The reasons for the Sterling Software board's recommendation are set forth in Sterling Software's Solicitation/Recommendation Statement on Schedule 14D-9. SUPPORT OF STERLING SOFTWARE'S BOARD OF DIRECTORS AND MANAGEMENT Sterling Software's board of directors has unanimously determined that the offer is fair to, and in the best interests of, Sterling Software stockholders, and recommends that Sterling Software stockholders accept the offer and tender their shares pursuant to the offer. Sterling Software's board of directors has unanimously approved and declared advisable the merger agreement and the merger. Information about the recommendation of Sterling Software's board of directors is more fully set forth in Sterling Software's Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed to Sterling Software stockholders together with this prospectus. The merger requires the affirmative vote of at least a majority of the shares of Sterling Software common stock outstanding on the record date for the meeting to approve the merger, unless we have acquired 90% or more of such outstanding shares in which case the merger can be accomplished without a vote. If the minimum tender condition is satisfied and we purchase the tendered Sterling Software shares, approval of the merger by Sterling Software stockholders will be assured, subject to the other conditions to the merger. As of February 9, 2000, directors and executive officers of Sterling Software owned and were entitled to vote 2,490,550 outstanding shares of Sterling Software common stock, which represented approximately 2.4% of the fully-diluted common stock of Sterling Software, according to Sterling Software. These directors and senior executive officers have agreed to tender their shares in the offer. See "The Merger Agreement and the Tender Agreement--The Tender Agreement." THE OFFER SUMMARY OF THE OFFER EXCHANGE OF SHARES; EXCHANGE RATIO. We are offering to exchange 0.5634 shares of Computer Associates common stock for each outstanding share of Sterling Software common stock that is validly tendered and not properly withdrawn. We sometimes refer to this number of Computer Associates shares (as it may be adjusted) as the "exchange ratio." ADJUSTMENTS TO EXCHANGE RATIO. We will reset the exchange ratio if, at the time that the offer has cleared waiting periods under applicable antitrust laws and the SEC has declared effective the registration statement of which this prospectus is a part, the average of the daily average of the high and low sales price per share of Computer Associates common stock on the NYSE Composite Transaction Tape over the ten trading days immediately preceding the first day on which we have obtained all those regulatory clearances, which we call the "average Computer Associates trading price," is greater than $77.12 or less than $63.10. 11 If at the end of that ten trading day period the average Computer Associates trading price is greater than $77.12, then the number of shares of Computer Associates common stock that we are offering to exchange for each share of Sterling Software common stock will be reset to be $43.45 divided by the average Computer Associates trading price. This reset is designed to provide you with a number of Computer Associates shares having a value of $43.45 on the reset date, based on the average Computer Associates trading price, for each of your Sterling Software shares. If at the end of that ten trading day period the average Computer Associates trading price is less than $63.10, then the number of shares of Computer Associates common stock that we are offering to exchange for each share of Sterling Software common stock will be reset to be $35.55 divided by the average Computer Associates trading price. This reset is designed to provide you with a number of Computer Associates shares having a value of $35.55 on the reset date, based on the average Computer Associates trading price, for each of your Sterling Software shares. The market value of the Computer Associates shares you receive in exchange for each share of Sterling Software, based on actual trading prices at the time that we reset the exchange ratio, might actually be below $35.55 or above $43.45. For more information on the exchange ratio and for a table setting forth a range of average Computer Associates trading prices, the resulting exchange ratio and illustrations of the value of your Sterling Software shares, please see "The Offer" beginning on page 30. CASH OPTION. If the average Computer Associates trading price is less than $63.10, we have the option when we reset the exchange ratio to reduce it by paying some cash in substitute for Computer Associates shares. We sometimes refer to this option as the "cash option." The maximum amount of cash for each Sterling Software share that we may substitute for Computer Associates shares in that case is the amount by which the average Computer Associates trading price multiplied by the exchange ratio of 0.5634 falls short of $35.55. If we choose to elect the cash option, the exchange ratio will be reset to be the portion of $35.55 that we are not paying in cash, divided by the average Computer Associates trading price. FLUCTUATIONS IN MARKET PRICE. The average Computer Associates trading price used to reset the exchange ratio is based on an average calculated over a ten trading day period prior to the reset date and therefore might be different from the market value based on actual trading prices of a share of Computer Associates common stock on the reset date. In addition, from the time the exchange ratio is reset, or from the date of the merger agreement if no reset occurs, until the time you receive your Computer Associates shares through the offer or the merger, the market value based on the trading price at such time of the consideration you will receive will rise and fall along with the trading price of Computer Associates common shares. See "Risk Factors" beginning on page 23. MORE INFORMATION ABOUT EXCHANGE RATIO. We will notify you by issuing a press release announcing the final exchange ratio and filing that press release with the SEC. The press release will state how much cash, if any, we have elected to pay in partial consideration for your Sterling Software shares under the cash option, if we exercise it. Sterling Software stockholders can call our information agent, MacKenzie Partners, Inc., at any time toll free at (800) 322-2885 to request information about the exchange ratio and any reset of the exchange ratio, including, once determined, the average Computer Associates trading price and any cash payable pursuant to the offer. MERGER. We are making this offer in order to acquire control of, and ultimately the entire common equity interest in, Sterling Software. We intend, as soon as possible after consummation of the offer, to seek to have Sterling Software and Silversmith Acquisition Corp. consummate the merger. At the effective time of the merger, each share of Sterling Software common stock, except for shares held by Sterling Software, us or any of our or Sterling Software's subsidiaries, will be converted into the right to receive the same number of Computer Associates shares (and same amount of cash, if any) per 12 Sterling Software share as is paid in the offer, subject to appraisal rights that may be available under Delaware law. CONDITIONS OF THE OFFER. Our obligation to consummate the offer is subject to various conditions described below under "The Offer--Conditions of the Offer," including, among others: - a majority of the outstanding Sterling Software shares, on a fully-diluted basis, having been tendered and not withdrawn - waiting periods under applicable antitrust laws having expired or been terminated - the registration statement of which this prospectus is a part having been declared effective by the SEC and - Sterling Software having not breached any covenant, representation or warranty in a material manner. TIMING OF THE OFFER. The offer is currently scheduled to expire at midnight, New York City time, on Monday, March 20, 2000. EXTENSION OF OFFER PERIOD. We have agreed in the merger agreement that: - we will extend the period of time the offer remains open beyond the scheduled expiration date for successive periods of up to 15 business days in order to allow specified conditions to the offer to be met, subject to some limitations under the merger agreement - we will only be required to extend the period of time the offer remains open for a total of 20 business days following the scheduled expiration date if the only condition to the offer not satisfied at that time is the minimum tender condition - we have the right, subject to limits in the merger agreement, to extend at any time or from time to time in our sole discretion the period of time during which the offer remains open by giving oral or written notice to the depositary and - we are not required by the merger agreement to extend the offer if there is not any reasonable possibility of all the conditions to the offer being satisfied by September 30, 2000. If the offer is extended for any reason, we will make an announcement to that effect no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled expiration date. During any extension of the offer, all Sterling Software shares previously tendered and not withdrawn will remain subject to the offer, subject to your right to withdraw your Sterling Software shares. You should read the discussions under the caption "The Offer--Withdrawal Rights" beginning on page 34 and "The Merger Agreement and the Tender Agreement--The Merger Agreement--The Offer" beginning on page 45 for more details. DELAY; TERMINATION; WAIVER; AMENDMENT. Subject to the SEC's rules and regulations and the terms of the merger agreement, we also reserve the right, in our sole discretion, at any time or from time to time - to delay acceptance for exchange of or, regardless of whether we previously accepted Sterling Software shares for exchange, exchange any Sterling Software shares pursuant to the offer upon the failure of any of the conditions of the offer to be satisfied - to terminate the offer and not accept or exchange any Sterling Software Shares not previously accepted or exchanged, upon the failure of any of the conditions of the offer to be satisfied and - to waive any condition (other than the minimum tender condition) or otherwise amend the offer in any respect 13 by giving oral or written notice of the delay, termination or amendment to the depositary and by making a public announcement. We will follow any extension, termination, amendment or delay, as promptly as practicable, with a public announcement. In the case of an extension, any such announcement will be issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled expiration date. Subject to applicable law (including Exchange Act rules 14d-4(d) and 14d-6(c), which require that any material change in the information published, sent or given to stockholders in connection with the offer be promptly sent to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which we may choose to make any public announcement, we assume no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. WITHDRAWAL RIGHTS. Your tender of Sterling Software shares pursuant to the offer is irrevocable, except that, other than during a subsequent offering period, Sterling Software shares tendered pursuant to the offer may be withdrawn at any time prior to the expiration date of the offer, and, unless we previously accepted them for exchange pursuant to the offer, may also be withdrawn at any time after April 22, 2000. SUBSEQUENT OFFERING PERIOD. We may, although we do not currently intend to, elect to provide a subsequent offering period of three to 20 business days after the acceptance of Sterling Software shares in the offer if the requirements under Exchange Act rule 14d-11 have been met. You will not have the right to withdraw Sterling Software shares that you tender in the subsequent offering period, if any. EXCHANGE OF SHARES; DELIVERY OF COMPUTER ASSOCIATES COMMON STOCK. Upon the terms and subject to the conditions of the offer, including, if the offer is extended or amended, the terms and conditions of any such extension or amendment, we will accept and will exchange Sterling Software shares validly tendered and not withdrawn as promptly as practicable after the expiration date and promptly after they are tendered during any subsequent offering period. APPRAISAL RIGHTS. The offer does not entitle you to appraisal rights with respect to your Sterling Software shares. Sterling Software stockholders who have not validly tendered their shares in the offer and do not vote in favor of the merger will have the right under the Delaware General Corporation Law to dissent and demand appraisal of their Sterling Software shares in accordance with Section 262 of the Delaware General Corporation Law: 1. if the merger is consummated pursuant to Section 253 of the Delaware General Corporation Law--that is, if we own at least 90% of the Sterling Software shares and the merger is effected as a "short-term" merger without a vote of Sterling Software stockholders or 2. if the merger is consummated with a vote of the Sterling Software stockholders and - the Sterling Software shares are not then listed on a national securities exchange, quoted through NASDAQ or held of record by more than 2,000 holders or - we elect the cash option, if available. See "The Offer--Purpose of the Offer; The Merger; Appraisal Rights" beginning on page 38. PROCEDURE FOR TENDERING SHARES. For you to validly tender Sterling Software shares pursuant to the offer: 1. you must properly complete and sign a letter of transmittal (or manually executed facsimile of that document), including (a) any required signature guarantees or (b) an agent's message, if you tender through a book-entry transfer and (c) any other required documents AND 14 2. the depositary must have received all of those documents at one of its addresses set forth on the back cover of this prospectus AND 3. the depositary must have received your tendered Sterling Software share certificates at one of its addresses set forth on the back cover of this prospectus OR your Sterling Software shares must be tendered pursuant to the procedures for book-entry tender set forth in "The Offer--Procedure for Tendering" (and a confirmation of receipt of such tender received by the depositary) OR if you cannot comply with either of the two preceding delivery procedures described in this paragraph, you must have complied with the guaranteed delivery procedures set forth in "The Offer--Procedure for Tendering." All of these procedures must be completed by the expiration date. For more information on how to tender your shares in the offer, please refer to "The Offer--Procedure for Tendering" beginning on page 35. For information on how exchanges of shares will occur once the merger is consummated, please refer to "The Merger Agreement and the Tender Agreement--The Merger Agreement--Exchange Agent; Procedures for Exchange of Certificates" beginning on page 46. 15 RISK FACTORS In deciding whether to tender your shares pursuant to the offer, you should read carefully this prospectus and the documents to which we refer you. You should also carefully consider the following factors: - the fixed exchange ratio feature of the offer and the merger, even as it may be reset, which will work to your disadvantage if Computer Associates stock decreases in value - the receipt of Computer Associates shares in exchange for your Sterling Software shares may be taxable to you - the risks associated with integrating Sterling Software into our company, including the risk that the anticipated benefits from the business combination may not be realized - the price of Computer Associates common stock could depend upon factors different than those affecting the price of Sterling Software common stock - potentially significant increases in depreciation and amortization expense from preliminary estimates reflected in the pro forma financial information included in this prospectus may occur once the purchase consideration is finally allocated to Sterling Software's assets, which would cause net earnings to decrease - the need for governmental approvals and possible operating restrictions imposed by regulators may delay consummation of the offer and the merger and adversely affect the combined companies - measures we take to protect our proprietary technologies may not be sufficient to deter misappropriation and infringement by us of others' rights could occur - the degree of competition in our industry - rapid technological changes which could make it more difficult to compete effectively See "Risk Factors" beginning on page 23 for a more complete discussion of these factors. MARKET PRICES OF COMPUTER ASSOCIATES AND STERLING SOFTWARE COMMON STOCK The following table presents: - the last reported sale price of Computer Associates common stock, as reported on the NYSE Composite Transaction Tape - the last reported sale price of Sterling Software common stock, as reported on the NYSE Composite Transaction Tape and - the market value based on the last reported sales price on the dates specified below of the shares of Computer Associates common stock to be received in exchange for one share of Sterling Software common stock in the offer in each case as if the merger had been completed on February 11, 2000, the last full trading day prior to the public announcement of the proposed merger, and on February 18, 2000, the last day for which such information could be practicably calculated prior to the date of this prospectus. The equivalent price per share data for Sterling Software common stock has been determined by multiplying the last 16 reported sale price of one share of Computer Associates common stock on each of these dates by the exchange ratio of 0.5634.
EQUIVALENT PRICE COMPUTER OF SHARE OF STERLING ASSOCIATES STERLING SOFTWARE SOFTWARE DATE COMMON STOCK COMMON STOCK COMMON STOCK - ---- --------------- ----------------- -------------------- February 11, 2000........... $69.75 $34.4375 $39.2972 February 18, 2000........... $71.25 $36.3125 $40.1423
We urge you to obtain current market quotations before making any decision with respect to the offer. MATERIAL FEDERAL INCOME TAX CONSEQUENCES If the offer and the merger are consummated pursuant to the current terms of the merger agreement, and if Sterling Software either continues its software business or continues to use a significant portion of its software assets in its business and if the Sterling Software stockholders receive from Computer Associates only Computer Associates shares in exchange for Sterling Software shares, without regard to any cash received in lieu of a fraction of a Computer Associates share, then Computer Associates intends to treat the offer and the merger as a tax-free reorganization that should be tax free to you except to the extent that you receive any cash in lieu of a fraction of a Computer Associates share. However, the determination of whether your exchange of Sterling Software shares for Computer Associates shares pursuant to the offer or the merger, or both, will be tax free depends upon facts and circumstances that will not be known until the consummation of the offer and the merger, including: - whether the merger will be consummated - whether the offer and the merger will be treated as a single integrated transaction or as two separate transactions for federal income tax purposes - whether after the consummation of the offer and merger, Sterling Software will either continue its software business or continue to use a significant portion of its software assets in its business - what percentage of the total number of outstanding Sterling Software shares will be held by Computer Associates immediately after the consummation of the offer and - what percentage of the aggregate amount of consideration received from Computer Associates in exchange for Sterling Software shares will consist of Computer Associates shares. If the receipt of Computer Associates shares is tax free to you, then you will not recognize loss but, in general, you will recognize gain with respect to any cash received by you pursuant to the offer or the merger, or both, to the extent of the lesser of (x) the cash received or (y) the excess of the value of the Computer Associates shares plus the cash received over your tax basis in the Sterling Software shares exchanged. If the receipt of Computer Associates shares is taxable to you, however, you will recognize gain or loss equal to the difference between the value of the Computer Associates shares plus any cash received by you over your tax basis in the Sterling Software shares exchanged. For a more detailed discussion of the tax consequences of the offer and the merger, see "Material Federal Income Tax Consequences" beginning on page 59. You are urged to consult your tax advisors for a full understanding of these tax consequences. 17 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF COMPUTER ASSOCIATES AND SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF COMPUTER ASSOCIATES AND STERLING SOFTWARE The following is a summary of selected historical consolidated financial data of Computer Associates for each of the years in the five-year period ended March 31, 1999 and the nine-month periods ended December 31, 1999 and 1998 and selected unaudited pro forma combined financial data of Computer Associates and Sterling Software for the year ended March 31, 1999 and the nine-month period ended December 31, 1999. The operating results for the nine months ended December 31, 1999 are not necessarily indicative of results for the full fiscal year ending March 31, 2000. In addition, on May 28, 1999, Computer Associates acquired approximately 98% of the issued and outstanding shares of common stock of Platinum TECHNOLOGY International, INC., and on June 29, 1999, merged one of its wholly owned subsidiaries into Platinum at which time Platinum became a wholly owned subsidiary of Computer Associates. The selected unaudited historical financial data for the nine-month period ended December 31, 1999 reflect the acquisition of Platinum by Computer Associates on May 28, 1999. The selected unaudited pro forma financial data for the nine months ended December 31, 1999 and the year ended March 31, 1999 give effect to the acquisition of Platinum by Computer Associates as if it had occurred on April 1, 1998. See "Where You Can Find More Information" on page 7. You should read this summary together with these financial statements and their accompanying notes and in conjunction with management's discussion and analysis of operations and financial conditions of Computer Associates contained in such reports. The historical consolidated financial data of Computer Associates are derived from the audited financial statements of Computer Associates contained in Computer Associates' Annual Report on Form 10-K for the fiscal year ended March 31, 1999 and from the unaudited financial statements of Computer Associates contained in Computer Associates' Quarterly Report on Form 10-Q for the period ended December 31, 1999, which are incorporated by reference in this prospectus, and from Computer Associates' Quarterly Report on Form 10-Q for the period ended December 31, 1998 and is qualified in its entirety by such documents. The selected unaudited pro forma combined financial data of Computer Associates and Sterling Software have been derived from Computer Associates' audited consolidated financial statements for the year ended March 31, 1999, Computer Associates' unaudited consolidated financial statements for the nine months ended and as of December 31, 1999, Platinum's unaudited consolidated financial statements for the quarter ended March 31, 1999, Platinum's audited consolidated financial statements for the year ended December 31, 1998, Sterling Software's audited consolidated financial statements for the year ended September 30, 1999 and Sterling Software's unaudited consolidated financial statements for the quarter ended and as of December 31, 1999. In addition, the audited financial statements contained in Sterling Software's Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and the unaudited financial statements of Sterling Software contained in Sterling Software's Quarterly Reports on Form 10-Q for the periods ended June 30, 1998, December 31, 1998, March 31, 1999 and June 30, 1999 have been used to conform the financial reporting periods of Sterling Software to those of Computer Associates. The selected unaudited pro forma combined financial data give effect to the merger and the offer as if they had occurred on the dates referenced under "Unaudited Pro Forma Condensed Combined Financial Information." The selected unaudited pro forma combined financial data do not include the realization of any cost savings from operating efficiencies, synergies or other restructurings resulting from the merger. The selected unaudited pro forma combined financial data do not purport to represent what Computer Associates' results of operations or financial position actually would have been if the transactions referred to therein had been consummated on the date or for the periods indicated or what such results will be for any future date or any future period. You should read this summary together with "Unaudited Pro Forma Condensed Combined Financial Information" beginning on page 69 and the accompanying notes. 18
NINE MONTHS ENDED DECEMBER 31, YEAR ENDED MARCH 31, --------------------------------- ----------------------------------------------------------------- 1999 1999(2) ---------------------- --------------------- ACTUAL(1) PRO FORMA 1998 ACTUAL PRO FORMA 1998(3) 1997(4) 1996(5) 1995(6) --------- ---------- -------- -------- ---------- -------- -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATE AMOUNTS) INCOME STATEMENT DATA Revenue................. $4,640 $5,397 $3,624 $5,253 $6,961 $4,719 $4,040 $3,505 $2,623 Net income (loss)....... 304 (37) 168 626 (323) 1,169 366 (56) 432 Basic earnings (loss) per common share(7)... $ .56 $ (.06) $ .31 $ 1.15 $ (.55) $ 2.14 $ .67 $ (.10) $ .80 Diluted earnings (loss) per common share(7)... .55 (.06) .30 1.11 (.55) 2.06 .64 (.10) .76 Dividends declared per common share(7)(8).... .080 .080 .080 .080 .080 .073 .065 .061 .059
DECEMBER 31, --------------------------------- 1999 MARCH 31, ---------------------- ---------------------------------------------------- ACTUAL(1) PRO FORMA 1998 1999(2) 1998(3) 1997(4) 1996(5) 1995(6) --------- ---------- -------- -------- -------- -------- -------- -------- (IN MILLIONS) BALANCE SHEET AND OTHER DATA Cash from operations................. $ 834 $ 957 $ 698 $1,267 $1,040 $ 790 $ 619 $ 489 Working capital...................... (362) 30 892 768 379 53 (53) 300 Total assets......................... 12,232 16,477 7,278 8,070 6,706 6,084 5,016 3,269 Long-term debt (less current maturities)........................ 4,765 4,803 2,030 2,032 1,027 1,663 945 50 Stockholders' equity................. 3,058 6,831 2,558 2,729 2,481 1,503 1,482 1,578
- ------------------------------ (1) Includes an after-tax charge of $646 million related to the acquisition of Platinum TECHNOLOGY International, INC. and an asset impairment charge of $37 million in connection with an other than temporary decline in market value associated with an investment in CHS Electronics, Inc. (2) Includes an after-tax charge of $675 million related to the 1995 Key Employee Stock Ownership Plan. (3) Includes an after-tax charge of $21 million related to Computer Associates' unsuccessful tender offer for Computer Sciences Corporation. (4) Includes an after-tax write-off of $598 million related to the acquisition of Cheyenne Software, Inc. in November 1996. (5) Includes an after-tax write off of $808 million related to the acquisition of Legent Corporation in August 1995. (6) Includes an after-tax write off of $154 million related to the acquisition of the ASK Group, Inc. in June 1994. (7) Adjusted to reflect the three-for-two stock splits effective August 21, 1995, June 19, 1996, and November 5, 1997. (8) Pro forma dividends declared per common share assumes consistent rate maintained for additional shares issued in the offer and actual shares. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF STERLING SOFTWARE The following is a summary of selected consolidated financial data of Sterling Software for each of the years in the five-year period ended September 30, 1999 and the three-month periods ended December 31, 1999 and 1998. The operating results for the three months ended December 31, 1999 are not necessarily indicative of results for the full fiscal year ending September 30, 2000. This information is derived from the selected audited financial data of Sterling Software contained in Sterling Software's Annual Report on Form 10-K for the fiscal year ended September 30, 1999 and from the unaudited financial statements of Sterling Software contained in Sterling Software's Quarterly Report on Form 10-Q for the period ended December 31, 1999, which are incorporated by reference in this prospectus, and from Sterling Software's Quarterly Report on Form 10-Q for the period ended December 31, 1998, and is qualified in its entirety by such documents. See "Where You Can Find More Information" on page 7. You should read this summary together with these financial statements and their accompanying notes and in conjunction with management's discussion and analysis of operations and financial conditions of Sterling Software contained in such reports. No cash dividends were declared or paid by Sterling Software during these periods. 19
THREE MONTHS ENDED DECEMBER 31, FISCAL YEAR ENDED SEPTEMBER 30, ----------------------- ------------------------------------------------------------ 1999 1998 1999(1) 1998(2) 1997(3) 1996(4) 1995(5) ---------- ---------- ---------- ---------- ---------- ---------- -------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA INFORMATION) OPERATING DATA: Revenue................................ $ 206,956 $ 174,459 $ 807,004 $ 719,943 $ 569,202 $ 513,761 $467,093 Income (loss) from continuing operations........................... 31,010 4,206 (10,756) 76,044 (131,897) 62,117 (32,942) Income (loss) from discontinued operations, net of taxes(4).......... 51,187 42,930 Gain on the initial public offering of subsidiary, net of taxes(4)............ 126,103 PER COMMON SHARE DATA: Income (loss) from continuing operations: Basic................................ $ .38 $ .05 $ (.13) $ .94 $ (1.66) $ .92 $ (.66) Diluted.............................. .36 .05 (.13) .89 (1.66) .86 (.66) Net income (loss): Basic................................ .38 .05 (.13) .94 (1.66) 3.56 .20 Diluted.............................. .36 .05 (.13) .89 (1.66) 3.26 .20 BALANCE SHEET DATA (AT END OF PERIOD): Working capital........................ $ 465,704 $ 661,930 $ 421,836 $ 673,301 $ 556,552 $ 730,107 $214,656 Total assets........................... 1,226,326 1,214,764 1,230,031 1,188,988 1,100,278 1,130,579 689,082 Long-term debt......................... 117,265 Stockholders' equity................... 854,537 868,925 811,732 861,558 757,491 887,336 354,636
- ------------------------------ (1) Results of operations for 1999 include $83,566,000 of purchased research and development costs charged to expense in accordance with the purchase method of accounting in connection with acquisitions completed by Sterling Software in 1999. Results of operations for 1999 also include reorganization costs of $99,620,000 primarily related to certain acquisitions completed in 1999, including the acquisition of Cayenne Software, Inc., the distributed systems storage software business of Spectra Logic Corporation, Interlink Computer Sciences, Inc., CoreData, Inc. and Information Advantage, Inc., including costs associated with the realignment of the application development business within the former application management business segment. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Combinations, Reorganizations and Divestitures" and Note 2 of Notes to the Consolidated Financial Statements of Sterling Software's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. (2) Results of operations for 1998 include reorganization costs of $45,162,000 primarily related to the reorganization of Sterling Software's operations in connection with the acquisition of Synon Corporation, and to a lesser extent, to the acquisition of Mystech Associates, Inc. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Combinations, Reorganizations and Divestitures" and Note 2 of Notes to Consolidated Financial Statements of Sterling Software's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. (3) Results of operations for 1997 include $137,849,000 of purchased research and development costs charged to expense in accordance with the purchase method of accounting in connection with Sterling Software's acquisition of the Software Division of Texas Instruments, Inc. ("TI Software"). Results of operations for 1997 also include reorganization costs of $106,037,000 primarily related to the reorganization of Sterling Software's operations in connection with the acquisition of TI Software, and to a lesser extent, the termination of Sterling Software's international distributor arrangement with Sterling Commerce, Inc. ("Sterling Commerce"). See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Combinations, Reorganizations and Divestitures" and Note 2 of Notes to Consolidated Financial Statements of Sterling Software's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. (4) On March 13, 1996, Sterling Commerce, a former wholly owned subsidiary of Sterling Software, completed the initial public offering of 13,800,000 shares of its common stock, par value $0.01 per share. Pursuant to the offering, Sterling Software sold to the public 12,000,000 of its 73,200,000 shares of Sterling Commerce stock and Sterling Commerce sold 1,800,000 previously unissued shares of Sterling Commerce stock. The offering resulted in net proceeds to Sterling Software of approximately $265,458,000 after deducting underwriting discounts and commissions and Sterling Software's pro rata share of offering expenses. On September 30, 1996, Sterling Software completed the spin-off of Sterling Commerce with the pro rata distribution of its remaining 81.6% ownership in Sterling Commerce to Sterling Software's stockholders by means of a tax-free dividend. The distribution resulted in the reduction of Sterling Software's stockholders' equity in the amount of $113,549,000, representing the book value of net assets distributed. The results of operations of Sterling Commerce for 1995 and 1996 have been classified as discontinued operations. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Combinations, Reorganizations and Divestitures" of Sterling Software's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. (5) Results of operations for 1995 include $62,000,000 of purchased research and development costs charged to expense in accordance with the purchase method of accounting in connection with the merger of Sterling Software with KnowledgeWare, Inc., as well as $19,512,000 of reorganization costs primarily related to the reorganization of Sterling Software's operations in connection with that merger. 20 COMPARATIVE PER SHARE INFORMATION The following table summarizes unaudited per share information for Computer Associates and Sterling Software on a historical, pro forma combined and equivalent pro forma combined basis. The following information should be read in conjunction with the audited consolidated financial statements of Computer Associates and Sterling Software, the unaudited interim consolidated financial statements of Computer Associates and Sterling Software, the selected historical condensed consolidated financial data and the unaudited pro forma condensed combined financial information included elsewhere or incorporated by reference herein, including the Forms 8-K and 8-K/A filed by Computer Associates relating to its May 28, 1999 acquisition of Platinum. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the acquisitions of Platinum and Sterling Software had been consummated as of the beginning of the respective periods presented, nor is it necessarily indicative of the future operating results or financial position of the combined companies. The historical book value per share is computed by dividing total stockholders' equity by the number of common shares outstanding at the end of the period. The pro forma per share loss from continuing operations is computed by dividing the pro forma loss from continuing operations by the pro forma weighted average number of shares outstanding. The pro forma combined book value per share is computed by dividing total pro forma stockholders' equity by the pro forma number of common shares outstanding at the end of the period. The Sterling Software equivalent pro forma combined per share amounts are calculated by multiplying the Computer Associates pro forma combined per share amounts by the exchange ratio of 0.5634 assuming the exchange ratio is not reset.
NINE MONTHS YEAR ENDED ENDED MARCH 31, 1999 DECEMBER 31, 1999 -------------- ----------------- COMPUTER ASSOCIATES Historical Per Common Share Data: Basic earnings per share.................................... $ 1.15 $ 0.56 Diluted earnings per share.................................. 1.11 0.55 Book value.................................................. 5.09 5.65 Dividends declared.......................................... .08 .08 Pro Forma Combined Per Common Share Data: Basic and diluted loss per share............................ $ (0.55) $ (0.06) Book value.................................................. 11.62 Dividends declared.......................................... .08(1) .08(1) STERLING SOFTWARE Historical Per Common Share Data: Basic earnings (loss) per share............................. $ 0.90 $ (0.23) Diluted earnings (loss) per share........................... 0.85 (0.23) Book value.................................................. 10.98 10.41 Equivalent Pro Forma Combined Per Common Share Data: Basic and diluted loss per share............................ $ (0.31) $ (0.03) Book value.................................................. 6.55 Dividends declared.......................................... .045 .045
(1) Pro forma dividends declared per common share assumes consistent rate maintained for additional shares issued in the offer and actual shares. 21 RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratios of earnings to combined fixed charges of Computer Associates for the periods indicated:
NINE MONTHS ENDED FISCAL YEAR ENDED DECEMBER 31, MARCH 31, ----------------- ---------------------- 1999 1999 1998 ----------------- -------- -------- Ratio of earnings to fixed charges....................... 4.05x(1) 5.98x(1) 10.51x
- ------------------------------ (1) The ratio of earnings to fixed charges for these periods reflects non-cash charges against earnings. Had these charges not been taken, the ratio of earnings to fixed charges for the nine months ended December 31, 1999 and the fiscal year ended March 31, 1999 would have been 6.30x and 11.26x, respectively. For purposes of computing the ratios of earnings to fixed charges, earnings represent earnings from continuing operations before income taxes and fixed charges, and fixed charges consist of interest expense and the portion of rents calculated to be representative of the interest factor. The ratios of earnings to fixed charges should be read in conjunction with the financial statements and other financial data included or incorporated by reference in this prospectus. See "Where You Can Find More Information." 22 RISK FACTORS In deciding whether to tender your shares pursuant to the offer, you should read carefully this prospectus, the accompanying Schedule 14D-9 of Sterling Software and the documents to which we refer you. You should also carefully consider the following factors: FIXED EXCHANGE RATIO COULD WORK TO YOUR DISADVANTAGE We are offering to exchange shares of Computer Associates common stock for shares of Sterling Software common stock at a fixed exchange ratio of shares of Computer Associates common stock for each share of Sterling Software common stock. We will reset the exchange ratio if the market value based on specified average trading prices of shares of Computer Associates common stock has increased or decreased beyond certain levels at the time the waiting periods under antitrust laws for the offer have expired or been terminated and the registration statement of which this prospectus is a part has been declared effective by the SEC. Because the average Computer Associates trading price used to reset the exchange ratio is based on an average calculated over a ten trading day period prior to the reset date, the value of the number of Computer Associates shares you are entitled to receive is likely to be different from their market value on the reset date, the date on which the offer is consummated, the date of the merger or the date on which you receive our shares in exchange for your Sterling Software shares. The market value of the Computer Associates shares you receive for each share of Sterling Software might actually be below $35.55 or above $43.45. Once you have tendered your shares and your withdrawal rights have expired, you will be locked into the applicable exchange ratio, and you may not be able to capture gains from possible increases in value of Sterling Software common stock. Also, because of the reset feature of the exchange ratio, you may not receive the full benefit from possible increases in value of Computer Associates common stock. Because the exchange ratio is fixed, you may incur losses from possible decreases in market value of Computer Associates common stock. The market value of Computer Associates common stock could fluctuate depending upon any number of reasons, including those specific to Computer Associates and those that influence the trading prices of equity securities generally. THE RECEIPT OF COMPUTER ASSOCIATES SHARES MAY BE TAXABLE TO YOU Before the consummation of the offer and the merger, it cannot be determined whether the receipt of Computer Associates shares in exchange for your Sterling Software shares will be tax free to you for federal income tax purposes. Such tax-free treatment depends upon facts and circumstances that will not be known prior to the consummation of the offer and the merger, including: - whether the merger will be consummated; - whether the offer and the merger will be treated as a single integrated transaction or as two separate transactions for federal income tax purposes; - whether after the consummation of the offer and merger, Sterling Software will either continue its software business or continue to use a significant portion of its software assets in its business - what percentage of the total number of outstanding Sterling Software shares will be held by Computer Associates immediately after the consummation of the offer; and - what percentage of the aggregate amount of consideration received from Computer Associates in exchange for Sterling Software shares will consist of Computer Associates shares. Neither the offer nor the merger is conditioned on the tax-free nature of the exchange of Sterling Software shares for Computer Associates shares. As a result, if and when you tender Sterling Software shares in the offer you will not know whether the offer or the merger, or both, will be tax free to you. See "Material Federal Income Tax Consequences" below. 23 YOU ARE URGED TO CONSULT YOUR TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE OFFER AND THE MERGER, INCLUDING ANY FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES, AND ANY TAX RETURN FILING OR OTHER REPORTING REQUIREMENTS. BENEFITS OF THE COMBINATION MAY NOT BE REALIZED If we complete the proposed merger, we will integrate two companies that have previously operated independently. We may not be able to integrate the operations of Sterling Software with our operations without encountering difficulties. The diversion of the attention of management to the integration effort and any difficulties encountered in combining operations could adversely affect the combined company's businesses. THE TRADING PRICE OF COMPUTER ASSOCIATES COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT FROM THOSE AFFECTING THE PRICE OF STERLING SOFTWARE COMMON STOCK Upon completion of the offer and the merger, holders of Sterling Software common stock will become holders of Computer Associates common stock. Computer Associates' business differs from that of Sterling Software, and Computer Associates' results of operations, as well as the trading price of Computer Associates common stock, may be affected by factors different from those affecting Sterling Software's results of operations and the price of Sterling Software common stock. For a discussion of Computer Associates' and Sterling Software's businesses and information to consider in connection with such businesses, see Computer Associates' Annual Report on Form 10-K for the fiscal year ended March 31, 1999, Sterling Software's Annual Report on Form 10-K for the fiscal year ended September 30, 1999 and their subsequent interim reports, which are incorporated by reference in this prospectus. POTENTIALLY SIGNIFICANT INCREASES IN DEPRECIATION AND AMORTIZATION EXPENSE FROM PRELIMINARY ESTIMATES REFLECTED IN THE PRO FORMA FINANCIAL INFORMATION MAY OCCUR ONCE THE PURCHASE CONSIDERATION IS FINALLY ALLOCATED TO STERLING SOFTWARE'S ASSETS WHICH WOULD CAUSE NET EARNINGS TO DECREASE Pro forma results of operations reflect adjustments, which are based upon preliminary estimates, to reflect the allocation of purchase consideration to the acquired assets and liabilities of Sterling Software. The final allocation of the purchase consideration will be determined after the completion of the merger and will be based on appraisals and a comprehensive final evaluation of the fair value of Sterling Software's tangible assets, liabilities, identifiable intangible assets and goodwill at the time of the merger. Accordingly, the final determination of tangible and intangible assets may result in depreciation and amortization expense that is significantly higher than the preliminary estimates of these amounts, which would cause Computer Associates' net earnings to be lower. See the Notes contained in "Unaudited Pro Forma Condensed Combined Financial Information." NEED FOR GOVERNMENTAL APPROVALS MAY DELAY CONSUMMATION OF THE OFFER AND THE MERGER The offer is conditioned upon the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act). In addition, other filings with, notifications to and authorizations and approvals of, various governmental agencies with respect to the offer, the merger and the other transactions contemplated by the merger agreement and the tender agreement, relating primarily to antitrust issues, must be made and received prior to the consummation of the offer and the merger. Computer Associates and Sterling Software are seeking to obtain all required regulatory approvals prior to the scheduled completion of these transactions. You should be aware that - all required regulatory approvals may not be obtained on that timetable 24 - restrictions on the combined operations of Computer Associates and Sterling Software may be sought by governmental agencies as a condition to obtaining such approvals - operating restrictions imposed could adversely affect the value of the combined companies Please refer to "The Offer--Conditions of the Offer" and "--Regulatory Approvals" for more information. MEASURES TAKEN TO PROTECT PROPRIETARY INFORMATION MAY NOT BE SUFFICIENT TO DETER MISAPPROPRIATION AND INFRINGEMENT BY US OF OTHERS' RIGHTS COULD OCCUR The businesses of Computer Associates and Sterling Software depend in part on the quality of the companies' technological expertise and proprietary technologies. In order to protect proprietary information and intellectual property, both companies: - enter into license agreements with clients in the ordinary course of business which contain terms prohibiting unauthorized reproduction or use of their products and services and those of third parties - enter into confidentiality agreements with their associates, contractors, clients, potential clients and suppliers who have access to sensitive information and - limit access to, and distribution of, their proprietary information. We cannot assure you that these steps or other procedures we follow will be adequate to deter misappropriation or infringement of our proprietary rights or independent third party development of substantially similar products and technology. In addition, we cannot assure you that our current and future products will not infringe the proprietary rights of others. Infringement by us of others' rights could result in lawsuits against us, liabilities to others and adverse effect on our business, financial condition and operating results. OUR INDUSTRY IS HIGHLY COMPETITIVE The software and professional services industry is highly competitive, and we face intense competition in all of our client markets. The combined companies may encounter competition from new competitors, including established software and professional services companies with substantial resources. Some of our competitors may have financial, technical, marketing or other capabilities more extensive than ours and may be able to respond more quickly than we can to new or emerging technologies and other competitive pressures. We may not be able to compete successfully against our present or future competitors, and competition may adversely affect our business, financial condition or operating results. RAPID TECHNOLOGICAL CHANGE COULD AFFECT OUR ABILITY TO COMPETE We believe that our future success and the success of the combined companies will depend among other things on maintaining technological competitiveness in our products and services. We must continually improve our current processes and develop and introduce new products and services in order to match our competitors' new developments and our clients' increasingly sophisticated demands. We cannot assure you that we can successfully identify, develop and bring to market new and enhanced products and services in a timely manner, or that these products or services will be commercially successful. Also, there is a chance that potential clients will prefer products, services or technologies developed by others that may make our products or services obsolete or noncompetitive. 25 THE COMPANIES COMPUTER ASSOCIATES INTERNATIONAL, INC. One Computer Associates Plaza Islandia, New York 11749-7000 (631) 342-5224 Computer Associates is a leading provider of enterprise management, information management and business applications software products for use on a variety of hardware platforms. Because of its independence from hardware manufacturers, Computer Associates has been able to offer products for use on most of the existing major operating systems and application development environments. Computer Associates licenses and supports more than 600 integrated products for both the mainframe and client/server environments. Computer Associates is currently the third largest independent vendor in the software industry and services a blue-chip client list of approximately 90% of the Fortune 500. No single customer represents more than 5% of Computer Associates' annual revenues. Approximately 40% of Computer Associates' revenues were generated outside of North America in fiscal year 1999. In May 1999, Computer Associates acquired Platinum. Platinum was engaged in providing software products in the areas of database management, e-commerce, application infrastructure management, decision support, data warehousing and knowledge management. During fiscal year 1999, Computer Associates formed a professional services organization now known as CA Services to expand its service offerings on behalf of clients and partners around the world. CA Services offers a broad spectrum of services ranging from consulting to implementation to comprehensive outsourcing and custom developing leading-edge information technology (IT) solutions. CA Services offers services both in support of and independent of Computer Associates products. Computer Associates' believes its software applications are among the most sophisticated software products on the market. Enterprise management, information management and business applications software are critical to keeping large computer systems and databases running. As a result, companies do not routinely switch to another vendor's products. This helps create a stable base of revenue from software upgrades, expansion of license rights and maintenance. On average, Computer Associates' customers have been licensing software from the company for approximately eight years, and the average mainframe and midrange client of the company licenses 16 separate software products. As of December 31, 1999, Computer Associates had approximately 18,000 employees in 195 offices worldwide. For the fiscal year ended March 31, 1999, Computer Associates reported revenues of $5.3 billion and net income of $626 million (11.9% of revenues). SILVERSMITH ACQUISITION CORP. c/o Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11749-7000 (631) 342-5224 Silversmith Acquisition Corp. is a wholly owned subsidiary of Computer Associates. Silversmith Acquisition Corp. was organized on February 11, 2000 for the purposes of acquiring the Sterling Software shares tendered in the offer and merging with and into Sterling Software in the merger. It has not carried on any activities other than in connection with the merger agreement. 26 STERLING SOFTWARE, INC. 300 Crescent Court, Suite 1200 Dallas, Texas 75201 (214) 981-1000 Sterling Software is a worldwide developer and provider of systems management, business intelligence and application development software products and services, as well as a supplier of specialized IT services for sectors of the federal government. Founded in 1981, Sterling Software's customers include approximately 90% of the Fortune 100 and encompass a worldwide installed base of more than 20,000 customer sites. Sterling Software operates through four principal business segments: systems management, application development, business intelligence and federal systems. Worldwide revenue from Sterling Software's systems management, application development, business intelligence and federal systems business segments represented 36%, 34%, 10% and 20%, respectively, of Sterling Software's total fiscal year 1999 revenues. Approximately 37% of Sterling Software's revenues were generated outside of the United States in fiscal year 1999. As of December 31, 1999, Sterling Software employed approximately 3,800 employees in 90 offices worldwide. Sterling Software has direct sales offices in 21 countries and distributors and agents in approximately 40 additional countries. Sterling Software reported $807 million in revenues for the fiscal year ended September 30, 1999. 27 BACKGROUND OF THE OFFER In late 1999, in the course of its normal reviews of its business, Computer Associates' senior management reviewed and analyzed the company's position in the marketplace and possible new areas into which Computer Associates could enter to further differentiate the company from its competitors. In that review, management identified data storage and application development and services as areas in which Computer Associates could improve its competitive position. One of the conclusions reached by senior management was the need to further expand its product and service offerings in these areas. Computer Associates' senior management identified the OS/390 platform as one hardware platform in which it did not compete for disk storage management tools and for which it also desired to extend its object oriented application development tool offerings. Management also identified Sterling Software as a company that has products and services in these areas as well as other areas that are complementary to Computer Associates' product lines, and that could be a possible acquisition candidate. Independently from the management reviews, in late 1999 a representative of Morgan Stanley & Co. Incorporated, contacted Sanjay Kumar, President and Chief Operating Office of Computer Associates, to inquire as to whether Computer Associates might be interested in acquiring Sterling Software. At that time, Mr. Kumar advised Morgan Stanley that Computer Associates was not interested in acquiring Sterling Software. On January 14, 2000, Mr. Kumar met with representatives of Morgan Stanley to hear Morgan Stanley's industry and strategic views. During the course of the conversation, the possibility was raised again that Computer Associates might be interested in acquiring Sterling Software. Following the Morgan Stanley meeting, Mr. Kumar called Sam Wyly, Chairman of Sterling Software, to discuss the possibility of a business combination between Computer Associates and Sterling Software. On January 18, 2000, Mr. Kumar met Mr. Wyly in Dallas to discuss the potential business combination and valuation issues. On January 23, 2000, Mr. Kumar, along with Ira Zar, Chief Financial Officer, and Charles McWade, Senior Vice President of Computer Associates, and representatives of Morgan Stanley, met with Mr. Wyly, Sterling Williams, President and Chief Executive Officer, and other members of senior management of Sterling Software. Sterling Software's management presented an overview of Sterling Software's business information. At the quarterly meeting of Computer Associates' Board of Directors on January 25, 2000, Mr. Kumar raised the possibility of an acquisition of Sterling Software and outlined the strategic rationale for such an acquisition. Mr. Kumar and Mr. Williams spoke on a number of occasions between January 26 and February 3, 2000 to discuss valuation issues and possible structure and timing considerations. On February 4, 2000, Mr. Kumar met with Mr. Williams and Logan Wray, Chief Financial Officer of Sterling Software, to review valuation and financial issues and the possible benefits of a business combination. On February 6, 2000, in a call with Mr. Williams, Mr. Kumar indicated that Computer Associates was interested in pursuing a possible business combination at a valuation of between $38.25 and $39.25 per share for each share of Sterling Software's common stock. Computer Associates' interest in such a combination was subject to its completing to its satisfaction a due diligence review and mutually satisfactory definitive agreements, as well as the approval of the Computer Associates' Board of Directors. Mr. Kumar indicated that at that time he thought the combination would be structured as a stock for stock merger and would use purchase accounting. Mr. Kumar and Mr. Williams also discussed timing, structure and logistic issues. 28 On February 7 and 8, 2000, Mr. Kumar and Mr. Williams continued the discussion of the terms and timing of a possible transaction. Mr. Kumar indicated on February 8, 2000 that Computer Associates would be willing to increase the valuation to $39.50 per share and to agree to other specified conditions about the terms of the merger, such as a 10% collar and the treatment of stock options. On February 9, 2000, Computer Associates and Sterling Software entered into confidentiality agreements and representatives of Computer Associates and its counsel, Covington & Burling, met in Dallas with representatives of Sterling Software and its counsel, Skadden Arps, to continue Computer Associates' due diligence review and begin negotiating definitive agreements. Due diligence reviews and document negotiations continued into the early morning of February 14, 2000. Mr. Kumar left Dallas on the evening of February 10 and returned early the morning of February 12 with additional members of Computer Associates senior management to continue due diligence reviews of Sterling Software's business and operations. The Computer Associates Board of Directors met by conference call on February 10, 2000 and again on February 13, 2000. In the February 10 meeting, Mr. Kumar reviewed the status of the possible business combination with Sterling Software and the status of the due diligence review. In the February 13 meeting, Mr. Kumar and Mr. Zar reported on the status of the potential transaction and the board unanimously approved the acquisition of Sterling Software and authorized Mr. Kumar and the officers of the company to enter into the merger agreement. Before the open of the New York Stock Exchange on February 14, 2000, Computer Associates and Sterling Software entered into the merger agreement and announced the transaction. 29 THE OFFER BASIC TERMS EXCHANGE OF SHARES; EXCHANGE RATIO. We are offering to exchange 0.5634 shares of Computer Associates common stock for each outstanding share of common stock of Sterling Software that is validly tendered and not properly withdrawn. We sometimes refer to this number of Computer Associates shares as the "exchange ratio." ADJUSTMENTS TO EXCHANGE RATIO. We will reset the exchange ratio if, at the time that the offer has cleared waiting periods under applicable antitrust laws and the SEC has declared effective the registration statement of which this prospectus is a part, the average of the daily average of the high and low sales price per share of Computer Associates common stock on the NYSE Composite Transaction Tape over the ten trading days immediately preceding the first day on which we have obtained all those regulatory clearances, which we call the "average Computer Associates trading price," is greater than $77.12 or less than $63.10. If at the end of that ten trading day period the average Computer Associates trading price is greater than $77.12, then the number of shares of Computer Associates common stock that we are offering to exchange for each share of Sterling Software common stock will be reset to be $43.45 divided by the average Computer Associates trading price. This reset is designed to provide you with a number of Computer Associates shares having a value of $43.45 on the reset date, based on the average Computer Associates trading price, for each of your Sterling Software shares. If at the end of that ten trading day period the average Computer Associates trading price is less than $63.10, then the number of shares of Computer Associates common stock that we are offering to exchange for each share of Sterling Software common stock will be reset to be $35.55 divided by the average Computer Associates trading price. This reset is designed to provide you with a number of Computer Associates shares having a value of $35.55 on the reset date, based on the average Computer Associates trading price, for each of your Sterling Software shares. The market value of the Computer Associates shares you receive in exchange for each share of Sterling Software might differ from their market value based on the trading price at such time on the reset date, the date on which the offer is consummated, the date of the merger or the date you receive our shares in exchange for your Sterling Software shares. CASH OPTION. If the average Computer Associates trading price is less than $63.10, we have the option when we reset the exchange ratio to reduce it by paying some cash in substitute for Computer Associates shares. We sometimes refer to this option as the "cash option." The maximum amount of cash for each Sterling Software share that we may substitute for Computer Associates shares in that case is the amount by which the average Computer Associates trading price multiplied by the exchange ratio of 0.5634 falls short of $35.55. If we choose to elect the cash option, the exchange ratio will be reset to be the portion of $35.55 that we are not paying in cash, divided by the average Computer Associates trading price. ILLUSTRATIVE TABLE OF EXCHANGE RATIOS AND VALUE OF OFFER/MERGER CONSIDERATION. The columns in the following table present: - illustrative values of the average Computer Associates trading price within a range of $60.00 to $85.00 per share, - the exchange ratio illustrating the number of Computer Associates common shares that would be issued for one share of Sterling Software common stock at each of the average Computer Associates trading prices presented in the table and - the illustrative values of the consideration that would be issued in connection with the offer and the merger for one Sterling Software common share, which illustrative values are determined by 30 multiplying each of the average Computer Associates trading prices presented in the table by the corresponding exchange ratio and, in some cases, giving effect to an exercise of the cash option.
VALUE OF OFFER/MERGER CONSIDERATION ------------------------------------- AVERAGE COMPUTER ASSOCIATES TRADING PRICE EXCHANGE RATIO VALUE OF SHARES CASH TOTAL - ----------------------------------------- -------------- --------------- -------- -------- $60.00(1)............................ 0.5925 $35.55 -- $35.55 $60.00(2)............................ 0.5780 $34.68 $0.87 $35.55 $60.00(3)............................ 0.5634 $33.80 $1.75 $35.55 $63.10............................... 0.5634 $35.55 n/a $35.55 $65.00............................... 0.5634 $36.62 n/a $36.62 $70.00............................... 0.5634 $39.44 n/a $39.44 $75.00............................... 0.5634 $42.26 n/a $42.26 $77.12............................... 0.5634 $43.45 n/a $43.45 $80.00............................... 0.5431 $43.45 n/a $43.45 $85.00............................... 0.5112 $43.45 n/a $43.45
- ------------------------ (1) Assuming the exchange ratio resets without Computer Associates exercising the cash option. (2) Assuming Computer Associates elects to pay 50% of the maximum amount of cash permitted under the cash option. (3) Assuming Computer Associates elects to pay the maximum amount of cash permitted under the cash option. THE VALUES OF COMPUTER ASSOCIATES SHARES IN THE TABLE ABOVE ARE ILLUSTRATIVE ONLY AND DO NOT REPRESENT THE ACTUAL AMOUNTS PER STERLING SOFTWARE COMMON SHARE THAT MIGHT BE REALIZED BY ANY STERLING SOFTWARE STOCKHOLDER ON OR AFTER CONSUMMATION OF THE OFFER OR THE MERGER. THE AMOUNT ANY STERLING SOFTWARE STOCKHOLDER MIGHT REALIZE UPON SALE IN THE MARKET OF THE COMPUTER ASSOCIATES COMMON SHARES RECEIVED BY SUCH STOCKHOLDER IN THE OFFER OR THE MERGER WILL DEPEND UPON THE MARKET PRICE PER SHARE OF COMPUTER ASSOCIATES COMMON SHARES AT THE TIME OF SALE, WHICH WILL FLUCTUATE DEPENDING UPON ANY NUMBER OF REASONS, INCLUDING THOSE SPECIFIC TO COMPUTER ASSOCIATES AND THOSE THAT INFLUENCE THE TRADING PRICES OF EQUITY SECURITIES GENERALLY. FLUCTUATIONS IN MARKET PRICE. The average Computer Associates trading price used to reset the exchange ratio is based on an average calculated over a ten trading day period prior to the reset date and therefore might be different from the actual market value of a share of Computer Associates common stock on the reset date. The market value based on the trading price at such time of the Computer Associates shares you receive in exchange for each share of Sterling Software might actually be below $35.55 or above $43.45. In addition, from the time the exchange ratio is reset, or from the date of the merger agreement if no reset occurs, until the time you receive your Computer Associates shares through the offer or the merger, the market value based on the trading price at such time of the consideration you will receive will rise and fall along with the trading price of Computer Associates common shares. MORE INFORMATION ABOUT EXCHANGE RATIO. We will notify you by issuing a press release announcing the final exchange ratio and filing that press release with the SEC. The press release will state how much cash, if any, we have elected to pay in partial consideration for your Sterling Software shares under the cash option, if we exercise it. Sterling Software stockholders can call our information agent, MacKenzie Partners, Inc., at any time toll free at (800) 322-2885 to request information about the exchange ratio and any reset of the exchange ratio, including, once determined, the average Computer Associates trading price for the offer. PREFERRED STOCK PURCHASE RIGHTS. Our offer to acquire Sterling Software common stock is also an offer to acquire Sterling Software preferred stock purchase rights (Sterling Software rights), and, when 31 we refer to the shares of Sterling Software common stock, we are also referring to the associated Sterling Software rights, unless we indicate otherwise. In addition, all references to the Sterling Software rights include the benefits to holders of those rights pursuant to the Sterling Software rights agreement, including the right to receive any payment due upon redemption of those rights. The number of shares Computer Associates common stock and amount of cash, if we elect to pay a portion of the consideration in cash, receivable by holders of Sterling Software common stock in the offer and the merger includes payment for the associated Sterling Software rights, and under no circumstances will additional consideration be paid for the Sterling Software rights. Also, the shares of common stock of Computer Associates to be issued in the offer and the merger include the associated Computer Associates preferred stock purchase rights. When we refer to shares of Computer Associates common stock, we are also referring to these associated rights, unless we indicate otherwise. TRANSFER CHARGES. If you tender your shares, you will not be obligated to pay any charges or expenses of the depositary. Except as set forth in the instructions to the letter of transmittal, transfer taxes on the tender of Sterling Software common stock pursuant to the offer will be paid by us or on our behalf. If you are the record owner of your shares and you tender your shares in the offer, you will not have to pay brokerage fees or incur similar expenses. If you own your shares through a broker or other nominee, and your broker exchanges the shares on your behalf, your broker may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. INTEREST. We will not pay interest on any cash amount payable for Sterling Software shares in the offer or the merger regardless of any delay in making such payment. MERGER. We are making this offer in order to acquire control of, and ultimately the entire common equity interest in, Sterling Software. We intend, as soon as possible after consummation of the offer, to seek to have Sterling Software and Silversmith Acquisition Corp. consummate the merger. At the effective time of the merger, each share of Sterling Software common stock, except for shares held by Sterling Software, us or any of our or Sterling Software's subsidiaries, will be converted into the right to receive the same number of Computer Associates shares (and same amount of cash, if any) per Sterling Software share as is paid in the offer, subject to appraisal rights that may be available under Delaware law. If we obtain all of the shares of Sterling Software pursuant to the offer and the merger, former stockholders of Sterling Software would own approximately 8% of the shares of common stock of Computer Associates, based upon the number of shares outstanding of Computer Associates on February 7, 2000 and of Sterling Software on February 9, 2000, and assuming that the exchange ratio is not reset. CONDITIONS OF OFFER. Our obligation to exchange shares of Computer Associates common stock for Sterling Software shares pursuant to the offer is conditioned upon several conditions referred to below under "Conditions of the Offer," including the minimum tender condition, the antitrust condition, the registration statement effectiveness condition and other conditions that are discussed in that section. STOCKHOLDERS LIST. We have relied on Sterling Software's stockholders list and security position listings to communicate with you and to distribute the offer to you. We may send this prospectus, related letter of transmittal and other relevant materials to you and to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on Sterling Software's stockholders list or, if applicable, who are listed as participants in a clearing agency's security position listing. TIMING OF THE OFFER The offer is currently scheduled to expire at midnight, New York City time, on Monday, March 20, 2000. 32 EXTENSION, TERMINATION AND AMENDMENT Subject to the terms of the merger agreement, we expressly reserve the right, in our sole discretion, at any time or from time to time, to extend the period of time during which the offer remains open, and we can do so by giving oral or written notice of such extension to the depositary. If the offer is extended for any reason, we will make an announcement to that effect no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled expiration date. Subject to the terms of the merger agreement, we are not giving any assurance that we will exercise our right to extend the offer, although the merger agreement, subject to exceptions, currently obligates us to do so until all conditions have been satisfied or waived. During any such extension, all Sterling Software shares previously tendered and not withdrawn will remain subject to the offer, subject to your right to withdraw your Sterling Software shares. You should read the discussion under the caption "The Offer--Withdrawal Rights" for more details. Subject to the SEC's applicable rules and regulations and subject to the terms of the merger agreement, we also reserve the right, in our sole discretion, at any time or from time to time, (a) to delay acceptance for exchange of or, regardless of whether we previously accepted Sterling Software shares for exchange, exchange of any Sterling Software shares pursuant to the offer or to terminate the offer and not accept or exchange any Sterling Software Shares not previously accepted, or exchanged, upon the failure of any of the conditions of the offer to be satisfied and (b) to waive any condition (other than the minimum tender condition) or, subject to the terms of the merger agreement, otherwise amend the offer in any respect, by giving oral or written notice of such delay, termination or amendment to the depositary and by making a public announcement. We will follow any extension, termination, amendment or delay, as promptly as practicable, with a public announcement. In the case of an extension, any such announcement will be issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled expiration date. Subject to applicable law (including Rules 14d-4(d) and 14d-6(c) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the offer be promptly sent to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which we may choose to make any public announcement, we assume no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If we make a material change in the terms of the offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required under the Exchange Act. If, prior to the expiration date, we change the percentage of Sterling Software shares being sought or the consideration offered to you, that change will apply to all holders whose Sterling Software shares are accepted for exchange pursuant to the offer. If at the time notice of that change is first published, sent or given to you, the offer is scheduled to expire at any time earlier than the tenth business day from and including the date that such notice is first so published, sent or given, we will extend the offer until the expiration of that ten business-day period. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 A.M. through 12:00 midnight, New York City time. We may, although we do not currently intend to, elect to provide a subsequent offering period of three to 20 business days after the acceptance of Sterling Software shares in the offer if the requirements under Exchange Act rule 14d-11 have been met. You will not have the right to withdraw Sterling Software shares that you tender in the subsequent offering period, if any. EXCHANGE OF STERLING SOFTWARE SHARES; DELIVERY OF COMPUTER ASSOCIATES COMMON STOCK Upon the terms and subject to the conditions of the offer, including, if the offer is extended or amended, the terms and conditions of any such extension or amendment, we will accept, and will exchange, Sterling Software shares validly tendered and not withdrawn as promptly as practicable after 33 the expiration date and promptly after they are tendered during any subsequent offering period. In addition, subject to applicable rules of the SEC, we expressly reserve the right to delay acceptance for exchange or exchange of Sterling Software shares in order to comply with any applicable law. In all cases, exchange of Sterling Software shares tendered and accepted for exchange pursuant to the offer will be made only after timely receipt by the depositary of - certificates for those Sterling Software shares or a confirmation of a book-entry transfer of those Sterling Software shares in the depositary's account at The Depository Trust Company, which we refer to as the "DTC" - a properly completed and duly executed letter of transmittal (or a facsimile of that document) or agent's message if applicable - any other required documents. For purposes of the offer, we will be deemed to have accepted for exchange Sterling Software shares validly tendered and not withdrawn as, if and when we notify the depositary of our acceptance for exchange of the tenders of those Sterling Software shares pursuant to the offer. The depositary will deliver Computer Associates common stock and cash, if the cash option is elected, in exchange for Sterling Software shares pursuant to the offer and cash instead of fractional shares of Computer Associates common stock as soon as practicable after receipt of such notice. The depositary will act as agent for tendering stockholders for the purpose of receiving Computer Associates common stock (and any cash, if the cash option is chosen) and cash to be paid instead of fractional shares of Computer Associates common stock from us and transmitting such stock and cash to you. Under no circumstances will we pay interest on any cash amount payable for Sterling Software shares in the offer or the merger, regardless of any delay in making such payment. If we do not accept any tendered Sterling Software shares pursuant to the terms and conditions of the offer for any reason, or if certificates are submitted for more Sterling Software shares than are tendered, we will return certificates for such tendered Sterling Software shares or untendered Sterling Software shares, as the case may be, without expense to the tendering stockholder or, in the case of Sterling Software shares tendered by book-entry transfer of such Sterling Software shares into the depositary's account at DTC pursuant to the procedures set forth below under the discussion entitled "Procedure for Tendering," those Sterling Software shares will be credited to an account maintained within DTC, as soon as practicable following expiration or termination of the offer. If we increase the consideration offered to Sterling Software stockholders in the offer prior to the expiration date, such increased consideration will be given to all stockholders whose Sterling Software shares are tendered pursuant to the offer, whether or not such Sterling Software shares were tendered or accepted for exchange prior to such increase in consideration. CASH INSTEAD OF FRACTIONAL SHARES OF COMPUTER ASSOCIATES COMMON STOCK We will not issue certificates representing fractional shares of our common stock pursuant to the offer. Instead, each tendering stockholder who would otherwise be entitled to a fractional share of our common stock will receive cash in an amount equal to such fraction (expressed as a decimal and rounded to the nearest 0.01 of a share) multiplied by the closing price for shares of our common stock on the New York Stock Exchange Composite Transaction Tape, which we refer to as the "NYSE Composite Transaction Tape," on the date that we accept those Sterling Software shares. You will not receive any interest on the cash to be given for fractional shares, even if there is a delay in making the exchange and payment. WITHDRAWAL RIGHTS Your tender of Sterling Software shares pursuant to the offer is irrevocable, except that, other than during a subsequent offering period, Sterling Software shares tendered pursuant to the offer may be withdrawn at any time prior to the expiration date, and, unless we previously accepted them for 34 exchange pursuant to the offer, may also be withdrawn at any time after April 22, 2000. If we elect to provide a subsequent offering period under Exchange Act rule 14d-11, you will not have the right to withdraw Sterling Software shares that you tender in the subsequent offering period. For your withdrawal to be effective, the depositary must receive from you a written, telegraphic, telex or facsimile transmission notice of withdrawal at one of its addresses set forth on the back cover of this prospectus, and your notice must include your name, the number of Sterling Software shares to be withdrawn and the name of the registered holder, if it is different from that of the person who tendered those Sterling Software shares. A financial institution must guarantee all signatures on the notice of withdrawal. Most banks, savings and loan associations and brokerage houses are able to effect these signature guarantees for you. The financial institution must be a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program, any of which are an "eligible institution," unless those Sterling Software shares have been tendered for the account of any eligible institution. If Sterling Software shares have been tendered pursuant to the procedures for book-entry exchange discussed under the caption entitled "Procedure for Tendering," any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Sterling Software shares and must otherwise comply with DTC's procedures. If certificates have been delivered or otherwise identified to the depositary, the name of the registered holder and the serial numbers of the particular certificates evidencing the Sterling Software shares withdrawn must also be furnished to the depositary, as stated above, prior to the physical release of such certificates. We will decide all questions as to the form and validity (including time of receipt) of any notice of withdrawal, in our sole discretion, and our decision shall be final and binding. Neither we, the depositary, the information agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or will incur any liability for failure to give any such notification. Any Sterling Software shares properly withdrawn will be deemed not to have been validly tendered for purposes of the offer. However, you may retender withdrawn Sterling Software shares by following one of the procedures discussed under the caption entitled "Procedure for Tendering" at any time prior to the expiration date. If you withdraw any of your Sterling Software shares, you automatically withdraw the associated Sterling Software rights. You may not withdraw Sterling Software rights unless you also withdraw the associated Sterling Software shares. PROCEDURE FOR TENDERING For you to validly tender Sterling Software shares pursuant to the offer, (a) a properly completed and duly executed letter of transmittal (or manually executed facsimile of that document), along with any required signature guarantees, or an agent's message in connection with a book-entry transfer, and any other required documents, must be transmitted to and received by the depositary at one of its addresses set forth on the back cover of this prospectus, and certificates for Sterling Software shares tendered must be received by the depositary at such address or those Sterling Software shares must be tendered pursuant to the procedures for book-entry exchange set forth below (and a confirmation of receipt of such tender received (we refer to this confirmation below as a "book-entry confirmation"), in each case before the expiration date, or (b) you must comply with the guaranteed delivery procedures set forth below. The term "agent's message" means a message, transmitted by DTC to, and received by, the depositary and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the participant in DTC exchanging the Sterling Software shares which are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the letter of transmittal and that we may enforce that agreement against such participant. 35 The depositary will establish accounts with respect to the Sterling Software shares at DTC for purposes of the offer within two business days after the date of this prospectus, and any financial institution that is a participant in DTC may make book-entry delivery of the Sterling Software shares by causing DTC to transfer such Sterling Software shares into the depositary's account in accordance with DTC's procedure for such transfer. However, although delivery of Sterling Software shares may be effected through book-entry at DTC, the letter of transmittal (or facsimile thereof), with any required signature guarantees, or an agent's message in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to and received by the depositary at one or more of its addresses set forth on the back cover of this prospectus prior to the expiration date, or the guaranteed delivery procedures described below. Signatures on all Letters of Transmittal must be guaranteed by an eligible institution, except in cases in which Sterling Software shares are tendered either by a registered holder of Sterling Software shares who has not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the letter of transmittal or for the account of an eligible institution. If the certificates for Sterling Software shares are registered in the name of a person other than the person who signs the letter of transmittal, or if certificates for untendered Sterling Software shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signature(s) on the certificates or stock powers guaranteed in the manner we have described above. THE METHOD OF DELIVERY OF STERLING SOFTWARE SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC, IS AT YOUR OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO CASH, IF ANY, RECEIVED PURSUANT TO THE OFFER, YOU MUST PROVIDE THE DEPOSITARY WITH YOUR CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY WHETHER YOU ARE SUBJECT TO BACKUP WITHHOLDING OF FEDERAL INCOME TAX BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF ELECTION AND TRANSMITTAL. SOME STOCKHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS AND SOME FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING AND REPORTING REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL TO QUALIFY AS AN EXEMPT RECIPIENT, THE STOCKHOLDER MUST SUBMIT A FORM W-8, SIGNED UNDER PENALTIES OF PERJURY, ATTESTING TO THAT INDIVIDUAL'S EXEMPT STATUS. If you wish to tender Sterling Software shares pursuant to the offer and your certificates are not immediately available or you cannot deliver the certificates and all other required documents to the depositary prior to the expiration date or cannot complete the procedure for book-entry transfer on a timely basis, your Sterling Software shares may nevertheless be tendered, so long as all of the following conditions are satisfied: (a) you make your tender by or through an eligible institution; (b) a properly completed and duly executed notice of guaranteed delivery, substantially in the form made available by us, is received by the depositary as provided below on or prior to the expiration date; and (c) the certificates for all Sterling Software shares to be tendered (or a confirmation of a book-entry transfer of such securities into the depositary's account at DTC as described above), in proper form for transfer, together with a properly completed and duly executed letter of transmittal (or facsimile thereof), with any required signature guarantees (or, in the case of a book-entry transfer, an agent's message) and all other documents required by the letter of 36 transmittal are received by the depositary within three NYSE trading days after the date of execution of such notice of guaranteed delivery. If your shares are held in the Sterling Software, Inc. Savings and Security Plan, you must complete and return the enclosed Instruction Card in accordance with the directions contained therein in order to effect a valid tender of those Shares. You may deliver the notice of guaranteed delivery by hand or transmit it by telegram, telex, facsimile transmission or mail to the depositary and you must include a guarantee by an eligible institution in the form set forth in that notice. In all cases, we will exchange Sterling Software shares tendered and accepted for exchange pursuant to the offer only after timely receipt by the depositary of certificates for Sterling Software shares (or timely confirmation of a book-entry transfer of such securities into the depositary's account at DTC as described above), properly completed and duly executed letter(s) of transmittal (or facsimile(s) thereof), or an agent's message in connection with a book-entry transfer, and any other required documents. Accordingly, you may be paid at different times depending upon when the depositary actually receives certificates for Sterling Software shares or confirmations of book-entry transfers of those shares. By executing a letter of transmittal as set forth above, you irrevocably appoint our designees as your attorneys-in-fact and proxies, each with full power of substitution, to the full extent of your rights with respect to your Sterling Software shares tendered and accepted for exchange by us and with respect to any and all other Sterling Software shares and other securities issued or issuable in respect of the Sterling Software shares on or after February 14, 2000. That appointment is effective, and voting rights will be affected, when and only to the extent that we deposit with the depositary the shares of our common stock for Sterling Software shares that you have tendered. All such proxies shall be considered coupled with an interest in the tendered Sterling Software shares and therefore shall not be revocable. Upon the effectiveness of such appointment, all prior proxies that you have given will be revoked, and you may not give any subsequent proxies and, if given, they will not be deemed effective. Our designees will, with respect to the Sterling Software shares for which the appointment is effective, be empowered, among other things, to exercise all of your voting and other rights as they, in their sole discretion, deem proper at any annual, special or adjourned meeting of Sterling Software's stockholders or otherwise. We reserve the right to require that, in order for Sterling Software shares to be deemed validly tendered, immediately upon our acceptance for exchange of those Sterling Software shares, we must be able to exercise full voting rights with respect to such Sterling Software shares. We will determine questions as to the validity, form, eligibility, including time of receipt, and acceptance for exchange of any tender of Sterling Software shares, in our sole discretion, and our determination shall be final and binding. We reserve the absolute right to reject any and all tenders of Sterling Software shares that we determine are not in proper form or the acceptance for exchange of or exchange for which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any of the conditions of the offer (other than the minimum tender condition) or any defect or irregularity in the tender of any Sterling Software shares. No tender of Sterling Software shares will be deemed to have been validly made until all defects and irregularities in tenders of Sterling Software shares have been cured or waived. Neither we, the depositary, the information agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any Sterling Software shares or will incur any liability for failure to give any such notification. Our interpretation of the terms and conditions of the offer, including the letter of transmittal and instructions thereto will be final and binding. The tender of Sterling Software shares pursuant to any of the procedures described above will constitute a binding agreement between us and you upon the terms and subject to the conditions of the offer. 37 PURPOSE OF THE OFFER; THE MERGER; APPRAISAL RIGHTS We are making the offer in order to acquire control of, and ultimately the entire common equity interest in, Sterling Software. The offer is the first step in our acquisition of Sterling Software, and is intended to facilitate the acquisition of all Sterling Software shares. You will not have appraisal rights as a result of consummation of the offer. We intend, as soon as practicable after consummation of the offer, to seek to merge Silversmith Acquisition Corp., a wholly owned subsidiary of Computer Associates, with Sterling Software. The purpose of the merger is to acquire all Sterling Software shares not tendered and exchanged pursuant to the offer. At the effective time of the merger, each share of Sterling Software common stock, except for shares held by Sterling Software, us or any of our or Sterling Software's subsidiaries, will be converted into the right to receive the same number of Computer Associates shares (and same amount of cash, if any) per Sterling Software share as is paid in the offer, subject to appraisal rights that may be available under Delaware law. Assuming satisfaction or waiver of the conditions to the merger, we are obligated to use all reasonable efforts to consummate the merger pursuant to Section 253 of the Delaware General Corporation Law. Under Section 253 of the Delaware General Corporation Law, a parent corporation owning at least 90% of the outstanding shares of each class of a subsidiary corporation may merge itself into the subsidiary corporation without the approval of the stockholders of the parent corporation or of the board of directors or stockholders of the subsidiary corporation. Alternatively, assuming the minimum tender condition is satisfied and we consummate the offer, we would have sufficient voting power to effect the merger under Section 251 of the Delaware General Corporation Law without the vote of any other stockholder of Sterling Software. Although stockholders do not have appraisal rights as a result of the offer, if the merger is consummated pursuant to Section 253 of the Delaware General Corporation Law, Sterling Software stockholders at the time of the merger who do not vote in favor of the merger will have the right under the Delaware General Corporation Law to dissent and demand appraisal of their Sterling Software shares in accordance with Section 262 of the Delaware General Corporation Law. Under Section 262, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Sterling Software shares (exclusive of any element of value arising from the accomplishment or expectation of the merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. In CEDE & CO. AND CINERAMA, INC. V. TECHNICOLOR, INC., the Supreme Court of the State of Delaware construed Section 262 of the Delaware General Corporation Law and held that the "accomplishment or expectation" exclusion from the calculation of fair value set forth in the preceding sentence is narrow and is designed to eliminate use of pro forma data and projections of a speculative variety relating to the completion of a merger. The court held that it is appropriate to include in the calculation of fair value any known elements of value, including those elements of value which exist on the date of the merger because of a majority acquiror's interim action in a two-step cash-out transaction. We cannot assure you as to the methodology a court would use to determine fair value or how a court would select which of the elements of value are to be included in such a determination. Any such judicial determination of the fair value of Sterling Software shares could be based upon factors other than, or in addition to, the price per Sterling Software share to be paid in the merger or the market value of the Sterling Software shares. The value so determined could be more or less than the price per Sterling Software share to be paid in the merger. Assuming the Sterling Software shares remain listed on a national securities exchange or are then quoted through NASDAQ or held of record by more than 2,000 holders, and assuming we do not elect the cash option, the holders of Sterling Software shares will not have appraisal rights if the merger is consummated pursuant to Section 251 of the Delaware General Corporation Law. However, if the merger is so consummated, and if, on the date fixed to determine stockholders entitled to vote on the merger, the Sterling Software shares are not listed on a national securities exchange or quoted through NASDAQ or held of record by more than 2,000 holders, or if we elect the cash option, you will have 38 appraisal rights pursuant to the provisions of Section 262 of the Delaware General Corporation Law as described above. Rule 13e-3 of the General Rules and Regulations under the Exchange Act, which we do not believe would apply to the merger if the merger occurred within one year of consummation of the offer, would require, among other things, that some financial information concerning Sterling Software, and some information relating to the fairness of the proposed transaction and the consideration offered to stockholders of Sterling Software therein, be filed with the SEC and disclosed to you prior to consummation of the merger. In addition, we reserve the right to acquire, following the consummation or termination of the offer, additional Sterling Software shares through open market purchases, privately negotiated transactions, a tender offer or exchange offer, or otherwise, upon such terms and at such prices as we decide, which may be more or less favorable than those of the offer. We and our affiliates also reserve the right to dispose of any or all Sterling Software shares acquired by us pursuant to the offer or otherwise, upon such terms and at such prices as we shall determine. Upon consummation of the offer, we intend to take appropriate actions to optimize and rationalize the combined entities' assets, operations, management, personnel, general and administrative functions and corporate structure. Except as we have otherwise discussed elsewhere in this prospectus, we do not have any plans or proposals right now that would result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, or sale of a material amount of assets, involving Sterling Software or any of its subsidiaries, or any material changes in Sterling Software's corporate structure or business, or any change in its management. Upon consummation of the offer, we may also elect or seek the election of nominees of our choice to Sterling Software's board of directors. Pursuant to the merger agreement, until the merger is completed Sterling Software's board of directors will always have at least two members who were Sterling Software directors prior to consummation of the offer. See "The Merger Agreement and the Tender Agreement--The Merger Agreement--Sterling Software Board of Directors." CONDITIONS OF THE OFFER The offer is subject to a number of conditions, which are described below: MINIMUM TENDER CONDITION There must be validly tendered, prior to the expiration of the offer, and not withdrawn a number of Sterling Software shares which will constitute at least a majority of the total number of outstanding Sterling Software shares on a fully diluted basis (as though all options or other securities convertible into or exercisable or exchangeable for Sterling Software shares had been so converted, exercised or exchanged) as of the date that we accept the Sterling Software shares pursuant to the offer. We call this the "minimum tender condition." Based on information supplied by Sterling Software, the number of shares needed to satisfy the minimum tender condition would have been 51,457,769 as of February 9, 2000. ANTITRUST CONDITION The waiting period, and any extension thereof, applicable to the offer and the merger under the HSR Act and any other applicable antitrust law must have expired or been terminated. We call this the "antitrust condition." Under the HSR Act, and the rules that have been promulgated thereunder, some acquisitions may not be consummated unless information has been furnished to the Antitrust Division of the Department of Justice and the Federal Trade Commission and some waiting period requirements have been satisfied. The acquisition of Sterling Software shares pursuant to the offer is subject to the HSR Act. On February 14, 2000, we filed with the Antitrust Division and the Federal Trade Commission a Notification and Report Form under the HSR Act with respect to the offer. Under the applicable 39 provisions of the HSR Act, the purchase of Sterling Software shares under the offer cannot be consummated until the expiration or early termination of a waiting period that began on February 14, 2000. The initial waiting period under the HSR Act is 30 days. Either the Federal Trade Commission or the Antitrust Division may issue a request for additional information or documentary material, which will extend the waiting period until 20 days after substantial compliance with such request. Federal, state and foreign antitrust enforcement agencies frequently scrutinize under the antitrust laws transactions such as our acquisition of Sterling Software shares pursuant to the offer. At any time before or after we acquire Sterling Software shares, any such agency could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Sterling Software shares pursuant to the offer or otherwise or seeking divestiture of Sterling Software shares acquired by us or divestiture of assets of Computer Associates or Sterling Software. Private parties may also bring legal action under the antitrust laws under some circumstances. Computer Associates and Sterling Software conduct operations in a number of jurisdictions where other regulatory filings or approvals may be required or advisable in connection with the completion of the offer. See "--Other Conditions of the Offer." Some large Sterling Software stockholders (those that would receive more than $15 million in Computer Associates shares) may be required to make separate filings with the Federal Trade Commission and Antitrust Division under the HSR Act and the Rules in conjunction with the receipt of shares of our common stock. If you must make such a filing, you will then be required to observe applicable waiting periods under the HSR Act and the Rules before receiving shares of Computer Associates common stock. If you are obligated to make such a filing, we will deposit the shares of our common stock to be exchanged, pursuant to the Rules, pending expiration or early termination of the waiting period. Although no assurances can be given, we anticipate that HSR Act clearance will be obtained on a timely basis. The acquisition of Sterling Software may also require notification to the competition authorities of various countries in which both Computer Associates and Sterling Software conduct business, depending on the filing requirements and thresholds of merger regulations in such countries. Computer Associates and Sterling Software currently believe that such filings may be required in Austria, Brazil, Finland, Germany, the Netherlands, Poland, Portugal, South Africa, Sweden, Taiwan and Turkey. Although no assurances can be given, we anticipate receiving all required clearances under foreign competition laws on a timely basis. REGISTRATION STATEMENT EFFECTIVENESS CONDITION The registration statement on Form S-4 of which this prospectus is a part must have become effective under the Securities Act and not be the subject of any stop order or proceedings seeking a stop order. We call this the "registration statement effectiveness condition." NYSE LISTING CONDITION The shares of Computer Associates common stock issuable to Sterling Software stockholders in the offer and the merger must have been approved for listing on the New York Stock Exchange, subject to official notice of issuance. OTHER CONDITIONS OF THE OFFER The offer is also subject to the conditions that, at the time of acceptance for exchange of Sterling Software shares pursuant to the offer: - there shall not have been instituted or pending any action or proceeding by any governmental entity, (1) challenging or seeking to make illegal, delay materially or otherwise directly or indirectly restrain or prohibit the making of the offer, the acceptance for exchange of, or the exchange or delivery of, the Computer Associates shares for some or all the Sterling Software 40 shares by us or the consummation by us of the merger, or seeking to obtain material damages or otherwise directly or indirectly relating to the transactions contemplated by the tender agreement, the merger agreement, the offer or the merger, (2) seeking to restrain or prohibit the ownership or operation by Computer Associates, Silversmith Acquisition Corp. or any of their subsidiaries or affiliates of all or any portion of the business or assets of Sterling Software and its subsidiaries, taken as a whole, or of Computer Associates and its subsidiaries, taken as a whole, or to compel Computer Associates or any of its subsidiaries or affiliates to dispose of or hold separate all or any portion of the business or assets of Sterling Software and its subsidiaries, taken as a whole, or of Computer Associates and its subsidiaries, taken as a whole, (3) seeking to impose limitations on the ability of Computer Associates or any of its subsidiaries or affiliates effectively to exercise full rights of ownership of the Sterling Software shares, including, without limitation, the right to vote any Sterling Software shares acquired or owned by Computer Associates or any of its subsidiaries or affiliates on all matters properly presented to Sterling Software's stockholders or (4) seeking to require divestiture by Computer Associates or any of its subsidiaries or affiliates of any Sterling Software shares - there shall not be any action taken, or any statute, rule, regulation, injunction, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to the merger agreement, the tender agreement, the offer or the merger, by any governmental entity that, in the judgment of Computer Associates, is reasonably likely, directly or indirectly, to result in any of the consequences referred to in the immediately preceding paragraph - Sterling Software shall not have breached or failed to perform in any material respect any of its covenants, obligations or agreements under the merger agreement, other than the Material Agreement Covenant described below under "The Merger Agreement and the Tender Agreement--The Merger Agreement--Conduct of Business Pending the Merger", or Sterling Software shall not have breached the Material Agreement Covenant such that the aggregate of all such breaches would materially and adversely affect Sterling Software and its subsidiaries taken as a whole or us - Sterling Software's representations and warranties in the merger agreement that are qualified as to materiality shall be true and correct, and its representations and warranties that are not qualified as to materiality shall be true and correct in all material respects, in each case as of the date of the agreement and as of the expiration of the offer, including any extension thereof (except to the extent expressly made as an earlier date, in which case as of such date). Notwithstanding the foregoing, this condition shall not be deemed to exist unless the failure of such representations and warranties so to be true and correct, without giving effect to any limitation as to "materially" or "material adverse effect" or similar limitations, individually or in the aggregate, has had and could reasonably be expected to have a material adverse effect, as defined in the merger agreement, on Sterling Software - the merger agreement has not been terminated in accordance with its terms - (1) the board of directors of Sterling Software, or any committee thereof, has not withdrawn or materially modified or amended in a manner adverse to Computer Associates or Silversmith Acquisition Corp. its approval or recommendation of the offer, the merger, the merger agreement or the entry by Silversmith Acquisition Corp. into the tender agreement or (2) the board of directors of Sterling Software, or any committee thereof, has not recommended to the stockholders of Sterling Software any acquisition proposal (as defined in the merger agreement) or resolved to do so or publicly announced an intention to do so - Sterling Software has not entered into, or publicly announced its intention to enter into, an agreement or agreement in principle, other than a customary confidentiality agreement, with respect to any acquisition proposal, as defined in the merger agreement, or 41 - no person or group, as defined in Exchange Act Section 13(d)(3), other than Computer Associates or any of its subsidiaries, has become the beneficial owner, as defined in Exchange Act rule 13d-3, of 15% or more of the outstanding shares of common stock of Sterling Software or acquired, directly or indirectly, 15% or more of the assets of Sterling Software and its subsidiaries The conditions of the offer described above are solely for our benefit and we may assert them regardless of the circumstances giving rise to any such conditions, including any action or inaction by us. We may waive these conditions in whole or in part, other than the minimum tender condition. The determination as to whether any condition has been satisfied shall be in our good faith judgment and will be final and binding on all parties. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed a continuing right which may be asserted at any time and from time to time. Notwithstanding the fact that we reserve the right to assert the failure of a condition following acceptance for exchange but prior to exchange in order to delay exchange or cancel our obligation to exchange properly tendered Sterling Software shares, we will either promptly exchange such Sterling Software shares or promptly return such Sterling Software shares. REGULATORY APPROVALS Computer Associates and Sterling Software have agreed pursuant to the merger agreement to use all reasonable efforts to take whatever actions are required to obtain necessary regulatory approvals with respect to the offer and the merger. Other than clearance under the antitrust laws applicable to the offer and the merger which are described above under "--Conditions of the Offer--Antitrust Condition," the SEC declaring the effectiveness of the registration statement of which this prospectus is a part and the filing of a certificate of merger under the Delaware General Corporation Law with respect to the merger, we do not believe that any additional material governmental filings are required with respect to the offer and the merger. CERTAIN EFFECTS OF OFFER REDUCED LIQUIDITY; POSSIBLE DELISTING The tender of Sterling Software shares pursuant to the offer will reduce the number of holders of Sterling Software shares and the number of Sterling Software shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Sterling Software shares held by the public. Sterling Software shares are listed and principally traded on the NYSE. Depending on the number of Sterling Software shares acquired pursuant to the offer, following consummation of the offer, Sterling Software shares may no longer meet the requirements of the NYSE for continued listing. For example, published guidelines of the NYSE indicate that the NYSE would consider delisting the outstanding Sterling Software shares if, among other things, (i) the number of publicly held Sterling Software shares (exclusive of holdings of officers, directors and members of their immediate families and other concentrated holdings of 10 percent or more) should fall below 600,000, (ii) the number of record holders of 100 or more Sterling Software shares should fall below 1,200 or (iii) the aggregate market value of publicly held shares should fall below $5 million. According to Sterling Software, there were, as of February 9, 2000, approximately 82,511,293 Sterling Software common shares outstanding. If the NYSE were to delist the Sterling Software shares, including after the exchange of shares in the offer but prior to the merger, the market for them could be adversely affected. It is possible that Sterling Software shares would be traded on other securities exchanges or in the over-the-counter market, and that price quotations would be reported by such exchanges, or through the National Association of Securities Dealers, Inc., Automated Quotations System (which we refer to as "NASDAQ") or by other sources. The extent of the public market for the Sterling Software shares and the availability of such quotations would, however, depend upon the number of holders and/or the 42 aggregate market value of the Sterling Software shares remaining at such time, the interest in maintaining a market in the Sterling Software shares on the part of securities firms, the possible termination of registration of Sterling Software shares under the Exchange Act, as described below, and other factors. STATUS AS "MARGIN SECURITIES" The Sterling Software shares are presently "margin securities" under the regulations of the Federal Reserve Board, which has the effect, among other things, of allowing brokers to extend credit on the collateral of Sterling Software shares. Depending on the factors similar to those described above with respect to listing and market quotations, following consummations of the offer, the Sterling Software shares may no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations, in which event the Sterling Software shares would be ineligible as collateral for margin loans made by brokers. For a description of the treatment of Sterling Software shares in the merger, you should refer to "--Purpose of the Offer; the Merger; Appraisal Rights." REGISTRATION UNDER THE EXCHANGE ACT Sterling Software shares are currently registered under the Exchange Act. Sterling Software can terminate that registration upon application to the SEC if the outstanding shares are not listed on a national securities exchange and if there are fewer than 300 holders of record of Sterling Software shares. Termination of registration of the Sterling Software shares under the Exchange Act would reduce the information that Sterling Software must furnish to its stockholders and to the SEC and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b) and the requirement of furnishing a proxy statement in connection with stockholders meetings pursuant to Section 14(a) and the related requirement of furnishing an annual report to stockholders, no longer applicable with respect to Sterling Software shares. Furthermore, the ability of "affiliates" of Sterling Software and persons holding "restricted securities" of Sterling Software to dispose of such securities pursuant to Rule 144 under the Securities Act may be impaired or eliminated. If registration of the shares under the Exchange Act were terminated, they would no longer be eligible for NYSE listing or for continued inclusion on the Federal Reserve Board's list of "margin securities." SOURCE AND AMOUNT OF FUNDS The total amount of funds required to purchase Sterling Software shares pursuant to the offer and the merger, if we were to elect to exercise the cash option, will depend on the value of Computer Associates shares at the time we elect the cash option and the extent to which we elect the cash option. Accordingly, we cannot determine that amount now. We will obtain all funds needed for this purpose from our general corporate funds. Also, we will pay cash instead of issuing fractional shares of Computer Associates common stock. Cash for fractional shares will come from our general corporate funds. RELATIONSHIPS WITH STERLING SOFTWARE Except as set forth in this prospectus, neither we nor, to the best of our knowledge, any of our directors, executive officers or other affiliates has any contract, arrangement, understanding or relationship with any other person with respect to any securities of Sterling Software, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as described in this prospectus, there have been no contacts, negotiations or transactions within the last two years, between us or, to the best of our knowledge, any of our directors, executive officers or other affiliates on the one hand, and Sterling Software or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or 43 other transfer of a material amount of assets. Except as set forth in this prospectus, neither we, nor, to the best of our knowledge, any of our directors, executive officers or other affiliates has within the last two years had any transaction with Sterling Software or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the SEC applicable to the offer. ACCOUNTING TREATMENT The acquisition of Sterling Software by Computer Associates would be accounted for under the purchase method of accounting under U.S. generally accepted accounting principles, which means that Sterling Software's results of operations will be included with ours from the closing date and its consolidated assets and liabilities will be recorded at their fair values at the same date. FEES AND EXPENSES We have retained MacKenzie Partners, Inc. to act as the information agent in connection with the offer. The information agent may contact holders of Sterling Software shares by mail, telephone, telex, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward the offer materials to beneficial owners of Sterling Software shares. The information agent will be paid a customary fee for such services, plus reimbursement of out-of-pocket expenses, and we will indemnify the information agent against certain liabilities and expenses in connection with the offer, including liabilities under federal securities laws. We will not pay any fees or commissions to any broker, dealer or other persons (other than the information agent) for soliciting tenders of Sterling Software shares pursuant to the offer. Broadview International LLC provided certain financial advisory services to Sterling Software in connection with the offer and the merger. Details concerning the arrangements between Sterling Software and Broadview International LLC are disclosed in Sterling Software's Schedule 14D-9, which is being mailed to stockholders of Sterling Software with this prospectus. Sterling Software received an opinion from Goldman, Sachs & Co. dated February 14, 2000 substantially to the effect that, as of such date, the consideration to be received by Sterling Software stockholders pursuant to the merger agreement is fair from a financial point of view to the stockholders of Sterling Software. The opinion is attached as an exhibit to Sterling Software's Schedule 14D-9, which is being mailed to the stockholders of Sterling Software with this prospectus. Details concerning the arrangements between Sterling Software and Goldman, Sachs & Co. are disclosed in Sterling Software's Schedule 14D-9. STOCK EXCHANGE LISTINGS Our common stock is listed on the NYSE. We will make an application as necessary to list on the NYSE the common stock that we will issue pursuant to the offer and the merger. 44 THE MERGER AGREEMENT AND THE TENDER AGREEMENT The merger agreement and the tender agreement are filed as exhibits to the registration statement of which this prospectus is a part and the merger agreement and the tender agreement are incorporated by reference in this prospectus. We believe the following summary describes the material terms of the merger agreement and the tender agreement. However, we recommend that you read carefully the complete agreements for their precise legal terms and other information that may be important to you. THE MERGER AGREEMENT THE OFFER CONDITIONS. Our obligation to complete the offer is subject to the conditions described on pages 40-43 of this prospectus and include the minimum tender condition, the antitrust condition and the registration statement effectiveness condition. We have agreed that, without the prior written consent of Sterling Software, no change may be made to the offer which - changes the form or amount of consideration to be paid, other than in connection with the cash election or by adding consideration, - imposes conditions to the offer in addition to those set forth in the merger agreement or which changes or waives the minimum tender condition, - extends the offer, other than as described below, or - makes any other change to any condition to the offer which is adverse to the holders of Sterling Software shares. CONSIDERATION. The merger agreement provides for the consideration that we will pay in the offer, including the exchange ratio, the adjustments to the exchange ratio, if any, and the procedures for the cash election, if any. For a description of those matters, refer to the discussion under "The Offer," including under the caption "--Basic Terms." EXPIRATION OR TERMINATION OF THE OFFER. We have agreed that if, at the scheduled expiration date of the offer, the conditions to the offer shall not have been satisfied or waived, other than several specified conditions, unless there is no reasonable possibility of all of the conditions to the offer being satisfied on or before September 30, 2000, we will extend the expiration date of the offer for an additional period or periods of time, each of which being no longer than 15 business days, until the date that such conditions are satisfied or waived and we become obligated to accept for payment and pay for Sterling Software shares tendered pursuant to the offer. However, if at any scheduled expiration date of the offer, all of the conditions to the offer have been satisfied or waived other than the minimum tender condition, we will only be required to extend the offer for an additional 20 business days following such scheduled expiration date. THE MERGER If the conditions to the merger are satisfied or waived in accordance with the merger agreement and in accordance with the Delaware General Corporation Law, at the effective time of the merger, Silversmith Acquisition Corp. will merge with Sterling Software. Sterling Software will survive the merger as a wholly owned subsidiary of Computer Associates. 45 EFFECTIVE TIME OF THE MERGER The merger will become effective upon the filing of a certificate of merger with the Delaware Secretary of State or such later time as is agreed by Computer Associates and Sterling Software and specified in the certificate of merger. The filing of the certificate of merger will take place as soon as practicable, but no later than the second business day, after satisfaction or waiver of the conditions described below under "--The Merger Agreement--Other Provisions--Conditions of the Merger" unless the parties agree to another date. ADDITIONAL EFFECTS OF THE MERGER Upon completion of the merger: - each outstanding share of capital stock of Silversmith Acquisition Corp. will be converted into and become one share of common stock of Sterling Software as the corporation surviving the merger - each outstanding share of Sterling Software common stock will be converted into and become the right to receive the amount and type of consideration received by Sterling Software stockholders who tendered their shares in the offer - the directors and officers of Silversmith Acquisition Corp. at the effective time of the merger will become the directors and officers of Sterling Software as the corporation surviving the merger - the certificate of incorporation of Sterling Software, as in effect immediately prior to the effective time of the merger, will be amended as of the effective time of the merger so as to (a) reduce the total number of authorized shares of capital stock to be 1,000 shares of common stock, par value $.10 per share, and (b) permit the stockholders of the corporation to take action without a meeting, and, as so amended, such certificate of incorporation shall be the certificate of incorporation of Sterling Software as the corporation surviving the merger and - the by-laws of Silversmith Acquisition Corp. at the effective time of the merger will become the by-laws of Sterling Software as the corporation surviving the merger. EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES EXCHANGE AGENT. At the time the merger becomes effective, Computer Associates shall enter into an agreement with a bank or trust company that is reasonably acceptable to Sterling Software, with which Computer Associates shall deposit any required cash and certificates representing the number of whole shares of Computer Associates common stock issuable pursuant to the merger agreement in exchange for outstanding shares of Sterling Software common stock. Soon after the completion of the merger, we will send a letter to each person who was a Sterling Software stockholder at the time the merger became effective. The letter will contain instructions on how to surrender Sterling Software stock certificates to the exchange agent and receive shares of Computer Associates and cash, if any cash is payable. See "The Offer--Procedure for Tendering." DIVIDENDS. Holders of Sterling Software shares will not be entitled to receive any dividends or other distributions payable by Computer Associates until they exchange their Sterling Software stock certificates for certificates representing shares of Computer Associates common stock. Once they deliver their Sterling Software stock certificates to the exchange agent, those stockholders will receive, subject to applicable laws, accumulated dividends and distributions, without interest. FRACTIONAL SHARES. No fractional shares of Computer Associates common stock will be issued upon the surrender of certificates representing Sterling Software shares. No dividend or other distribution of Computer Associates will relate to any such fractional shares and no such fractional shares will entitle 46 the owner thereof to any voting or other rights of a stockholder of Computer Associates. Holders of Sterling Software shares otherwise entitled to fractional shares of Computer Associates common stock will receive a cash payment instead of such fractional shares. Following the effective time, the exchange agent will determine the excess of the number of whole shares of Computer Associates common stock delivered to the exchange agent by Computer Associates for distribution to Sterling Software stockholders over the aggregate number of whole Computer Associates shares to be distributed to Sterling Software stockholders. The exchange agent will then, on behalf of the former Sterling Software stockholders, sell the excess shares at then prevailing prices on the NYSE, all in the manner provided in the merger agreement. Notwithstanding the foregoing, Computer Associates has the option, exercisable prior to the effective time of the merger, in lieu of the issuance of such excess shares to pay each former holder of Sterling Software shares an amount of cash equal to the product of the fractional share interest to which such holder would otherwise be entitled and the closing price of Computer Associates common stock on the NYSE on the effective date of the merger. As soon as practicable after the determination of the amount of cash to be paid to holders of Sterling Software shares with respect to any fractional share interests, the exchange agent will make available such amounts to such Sterling Software holders subject to and in accordance with the terms of the merger agreement. STERLING SOFTWARE BOARD OF DIRECTORS Upon acceptance for exchange of Sterling Software shares in the offer, Computer Associates will be entitled to designate a number of Sterling Software directors (rounded up to the next whole number) that bears the same proportion to the total number of Sterling Software directors as the proportion of the total number of shares of Sterling Software then held by Computer Associates bears to the total number of outstanding Sterling Software shares, provided that until the merger has been consummated Sterling Software's board of directors shall always have at least two members who were directors of Sterling Software prior to consummation of the offer. The merger agreement provides that, prior to the effective time of the merger, if Computer Associates designees are elected to the Sterling Software board, the affirmative vote of the continuing Sterling Software directors will be required to - amend or terminate the merger agreement - waive any of Sterling Software's rights, benefits or remedies under the merger agreement - extend the time for performance of Computer Associates or Silversmith Acquisition Corp.'s obligations under the merger agreement or - approve any other action by Sterling Software which is reasonably likely to adversely affect the interests of Sterling Software's stockholders, other than Computer Associates and its affiliates, with respect to the transactions contemplated by the merger agreement. OTHER PROVISIONS STERLING SOFTWARE STOCK OPTIONS. The merger agreement provides that each outstanding option to purchase shares of Sterling Software common stock which had been granted to specified management employees, including executive officers, will become fully vested and immediately exercisable immediately prior to the consummation of the offer. Alternatively, these management employees may elect to have their Sterling Software stock options canceled in exchange for a cash payment for each underlying Sterling Software share equal to the excess of the cancellation price, which is the option exchange ratio multiplied by the average Computer Associates trading price, over the exercise price for such share. The offer and the merger will not affect the vesting schedule of any Sterling Software stock options other than those held by the specified management employees. 47 Under the merger agreement, each Sterling Software stock option left unexercised at the time the offer is consummated and not canceled as described above will become an option to purchase shares of Computer Associates common stock upon consummation of the offer. In that case, - the option will become exercisable for a number of shares of Computer Associates common stock equal to the number of underlying Sterling Software shares multiplied by the option exchange ratio and - the exercise price of the option will be divided by the option exchange ratio. The option exchange ratio used for purposes of making the calculations described in this section will correspond to the exchange ratio used for Sterling Software shares tendered pursuant to the offer, and will be appropriately adjusted if Computer Associates elects the cash option under the merger agreement. For more information on the treatment of Sterling Software stock options in connection with the offer and the merger, please refer to Item 3 of Sterling Software's Solicitation/Recommendation Statement on Schedule 14D-9 which is being mailed to Sterling Software stockholders together with this prospectus. REPRESENTATIONS AND WARRANTIES. The merger agreement contains customary representations and warranties relating to, among other things: - corporate organization and similar corporate matters of each of Computer Associates and Sterling Software - authorization, execution, delivery, performance and enforceability of, and required consents, approvals, orders and authorizations of governmental authorities relating to, the merger agreement and related matters of each of Computer Associates and Sterling Software - the capital structure of each of Computer Associates and Sterling Software - documents filed by each of Computer Associates and Sterling Software with the SEC and the accuracy of information contained in such documents - financial statements included in documents filed by each of Computer Associates and Sterling Software with the SEC, the accuracy of such information presented by such financial statements, compliance with applicable accounting standards and requirements by such financial statements and, in the case of Sterling Software, the absence of undisclosed liabilities - the accuracy of information supplied by each of Computer Associates and Sterling Software in connection with this prospectus and the registration statement of which it is a part - outstanding and pending material litigation of each of Computer Associates and Sterling Software - the absence of material changes or events concerning Computer Associates and Sterling Software through the date of the merger agreement - compliance with laws and permit requirements by Computer Associates and Sterling Software - engagement and payment of fees of brokers, investment bankers, finders and financial advisors by Computer Associates and Sterling Software - subsidiaries of Sterling Software - filing of tax returns and payment of taxes by Sterling Software - matters relating to benefit plans of Sterling Software 48 - matters relating to the Employee Retirement Income Security Act for Sterling Software - certain contracts and debt instruments of Sterling Software - software, intellectual property and infringement matters concerning Sterling Software - ownership of properties and assets of Sterling Software - interests of directors and officers in Sterling Software assets - Sterling Software board of directors' recommendation of the offer and merger - receipt of fairness opinion by Computer Associates and Sterling Software from their respective financial advisors - ownership interests of Computer Associates in Sterling Software common stock and - interim operations and ownership of Silversmith Acquisition Corp. All representations and warranties of Computer Associates and Sterling Software expire at the time the merger becomes effective. CONDUCT OF BUSINESS PENDING THE MERGER. Sterling Software has agreed that Sterling Software and its subsidiaries will carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as conducted before the date of the merger agreement and, to the extent consistent with such previous conduct, use all reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them. The merger agreement further provides that, except as expressly provided in the merger agreement or as set forth in the disclosure schedule to the merger agreement during the period from the execution and delivery of the merger agreement to the consummation of the offer, Sterling Software will not, and will not permit any of its subsidiaries to: - declare or pay any dividends on or make any other distributions in respect of, capital stock, other than dividends and distributions by any direct or indirect wholly owned subsidiary of Sterling Software to its parent, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or purchase, redeem or otherwise acquire any shares of capital stock of Sterling Software or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities - issue, deliver, sell, pledge or otherwise encumber any shares of capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, other than the issuance of Sterling Software shares upon the exercise of stock options outstanding on the date of the merger agreement, under the Sterling Software rights plan or under its employee stock purchase plan - amend the articles of incorporation, by-laws or other comparable charter or organizational documents of Sterling Software or any of its significant subsidiaries - acquire or agree to acquire any business including through the acquisition of any interest in any corporation, partnership, joint venture, association or other business organization or division thereof - mortgage or otherwise encumber or subject to any lien or sell, lease, transfer or otherwise dispose of any of Sterling Software's intellectual property or any other material properties or assets except in the ordinary course of business consistent with past practice and pursuant to existing contracts or commitments, or except in the ordinary course of business consistent with 49 past practice or pursuant to existing contracts or commitments, license any of Sterling Software's intellectual property - make or agree to make any new capital expenditures in excess of $500,000 in the aggregate - make any material tax election, unless required by law, or settle or compromise any material income tax liability - pay, discharge or satisfy any claims, liabilities or obligations, other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice and in accordance with their terms of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements, or the notes thereto, of Sterling Software included in documents filed with the SEC, liabilities incurred in the ordinary course of business consistent with past practice, or liabilities not to exceed $2,500,000 in the aggregate, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which Sterling Software or any of its subsidiaries is a party - commence a lawsuit other than for the routine collection of amounts owed or in such cases where Sterling Software in good faith determines that the failure to commence suit would result in a material impairment of a valuable aspect of Sterling Software's business, provided that Sterling Software consults with Computer Associates prior to filing such suit - incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of Sterling Software or any of its subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for short-term borrowings incurred in the ordinary course of business consistent with past practice and except for intercompany indebtedness between Sterling Software and any of its wholly owned subsidiaries or between such subsidiaries, or make any loans, advances or capital contributions to, or investments in, any other person - enter into or amend any employment or severance agreement or similar arrangements, enter into any agreement pursuant to which Sterling Software or any of its subsidiaries will provide services for a term of more than 30 days at a fixed or capped price or otherwise pursuant to terms that are not consistent with agreements entered into by Sterling Software or any of its subsidiaries in the ordinary course of business, enter into any customer sale or license agreement on terms outside the ordinary course of business, pay commissions to sales employees except on the basis of executed customer contracts with respect to products actually delivered to customers, other than customer sales contracts or licenses enter into any contracts or series of related contracts in excess of $500,000, enter into or amend any agreement or arrangement for obtaining professional services or advice involving payments of more than $200,000 to any one service provider (provided that this clause does not apply to legal services or advice obtained in connection with the transactions contemplated by the merger agreement), enter into any product swap transactions that would be in violation of generally accepted accounting principles, make any determination as to amounts payable under any plan, arrangement or agreement, providing for discretionary incentive compensation or bonus to any officer, director, employee or independent contractor of Sterling Software or any of its subsidiaries, or enter into, adopt, or amend any agreement, arrangement or benefit plan so as to increase the liability of Sterling Software or Computer Associates or any of their subsidiaries in respect of compensation or benefits except as may be required by law (we call this covenant the "Material Agreement Covenant") or - authorize any of, or commit or agree to take any of, the foregoing actions. 50 ACCESS TO INFORMATION. Sterling Software agreed, subject to applicable law, to give Computer Associates and its representatives access, during normal business hours and upon reasonable notice, to the properties, books, contracts, commitments, personnel and records of Sterling Software and its subsidiaries, and to furnish Computer Associates and its representatives with copies of all securities filings, material tax return documents and such other information concerning its business, properties and personnel as such persons may reasonably request. OTHER OFFERS. The merger agreement provides that, from the date of the merger agreement until the effective time of the merger or, if earlier, the termination of the merger agreement, Sterling Software will not, whether directly or indirectly through advisors, agents or other intermediaries, and will cause its officers, directors, advisors, representatives and other agents not to, directly or indirectly: - solicit, initiate or knowingly encourage, or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any acquisition proposal - participate or engage in substantive discussions or negotiations with, or disclose or provide any non-public information relating to Sterling Software or its subsidiaries or afford access to the properties, books or records of Sterling Software or its subsidiaries to, any person or entity that has made an acquisition proposal or with or to any person or entity in contemplation of an acquisition proposal or - enter into any agreement or agreement in principle providing for or relating to an acquisition proposal; PROVIDED, HOWEVER, that if and only if: - a person has submitted an unsolicited acquisition proposal to Sterling Software's board of directors under circumstances in which Sterling Software has complied with its obligations described above - Sterling Software's board of directors believes in good faith, based on such matters as it deems relevant, including the advice of its financial advisor, that the unsolicited acquisition proposal is a superior proposal, as described below, and - Sterling Software's board of directors determines in good faith, based on such matters as it deems relevant, including consultation with outside counsel, that engaging in negotiations or discussions or providing information in response to the unsolicited acquisition proposal is required to satisfy the directors' fiduciary duties under the Delaware General Corporation Law then Sterling Software may furnish information concerning Sterling Software and its subsidiaries under a customary confidentiality agreement to the person making the superior proposal and participate in negotiations and discussions regarding the superior proposal. In response to a superior proposal which was not solicited by Sterling Software and which did not otherwise result from a breach of the provisions of the merger agreement described above, Sterling Software may terminate the merger agreement if its board of directors determines in good faith, based on such matters as it deems relevant, including consultation with outside counsel, that the directors' fiduciary duties under the Delaware General Corporation Law require termination. Termination under this provision of the merger agreement may only occur after the third business day following Computer Associates' receipt of written notice from Sterling Software advising that Sterling Software's board of directors is prepared to accept the superior proposal, and Sterling Software must pay a termination fee in the amount of $175 million, plus expenses up to $10 million, to Computer Associates promptly upon such termination. See "--Termination Fee; Expenses." 51 No provision of the merger agreement prohibits Sterling Software's board of directors from taking and disclosing to Sterling Software's stockholders a position with respect to a tender offer made pursuant to Exchange Act rules 14d-9 and 14e-2 or from making any disclosure required by applicable law. The merger agreement provides that: - the term "acquisition proposal" means any inquiry, proposal or offer from any person, other than Computer Associates, Silversmith Acquisition Corp. or any of their affiliates, relating to any merger, consolidation, recapitalization, liquidation or other direct or indirect business combination involving Sterling Software or any of its significant subsidiaries, any direct or indirect acquisition or purchase of 15% or more (by voting power) of the outstanding capital stock of Sterling Software or any of its significant subsidiaries, any tender offer or exchange offer that if completed would result in any person (together with its affiliates) owning 15% or more (by voting power) of the outstanding capital stock of Sterling Software or any of its significant subsidiaries, or the acquisition, license, purchase or other disposition of a substantial portion of the technology, business or assets of Sterling Software or any of its significant subsidiaries outside the ordinary course of business or inconsistent with past practice - the term "superior proposal" means any bona fide acquisition proposal which is on terms that Sterling Software's board of directors determines in its good faith judgment (after receipt of the advice of a financial advisor of nationally recognized reputation) provides for consideration which would exceed the value of the consideration provided for in the offer and the merger, after taking into account all relevant factors, including any conditions to such acquisition proposal, the timing of the closing thereof, the risk of nonconsummation, the ability of the person making the acquisition proposal to finance the transaction contemplated thereby and any required governmental or other consents, filings and approvals. Sterling Software has agreed to promptly advise Computer Associates of any request for information relating to an acquisition proposal or any inquiry relating to or which could result in an acquisition proposal, including the material terms and conditions of such request, acquisition proposal or inquiry and the identity of the person making the same. Sterling Software has agreed to inform Computer Associates on a prompt basis of the status and content of any discussions regarding any acquisition proposal with a third party and as promptly as possible of any change in the price, structure or form of the consideration or material terms of and conditions regarding the acquisition proposal. COMPLIANCE BY SILVERSMITH ACQUISITION CORP. Computer Associates has agreed that it will take all action necessary, including ensuring that Silversmith Acquisition Corp. has sufficient funds and shares of Computer Associates Common Stock, to cause Silversmith Acquisition Corp. to perform its obligations under the merger agreement and to consummate the offer and the merger on the terms and conditions set forth in the merger agreement. EMPLOYEE BENEFITS. Except as otherwise provided in the merger agreement, Computer Associates has agreed to honor in accordance with their terms all Sterling Software benefit plans and all severance and employment agreements disclosed to Computer Associates and all accrued benefits vested thereunder; provided that Computer Associates is not prevented from terminating any such benefit plan or other agreement in accordance with its terms. In addition, Computer Associates has agreed to provide employees of Sterling Software and its subsidiaries retained by Computer Associates with employee benefits in the aggregate no less favorable than those benefits provided to similarly situated employees of Computer Associates. DIRECTORS AND OFFICERS INSURANCE AND INDEMNIFICATION. The merger agreement provides that, for six years after the effective time of the merger, Computer Associates and Sterling Software, as the corporation surviving the merger, indemnify and hold harmless, including advancement of expenses, the 52 current and former directors and officers of Sterling Software in respect of acts or omissions occurring on or prior to the effective time to the extent provided in Sterling Software's certificate of incorporation, by-laws and indemnity agreements in effect on the date of the merger agreement, subject to any limitation imposed from time to time under applicable law. Computer Associates has agreed to maintain Sterling Software's current directors and officers insurance and indemnification policy to the extent that it provides coverage for events occurring prior to the effective time of the merger or provide similar coverage for a period of not less than two years from the effective time of the merger for all persons who are directors and officers of Sterling Software on the date of the merger agreement, provided that Computer Associates will not be obligated to pay an annual premium for any such coverage in excess of the premium paid by Sterling Software for its most recent fiscal year. STERLING SOFTWARE STOCKHOLDERS MEETING. If required by applicable law to effectuate the merger, the merger agreement requires Sterling Software to call a meeting of its stockholders as soon as reasonably practicable after acceptance for payment of Sterling Software shares tendered in the offer. Under the merger agreement, at any such meeting, Computer Associates and Silversmith Acquisition Corp. have agreed to make a quorum and to vote all Sterling Software shares acquired in the offer or otherwise beneficially owned by them in favor of adoption of the merger agreement. If the minimum tender condition is satisfied pursuant to the offer, Silversmith Acquisition Corp. will hold at least a majority of the outstanding Sterling Software shares and will be able to assure that the requisite number of affirmative votes in favor of approval and adoption of the merger agreement will be received, even if no other stockholder votes in favor thereof. If Silversmith Acquisition Corp. obtains at least 90% of the outstanding Sterling Software shares pursuant to the offer, it has agreed to effect the merger without any notice to and without the authorization of the stockholders of Sterling Software pursuant to Section 253 of the Delaware General Corporation Law. ANTITRUST APPROVALS. Each of Computer Associates and Sterling Software has agreed to: (1) promptly make or cause to be made the filings required of such party or any of its subsidiaries under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other Federal, state or foreign statutes, rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, "antitrust laws") with respect to the transactions contemplated by the merger agreement and the tender agreement (2) comply at the earliest practicable date with any request under the HSR Act or other antitrust laws for additional information, documents, or other material received by such party or any of its subsidiaries from any governmental entity in respect of such filings or such transactions (3) cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other inquiry of any such agency or other governmental entity under any antitrust laws with respect to any such filing or any such transaction (4) use all reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other antitrust laws with respect to such transactions as promptly as possible after the execution of the merger agreement and (5) use all reasonable efforts to resolve such objections, if any, as may be asserted by any governmental entity with respect to the transactions contemplated by the merger agreement or the tender agreement under any antitrust laws. If any administrative or judicial action or proceeding is instituted or threatened to be instituted challenging any transaction contemplated by the merger agreement or the tender agreement as violative of any antitrust law, and, if by mutual agreement, Computer Associates and Sterling Software decide that litigation is in their best interests, each has agreed to cooperate and use all reasonable efforts 53 vigorously to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the offer, the merger or any such other transactions. The parties' agreements to cooperate in resolving objections or proceedings raised under any antitrust laws with respect to the offer and the merger are subject to the following limitations in the merger agreement: (A) neither Computer Associates nor any of its subsidiaries will be required to divest any of their respective businesses, product lines or assets (B) neither Computer Associates nor any of its subsidiaries will be required to take or agree to take any other action or agree to any limitation that could reasonably be expected to have an adverse effect on the business, assets, condition, results of operations or prospects of Computer Associates and its subsidiaries taken as a whole or Computer Associates combined with Sterling Software after the effective time of the merger (C) neither Sterling Software nor its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a material adverse effect with respect to Sterling Software (D) no party to the merger agreement will be required to agree to the imposition of or to comply with, any condition, obligation or restriction on Computer Associates or any of its subsidiaries or on Sterling Software (as surviving corporation of the merger) or certain of its subsidiaries and (E) neither Computer Associates nor Silversmith Acquisition Corp. will be required to waive any of the conditions to the offer or the merger described under "The Offer--Conditions of the Offer" and "--Conditions to the Completion of the Merger." FURTHER ASSURANCES. Each of Computer Associates and Sterling Software has agreed, pursuant to the merger agreement, to use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the offer, the merger, and the other transactions contemplated by the merger agreement and the tender agreement. CONDITIONS TO THE COMPLETION OF THE MERGER. Each party's obligation to effect the merger is subject to the satisfaction or waiver of the following conditions: - if required by Delaware law, the holders of at least a majority of all outstanding shares of Sterling Software common stock having approved and adopted the merger and the merger agreement - Silversmith Acquisition Corp. having accepted for exchange and exchanged all shares of Sterling Software common stock tendered pursuant to the offer unless the failure to consummate the offer is the result of a willful and material breach of the merger agreement by the party asserting such condition - no judgment, order, decree, statute, law, ordinance, rule or regulation entered, enacted, promulgated, enforced or issued by any court or other governmental entity of competent jurisdiction or other legal restraint or prohibition being in effect that prevents or prohibits consummation of the merger and 54 - the registration statement of which this prospectus forms a part or a post-effective amendment to such registration statement relating to the shares of Computer Associates common stock issuable in connection with the merger having become effective under the Securities Act and not being the subject of any stop order or proceedings seeking a stop order. TERMINATION EVENTS. The merger agreement may be terminated at any time prior to the effective time of the merger, notwithstanding any approval of the merger agreement by the stockholders of Silversmith Acquisition Corp. or Sterling Software: (1) by mutual written consent of Sterling Software and Computer Associates (2) by Computer Associates or Sterling Software if the offer shall have expired or been terminated in accordance with the terms of the merger agreement without Computer Associates or Silversmith Acquisition Corp. having accepted for exchange any Sterling Software shares pursuant to the offer; provided that Computer Associates shall not be permitted to terminate the merger agreement if the offer is terminated or expires without Sterling Software shares being accepted for exchange in violation of the merger agreement (3) by Computer Associates or Sterling Software if the offer shall not have been consummated on or before September 30, 2000, unless the failure to consummate the offer is the result of a willful and material breach of the merger agreement by the party seeking to terminate (4) by Computer Associates or Sterling Software if the merger shall not have been consummated as a result of any condition described above under "--Conditions to the Completion of the Merger" being incapable of being satisfied (5) if any statute, rule, regulation, injunction or decree having the effects described in the first or second "bullet points" under the heading "The Offer--Conditions of the Offer--Other Conditions of the Offer" shall be in effect and shall have become final and nonappealable (6) by Computer Associates upon the occurrence of any trigger event described in clauses (1) through (4) under the heading "--Termination Fee; Expenses" below or (7) by Sterling Software under the circumstances described above under "--Other Offers." TERMINATION FEE; EXPENSES. Sterling Software has agreed to pay Computer Associates a fee in immediately available funds equal to $175 million promptly, but in no event later than one business day, after the termination of the merger agreement (or such later date as may apply in the case of clause (1) below) as a result of the occurrence of any of the events set forth below (a "trigger event"): (1) Sterling Software shall have received an acquisition proposal, and at any time prior to, or within one year after the termination of the merger agreement, unless the merger agreement is terminated pursuant to (1) or (5) described above under the heading "--Termination Events", Sterling Software shall have entered into, or shall have publicly announced its intention to enter into, an agreement or an agreement in principle, other than a confidentiality agreement permitted by the merger agreement, with respect to any acquisition proposal (2) any person or group, as defined in Exchange Act Section 13(d)(3), other than Computer Associates or any of its subsidiaries, shall have become the beneficial owner, as defined in Exchange Act rule 13d-3, of at least 15% of the outstanding shares of Sterling Software or shall have acquired, directly or indirectly, at least 15% of the assets of Sterling Software and its subsidiaries (3) Sterling Software shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, which breach or failure to perform (A) would give rise to the failure of a 55 condition described in the third or fourth "bullet points" of "The Offer--Conditions of the Offer--Other Conditions of the Offer", and (B) is incapable of being or has not been cured by Sterling Software within 10 calendar days after giving written notice to Sterling Software of such breach or failure to perform or (4) (A) the board of directors of Sterling Software, or any committee thereof, shall have withdrawn or materially modified or amended in a manner adverse to Computer Associates or Silversmith Acquisition Corp. its approval or recommendation of the offer, the merger or the merger agreement or its approval of the entry by Silversmith Acquisition Corp. into the tender agreement, or shall have failed to make such favorable recommendation, or (B) the board of directors of Sterling Software, or any committee thereof, shall have recommended to the stockholders of Sterling Software any acquisition proposal or shall have resolved to, or publicly announced an intention to, do so. The merger agreement provides that, except as described in this section, all fees and expenses incurred in connection with the offer, the merger and the merger agreement shall be paid by the party incurring such fees or expenses, except that, if the offer is not consummated, Computer Associates and Sterling Software will equally share - expenses incurred in connection with the printing and mailing of the documents distributed or to be distributed to stockholders of Sterling Software - all SEC and other regulatory filing fees with respect to the registration statement of which this prospectus forms a part, and - the NYSE listing fee with respect to the listing of Computer Associates shares to be issued in the offer and the merger In addition, the merger agreement provides that, if the merger agreement is terminated as a result of the occurrence of a trigger event described above, in addition to the termination fee paid or payable by Sterling Software to Computer Associates as described above, Sterling Software shall assume and pay, or reimburse Computer Associates for, all reasonably documented out-of-pocket fees payable and expenses incurred by Computer Associates, including the fees and expenses of its counsel, in connection with the merger agreement, up to a maximum of $10 million, which amount shall include the fees and expenses allocated to or paid by Sterling Software as described in the immediately preceding paragraph. THE TENDER AGREEMENT PARTIES As an inducement for Computer Associates and Silversmith Acquisition Corp. to enter into the merger agreement, immediately prior to the signing of the merger agreement, each of the directors and executive officers of Sterling Software entered into the tender agreement with Silversmith Acquisition Corp. These directors and executive officers collectively hold an aggregate of 2,490,550 outstanding shares of Sterling Software common stock and collectively have the right to acquire an additional nine million shares upon the exercise of outstanding Sterling Software stock options. AGREEMENT TO TENDER Each Sterling Software stockholder who signed the tender agreement agreed to tender in the offer and not withdraw all of his or her shares of Sterling Software and any additional shares of Sterling Software acquired by such stockholder after the date of the tender agreement. 56 PROXY In the tender agreement, each Sterling Software stockholder who signed the tender agreement granted Silversmith Acquisition Corp., or any nominee of Silversmith Acquisition Corp., a proxy to vote or consent all of such stockholder's Sterling Software shares: - in favor of the adoption of the merger agreement and the tender agreement and approval of the merger and the other transactions contemplated by the merger agreement and tender agreement - against any proposal for any recapitalization, merger, sale of assets or other business combination between Sterling Software and any person or entity, other than the merger with Silversmith Acquisition Corp., or any other action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of Sterling Software under the merger agreement not being fulfilled - in favor of any other matter relating to consummation of the transactions contemplated by the merger agreement and the tender agreement. In the tender agreement, each Sterling Software stockholder also agreed to cause such stockholder's Sterling Software shares that are outstanding and owned by such person beneficially to be voted in accordance with the foregoing. The tender agreement provides that the proxy will be automatically revoked upon termination of the merger agreement. NO SOLICITATION Each Sterling Software stockholder who signed the tender agreement further agreed to not, directly or indirectly: - subject to such stockholder's fiduciary duty as a director of Sterling Software (if the stockholder is a director), solicit, initiate or encourage, or authorize any person to solicit, initiate or encourage, any inquiry, proposal or offer from any person to acquire the business, property or capital stock of Sterling Software or any direct or indirect subsidiary of Sterling Software, or any acquisition of a substantial equity interest in, or a substantial amount of assets of, Sterling Software or any direct or indirect subsidiary of Sterling Software, whether by merger, purchase of assets, tender offer or other transaction, and - subject to such stockholder's fiduciary duty as a director of Sterling Software (if the stockholder is a director), participate in any discussion or negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or participate in, facilitate or encourage any effort or attempt by any other person to make or seek any such inquiry, proposal or offer. TERMINATION The tender agreement provides that the tender agreement and the proxies granted under the tender agreement will terminate upon termination of the merger agreement in accordance with its terms. 57 CHANGE OF CONTROL SEVERANCE AGREEMENTS Each of Sterling Software's executive officers, as well as Mr. Evan A. Wyly, a director of Sterling Software, and a number of other officers of Sterling Software, are parties to change in control severance agreements with Sterling Software. Each change in control severance agreement requires Sterling Software to provide an officer (including Mr. Wyly for that purpose under this section), upon a qualifying termination of employment, a lump sum amount equal to a multiple of the officer's annual cash compensation. Each agreement also requires Sterling Software to continue to provide an officer, for a specified number of months, with the benefits and perquisites that were provided to the officer prior to the qualifying termination of employment. In addition, the agreements also provide for an officer to receive a gross-up payment if the officer becomes subject to any excise tax as a result of any payments that the officer receives under the agreement, or otherwise, being determined to be "excess parachute payments." As part of the merger agreement negotiations, we requested that the change in control severance agreements be amended. In particular, we requested that each officer waive his or her right to a continuation of benefits and perquisites, except medical coverages, and that the agreements be amended to add a non-competition covenant in respect of a number of the officers and non-solicitation and confidentiality covenants in respect of all the officers. On February 14, 2000, Sterling Software, Computer Associates and each officer agreed to amend the change in control severance agreements, effective as of the consummation of the offer. We required the amendments as a condition to executing the merger agreement. The amendments become effective upon consummation of the offer. In general, the amendments confirmed and, in some respects reduced, the officers' benefits and imposed upon a number of the officers a non-competition covenant and other covenants to which they were not previously subject. The amendments provide, among other things, that: - each officer will be paid a lump sum in cash upon a qualifying termination of employment in satisfaction of all severance pay and in lieu of the continuation of certain benefits and perquisites to which he or she would otherwise have been entitled pursuant to such officer's change in control severance agreement. As to some of the officers, twenty-five percent of the payment is in consideration for entering into a non-competition covenant - Sterling Software will continue, for a specified period, medical benefits for each officer - each officer will have the right, for up to 30 days after a qualifying termination of employment, to purchase the officer's company-provided car at its current book value - a number of the officers will not engage in activities which are competitive with Sterling Software or solicit Sterling Software employees for an agreed upon period. An officer may request a waiver of the non-competition provision after an agreed upon amount of time and such waiver may not be unreasonably withheld by Sterling Software. - each officer must keep Sterling Software information confidential - each officer is entitled to a gross-up on any excise tax under Section 4999 of the Code, which may be imposed on any payments and benefits received by the executive in connection with the offer or the merger In addition, three of Sterling Software's officers have agreed to elect to receive cash consideration rather than convert their Sterling Software stock options into options to acquire Computer Associates shares, to the extent that failure to so elect would result in an incremental increase of such individual's excise tax liability. 58 In addition: - Mr. Sterling Williams' change in control severance agreement has been amended to require Sterling Software to transfer to him, upon a qualifying termination of employment, the ownership of the life insurance policy concerning him which has been funded by Sterling Software - Mr. Sam Wyly's change in control severance agreement has been amended to require Sterling Software to pay him, upon a qualifying termination of employment, an amount in cash equal to the value of the split dollar life insurance policy concerning him which is held by Sterling Software - Ms. Morton's change in control severance agreement has been amended to have Sterling Software acknowledge her entitlement to certain retiree medical benefits. On February 15, 2000, Sterling Software, Computer Associates and Mr. Tolari entered into an agreement which modified Mr. Tolari's rights under his Supplemental Executive Retirement Plan II. Under the agreement, Mr. Tolari agreed to receive, within five days after the date that his employment with Sterling Software is terminated for any reason, a lump sum payment of $3,527,640 in satisfaction in full for Sterling Software's obligations to him under the Supplemental Executive Retirement Plan II. The amendments to the change in control severance agreements and the agreement relating to the Supplemental Executive Retirement Plan II are filed as Exhibits to the registration statement of which this prospectus is a part. For a further description of the change in control severance agreements and the amendments to such agreements and the other matters described above in this section, including the identities of the Sterling Software executives covered by these arrangements, the payments to be received by the executives upon a qualifying termination of employment, the applicable period for continuation of medical benefits and the length of the non-competition and non-solicitation periods, please refer to Item 3 of Sterling Software's Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed to Sterling Software stockholders together with this prospectus. MATERIAL FEDERAL INCOME TAX CONSEQUENCES The following discussion, in the opinion of Covington & Burling, special tax counsel to Computer Associates, is a summary of the material federal income tax consequences of the offer and the merger to Sterling Software stockholders that hold Sterling Software shares as capital assets. The discussion set forth below is for general information only and may not address all of the federal income tax consequences that may be relevant to particular stockholders in light of their individual circumstances or to stockholders subject to special treatment under the Internal Revenue Code of 1986, as amended (the "Code"), including: - foreign holders; - financial institutions; - tax-exempt organizations; - insurance companies; - dealers in securities or currencies; - persons that hold their shares as part of a straddle, synthetic security, conversion transaction or other integrated investment; - traders in securities who elect to apply a mark-to-market method of accounting; - employee benefit plans; and 59 - holders that acquired their shares pursuant to the exercise of employee stock options or otherwise as compensation. The following summary is not binding upon the Internal Revenue Service (the "IRS"), and we will not seek a ruling from the IRS concerning the tax consequences of the offer and the merger. The following discussion is based upon the provisions of the Code, Treasury regulations and administrative and judicial interpretations thereof, all as of the date of this prospectus, and all of which are subject to change, retroactively or prospectively, and to possibly differing interpretations. PRELIMINARY CONSIDERATIONS The characterization of the offer and the merger for federal income tax purposes and, accordingly, the federal income tax consequences to you as a result of the exchange of your Sterling Software shares in connection with the offer or the merger, or both, will depend upon facts and circumstances that will not be known prior to the consummation of the offer and the merger, including: - whether the merger will be consummated; - whether the offer and the merger will be treated as a single integrated transaction or as two separate transactions for federal income tax purposes; - whether after the consummation of the offer and merger, Sterling Software will either continue its software business or continue to use a significant portion of its software assets in its business - what percentage of the total number of outstanding Sterling Software shares will be held by Computer Associates immediately after the consummation of the offer; and - what percentage of the aggregate amount of consideration received from Computer Associates in exchange for Sterling Software shares will consist of Computer Associates shares. Because such facts and circumstances will not be known prior to the consummation of the offer and the merger, you will not know whether the exchange of your Sterling Software shares in the offer or the merger, or both, will be tax free until the offer and the merger are consummated. If the offer and the merger are consummated without significant change to the merger agreement, then Computer Associates intends to treat the offer and the merger as a single integrated transaction for federal income tax purposes. If the offer and the merger are not treated as a single integrated transaction for federal income tax purposes, then the tax consequences that would apply to you in connection with the offer and the merger might be different than if the offer and the merger were treated as a single integrated transaction. Even if Computer Associates treats the offer and the merger as an integrated transaction for federal income tax purposes, there can be no assurance that the IRS or a court considering the issue would agree with such treatment. (A) TAX CONSEQUENCES TO YOU IF THE MERGER IS CONSUMMATED If the merger is consummated, the federal income tax consequences to you from the exchange of your Sterling Software shares in the offer or the merger, or both, will depend upon which one of the following scenarios occurs: (1) THE OFFER AND THE MERGER ARE INTEGRATED FOR FEDERAL INCOME TAX PURPOSES, AND THE CONSIDERATION RECEIVED FROM COMPUTER ASSOCIATES IN EXCHANGE FOR STERLING SOFTWARE SHARES CONSISTS ONLY OF COMPUTER ASSOCIATES SHARES (OTHER THAN CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF COMPUTER ASSOCIATES) Provided that the offer and the merger are integrated for federal income tax purposes, and if Sterling Software either continues its software business or continues to use a significant portion of its software assets in its business and if the consideration received from Computer Associates in exchange 60 for Sterling Software shares consists only of Computer Associates shares (other than cash received in lieu of fractional shares of Computer Associates), then the offer and the merger should qualify as a reorganization under Section 368(a) of the Code. If the offer and the merger qualify as a reorganization under Section 368(a) of the Code, then if you exchange your Sterling Software shares in the offer or the merger, or both, you will not recognize gain or loss on the exchange, except to the extent you receive cash in lieu of a fraction of a Computer Associates share. Your aggregate adjusted tax basis in Computer Associates shares that you receive (including fractional shares you are deemed to receive, as described below) will equal your aggregate adjusted tax basis in the Sterling Software shares that you surrender in the offer or the merger, or both. Your holding period for the Computer Associates shares you receive will include your holding period for the Sterling Software shares that you surrender in the offer or the merger, or both. If you receive cash in lieu of a fraction of a Computer Associates share, you will be treated as having first received such fraction of a Computer Associates share and then immediately exchanging such fraction of a share for cash. You will recognize gain or loss in an amount equal to the difference between the amount of cash that you receive for the fractional share and the portion of your aggregate adjusted tax basis in your Sterling Software shares that is allocable to the fractional share. The gain or loss will constitute capital gain or loss and will be long-term capital gain or loss if, as of the date of the exchange, your holding period for the fractional interest is greater than one year. If the IRS were to successfully assert that the offer and the merger should not be integrated, or that Sterling Software neither continued its software business nor continued to use a significant portion of its software assets in its business, however, then the tax consequences to you would be as described in either (A)(4) or (A)(5) below, depending upon how many Sterling Software shares Computer Associates held immediately after the consummation of the offer. (2) THE OFFER AND THE MERGER ARE INTEGRATED FOR FEDERAL INCOME TAX PURPOSES, AND 80% OR MORE OF THE AGGREGATE AMOUNT OF CONSIDERATION RECEIVED FROM COMPUTER ASSOCIATES IN EXCHANGE FOR STERLING SOFTWARE SHARES CONSISTS OF COMPUTER ASSOCIATES SHARES Provided that the offer and the merger are integrated for federal income tax purposes and if Sterling Software either continues its software business or continues to use a significant portion of its software assets in its business, and if at least 80% of the aggregate amount of consideration received from Computer Associates in exchange for Sterling Software shares consists of Computer Associates shares, then the offer and the merger should qualify as a reorganization under Section 368(a) of the Code. If the offer and the merger qualify as a reorganization under Section 368(a) of the Code, then if you exchange your Sterling Software shares in the offer or the merger, or both, for a combination of Computer Associates shares and cash, you will not recognize loss on the exchange. You will, however, recognize gain on the exchange equal to the lesser of: - the excess, if any, of the sum of the aggregate fair market value of the Computer Associates shares and the amount of cash you receive in the offer or the merger, or both, over your adjusted tax basis in the Sterling Software shares that you surrender, or - the amount of cash that you receive in the offer or the merger, or both. The gain will be treated as capital gain unless the receipt of the cash has the effect of the distribution of a dividend for federal income tax purposes (see "POSSIBLE TREATMENT OF CASH AS A DIVIDEND" below), in which case you will recognize ordinary dividend income to the extent of your ratable share of Sterling Software's current and accumulated earnings and profits. Your aggregate tax basis in the Computer Associates shares that you receive will be the same as your aggregate basis in the Sterling Software shares that you surrender, decreased by the cash that you 61 receive and increased by the amount of gain, if any, that you recognize (including any portion of the gain that is treated as a dividend). Your holding period for Computer Associates shares that you receive will include your holding period for the Sterling Software shares that you surrender in the offer or the merger, or both. If the IRS were to successfully assert that the offer and the merger should not be integrated, or that Sterling Software neither continued its software business nor continued to use a significant portion of its software assets in its business, however, then the tax consequences to you would be as described in (A)(3) below. POSSIBLE TREATMENT OF CASH AS A DIVIDEND. If you receive a combination of Computer Associates shares and cash in the offer or the merger, or both, the determination of whether the gain that you recognize will be treated as capital gain or as a dividend depends on whether and to what extent the exchange reduces your deemed percentage stock ownership in Computer Associates. For purposes of this determination, you will be treated as if you first exchanged all of your Sterling Software shares only for Computer Associates shares and then Computer Associates immediately redeemed a portion of those Computer Associates shares in exchange for the cash that you actually receive. The gain that you recognize will be treated as capital gain rather than dividend income if the deemed redemption by Computer Associates is either: - "substantially disproportionate" with respect to you, or - "not essentially equivalent to a dividend." In applying these tests, you must take into account Computer Associates shares that you actually own and Computer Associates shares that you are deemed to own under the relevant constructive ownership rules. Pursuant to the constructive ownership rules, you will be deemed to own any Computer Associates shares that are actually owned (and, in some cases, constructively owned) by specified family members and corporations, partnerships, and trusts in which you have an interest and Computer Associates shares that you or such persons have the right to acquire by exercise of an option or by conversion of a security. In general, the deemed redemption of your Computer Associates shares will be "substantially disproportionate" to you if, among other things, the percentage of the outstanding Computer Associates shares that you actually and constructively own immediately after the deemed redemption is less than 80% of the percentage of the outstanding Computer Associates shares that you actually and constructively owned immediately before the deemed redemption. The deemed redemption of your Computer Associates shares will be treated as "not essentially to a dividend" if the reduction in your percentage ownership of Computer Associates stock constitutes a "meaningful reduction" given your particular facts and circumstances. Even a small reduction in your percentage stock ownership may satisfy this test. For example, a former Sterling Software shareholder whose relative stock interest in Computer Associates after the exchange is minimal (for example, an interest of less than 1%) and who exercises no control with respect to corporate affairs is considered to have a "meaningful reduction" if such shareholder experiences even a very slight reduction (for example, a reduction of as little as 3.5%) in the shareholder's percentage stock ownership. (3) THE OFFER AND THE MERGER ARE INTEGRATED FOR FEDERAL INCOME TAX PURPOSES, AND LESS THAN 80% OF THE AGGREGATE AMOUNT OF CONSIDERATION RECEIVED FROM COMPUTER ASSOCIATES IN EXCHANGE FOR STERLING SOFTWARE SHARES CONSISTS OF COMPUTER ASSOCIATES SHARES Even if the offer and the merger are integrated for federal income tax purposes, if less than 80% of the aggregate amount of consideration received from Computer Associates in exchange for Sterling 62 Software shares consists of Computer Associates shares, then the offer and the merger will not qualify as a reorganization under Section 368(a) of the Code. Consequently, your receipt of Computer Associates shares and cash would constitute a taxable sale or exchange upon which you would recognize gain or loss. The amount of gain or loss that you will recognize will equal the difference between the sum of the fair market value of the Computer Associates shares and the amount of cash that you receive in the offer or the merger, or both, and your adjusted tax basis in the Sterling Software shares that you surrender in the offer or the merger, or both. The gain or loss would be long-term capital gain or loss if, as of the date of the exchange, your holding period for the Sterling Software shares that you surrender was greater than one year. (4) THE OFFER AND THE MERGER ARE NOT INTEGRATED FOR FEDERAL INCOME TAX PURPOSES, COMPUTER ASSOCIATES HOLDS 80% OR MORE OF THE OUTSTANDING STERLING SOFTWARE SHARES IMMEDIATELY AFTER THE CONSUMMATION OF THE OFFER, AND THE CONSIDERATION RECEIVED FROM COMPUTER ASSOCIATES IN EXCHANGE FOR STERLING SOFTWARE SHARES CONSISTS ONLY OF COMPUTER ASSOCIATES SHARES (OTHER THAN CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF COMPUTER ASSOCIATES) If for any reason the offer and the merger are not integrated for federal income tax purposes, then the offer and the merger will be treated as two separate transactions. In such a case, if Computer Associates holds 80% or more of the outstanding Sterling Software shares immediately after the consummation of the offer and the consideration received from Computer Associates in exchange for Sterling Software shares consists only of Computer Associates shares (other than cash received in lieu of fractional shares of Computer Associates), and if Sterling Software either continues its software business or continues to use a significant portion of its software assets in its business then the offer and the merger should each separately qualify as a reorganization under Section 368(a) of the Code. If the offer or the merger, or both, qualify as a reorganization under Section 368(a) of the Code, then if you exchange Sterling Software shares in the offer or the merger, or both, the tax consequences to you will be the same as those described in (A)(1) above. If either the offer or the merger does not so qualify, or if both the offer and the merger do not so qualify, then the tax consequences to you with respect to an exchange that does not so qualify will be the same as those described in (A)(3) above (with reference being made to the offer or the merger, or both, as appropriate). (5) THE OFFER AND THE MERGER ARE NOT INTEGRATED FOR FEDERAL INCOME TAX PURPOSES, COMPUTER ASSOCIATES HOLDS LESS THAN 80% OF THE OUTSTANDING STERLING SOFTWARE SHARES IMMEDIATELY AFTER THE CONSUMMATION OF THE OFFER, AND THE CONSIDERATION RECEIVED FROM COMPUTER ASSOCIATES IN EXCHANGE FOR STERLING SOFTWARE SHARES CONSISTS ONLY OF COMPUTER ASSOCIATES SHARES (OTHER THAN CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF COMPUTER ASSOCIATES) If for any reason the offer and the merger are not integrated for federal income tax purposes, then the offer and the merger will be treated as two separate transactions. In such a case, if Computer Associates holds less than 80% of the outstanding Sterling Software shares immediately after the consummation of the offer and the consideration received from Computer Associates in exchange for Sterling Software shares consists only of Computer Associates shares (other than cash received in lieu of fractional shares of Computer Associates), and if Sterling Software either continues its software business or continues to use a significant portion of its software assets in its business then the merger should nevertheless qualify as a reorganization under Section 368(a) of the Code, but the offer will not. In that event: - the tax consequences to you from an exchange of Sterling Software shares in the merger will be the same as described in (A)(1) above (without regard to any references to the offer); and - the tax consequences to you from an exchange of Sterling Software shares in the offer will be the same as described in (A)(3) above (without regard to any references to cash or to the merger). 63 If the IRS were to successfully challenge the tax-free treatment of the merger, however, your receipt of Computer Associates shares in the merger would constitute a taxable sale or exchange upon which you would recognize gain or loss as described in (A)(3) above (without regard to any references to the offer). (6) THE OFFER AND THE MERGER ARE NOT INTEGRATED FOR FEDERAL INCOME TAX PURPOSES, AND THE CONSIDERATION RECEIVED FROM COMPUTER ASSOCIATES IN EXCHANGE FOR STERLING SOFTWARE SHARES DOES NOT CONSIST ONLY OF COMPUTER ASSOCIATES SHARES (OTHER THAN CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF COMPUTER ASSOCIATES) If for any reason the offer and the merger are not integrated for federal income tax purposes, then the offer and the merger will be treated as two separate transactions. In such a case, if the consideration received by Sterling Software stockholders from Computer Associates in exchange for Sterling Software shares does not consist only of Computer Associates shares (other than cash received in lieu of fractional shares of Computer Associates), then the offer will not qualify as a reorganization under Section 368(a) of the Code. Consequently, if you exchange Sterling Software shares in the offer, the tax consequences of the exchange will be the same as described in (A)(3) above (without regard to any references to the merger). The tax consequences of the merger should also be the same as described in (A)(3) above (without regard to any references to the offer). (B) TAX CONSEQUENCES TO YOU IF THE MERGER IS NOT CONSUMMATED If the merger is not consummated, the federal income tax consequences to you if you exchange Sterling Software shares in the offer will depend upon which one of the following scenarios occurs: (1) COMPUTER ASSOCIATES HOLDS 80% OR MORE OF THE OUTSTANDING STERLING SOFTWARE SHARES IMMEDIATELY AFTER THE CONSUMMATION OF THE OFFER, AND THE CONSIDERATION RECEIVED FROM COMPUTER ASSOCIATES IN EXCHANGE FOR STERLING SOFTWARE SHARES CONSISTS ONLY OF COMPUTER ASSOCIATES SHARES (OTHER THAN CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF COMPUTER ASSOCIATES) If the merger is not consummated, and if Computer Associates holds 80% or more of the outstanding Sterling Software shares immediately after the consummation of the offer, and if Sterling Software either continues its software business or continues to use a significant portion of its software assets in its business and if the consideration received from Computer Associates in exchange for Sterling Software shares consists only of Computer Associates shares (other than cash received in lieu of fractional shares of Computer Associates), then the offer should qualify as a reorganization under Section 368(a) of the Code. In these circumstances, Computer Associates intends to treat the offer as a reorganization under Section 368(a) of the Code. If the offer qualifies as a reorganization under Section 368(a) of the Code, then if you exchange Sterling Software shares in the offer the tax consequences of the exchange will be the same as described in (A)(1) above (without regard to any references to the merger). The IRS, however, is not bound by and may challenge this treatment. If the IRS were to successfully challenge such treatment, your receipt of Computer Associates shares would constitute a taxable sale or exchange upon which you would recognize gain or loss as described in (A)(3) above (without regard to any references to the merger). (2) EITHER COMPUTER ASSOCIATES HOLDS LESS THAN 80% OF THE OUTSTANDING STERLING SOFTWARE SHARES IMMEDIATELY AFTER THE CONSUMMATION OF THE OFFER OR THE CONSIDERATION RECEIVED FROM COMPUTER ASSOCIATES IN EXCHANGE FOR STERLING SOFTWARE SHARES DOES NOT CONSIST ONLY OF COMPUTER ASSOCIATES SHARES (OTHER THAN CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF COMPUTER ASSOCIATES) 64 If the merger is not consummated, and if either immediately after the consummation of the offer Computer Associates holds less than 80% of the total number of outstanding Sterling Software shares, or the consideration received from Computer Associates in exchange for Sterling Software shares does not consist only of Computer Associates shares (other than cash received in lieu of fractional shares of Computer Associates), then: - if you have received no cash from Computer Associates, the tax consequences of the exchange will be the same as described in (A)(3) above (without regard to any references to cash or the merger); and - if you received cash from Computer Associates, the tax consequences of the exchange will be the same as described in (A)(3) above (without regard to any references to the merger). HOW TO DETERMINE COMPUTER ASSOCIATES' TAX TREATMENT OF THE OFFER AND MERGER If the offer and the merger are consummated pursuant to the current terms of the merger agreement and if the exchange ratio has not been reset, then Computer Associates intends to treat the offer and the merger as described in (A)(1) above. If the offer and the merger are consummated pursuant to the current terms of the merger agreement and if the exchange ratio has been reset and if Computer Associates: - does not exercise the cash option, then Computer Associates intends to treat the offer and the merger as described in (A)(1) above; - exercises the cash option and the cash paid to you because of the exercise of the cash option does not exceed 20% of the total value of the consideration that you receive from Computer Associates, then Computer Associates intends to treat the offer and the merger as described in (A)(2) above; or - exercises the cash option and the cash paid to you because of the exercise of the cash option exceeds 20% of the total value of the consideration that you receive from Computer Associates, then Computer Associates intends to treat the offer and the merger as described in (A)(3) above. You can call our information agent, MacKenzie Partners, Inc., at any time toll free at (800) 322-2885 to request information about the exchange ratio and any reset of the exchange ratio, including, once determined, the average Computer Associates trading price, and any cash payable pursuant to the offer and the merger. THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS OF THE OFFER AND THE MERGER. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE OFFER AND THE MERGER, INCLUDING ANY FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES, AND ANY TAX RETURN FILING OR OTHER REPORTING REQUIREMENTS. 65 MARKET PRICES AND DIVIDENDS Computer Associates common shares are listed and principally traded on the NYSE under the symbol "CA". Sterling Software common shares are listed and principally traded on the NYSE under the symbol "SSW". The board of directors of Sterling Software declared a two-for-one stock split in March 1998 payable on April 3, 1998. All common share and per share amounts have been adjusted to reflect the stock split for all periods presented. The following table sets forth, for the calendar quarters ended on the dates indicated, the high and low last reported prices per Computer Associates share and Sterling Software share, in each case as reported on the NYSE Composite Transaction Tape; and the cash dividends declared per Computer Associates share. No cash dividends were declared or paid by Sterling Software during these periods.
COMPUTER ASSOCIATES STERLING SOFTWARE COMMON STOCK COMMON STOCK ------------------------------- ------------------- HIGH LOW DIVIDEND* HIGH LOW -------- -------- --------- -------- -------- 1998 March 31, 1998................................... $58.0625 $45.4375 -- $28.5938 $18.0000 June 30, 1998.................................... 61.1250 50.9375 $0.04 29.6875 24.5000 September 30, 1998............................... 61.0000 27.0000 -- 31.3125 20.5625 December 31, 1998................................ 45.9375 31.4375 0.04 30.3125 23.6875 1999 March 31, 1999................................... 51.5000 32.8750 -- 26.1250 21.5625 June 30, 1999.................................... 54.7500 34.1875 0.04 26.4375 18.8750 September 30, 1999............................... 61.5000 43.6250 -- 26.3125 19.4375 December 31, 1999................................ 70.3750 52.1250 0.04 31.5625 19.8750 2000 First Quarter (through February 18).............. 75.0000 58.7500 -- 37.2500 27.3125
- ------------------------ * Dividends paid in the following January or July, as applicable. 66 FINANCIAL PROJECTIONS In connection with our discussions with Sterling Software, we were provided certain non-public financial projections which were prepared by Sterling Software's management during December 1999 and January 2000 in connection with its review of strategic alternatives. The financial projections are "forward looking statements" and Sterling Software's actual financial results may differ materially from those set forth in the projections. Factors which could cause or contribute to such differences and impact future financial results include, but are not limited to: the probable loss of key personnel and the difficulty in recruiting additional personnel, the difficulty of integrating Sterling Software's technology into Computer Associates' technology, possible market rejection of any combined technology, delays in customer licensing decisions, the disruption of existing client relationships, the difficulty of completing ongoing development projects, trends in mainframe computer growth, difficulties integrating support services, the ability to retain professional services engagements and to add additional engagements, the compatibility of Sterling Software's decentralized operations with Computer Associates' centralized operations, the achievement of satisfactory levels of both gross and operating margins, unexpected costs incurred in integrating redundant operations and all other factors or risks detailed in Sterling Software's SEC filings incorporated into this prospectus by reference. The material portions of the financial projections provided to Computer Associates are set forth below:
STERLING SOFTWARE FISCAL YEAR ENDED SEPTEMBER 30, 2000 (PROJECTED) ------------------ ($ IN MILLIONS EXCEPT PER SHARE DATA) Revenues........................................ $ 992 Earnings before interest expense, taxes and depreciation and amortization................. 329 Pre-tax income.................................. 260 Operating Income................................ 241 Net Income...................................... 171 Earnings per share (diluted).................... 1.94
For fiscal year 2000, revenue is forecasted by Sterling Software to increase approximately 23% or $185 million over 1999 revenue to $992 million. Sterling Software has indicated to us that, of this increase, the business intelligence segment is expected to grow by approximately 100% (in part due to the recent acquisition of Information Advantage, Inc.), the systems management segment is expected to grow by approximately 30%, the federal systems segment is expected to grow by approximately 7% and the application development segment is expected to maintain its revenue level consistent with the prior year. Although Sterling Software expects growth beyond fiscal year 2000, due to the inability to predict the frequent changes that take place in the software and services market generally, Computer Associates believes that reliance should not be placed on any projections beyond the year 2000. Projections of the type set forth above are based on estimates and assumptions that are inherently subject to significant economic, industry and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond Sterling Software's control. These estimates were 67 not prepared with a view to public disclosure or compliance with published guidelines established by the SEC or the American Institute of Certified Public Accountants regarding projections and are included in this prospectus only because such information was furnished to Computer Associates. The inclusion of this information should not be regarded as an indication that anyone who received the information considered it a reliable prediction of future operating results and this information should not be relied upon as such. None of Sterling Software, Computer Associates or their respective affiliates or Sterling Software's or Computer Associates' independent auditors assume any responsibility for the accuracy or validity of this information. In addition, because the realization of the underlying assumptions upon which these estimates are based are to a large extent beyond Sterling Software's control, there can be no assurances that these estimates will be realized; actual results may be higher or lower than those estimated. Sterling Software does not generally publish its business plans and strategies or make external disclosures of its anticipated financial position or results of operations. Accordingly, Sterling Software does not intend to, and specifically declines any obligation to, update or otherwise revise the prospective financial information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even if any or all the underlying assumptions are shown to be in error. Also, Sterling Software does not intend to, and specifically declines any obligation to, update or revise the prospective financial information to reflect changes in general economic or industry conditions. Neither Sterling Software's auditors nor any other independent accountants have compiled, examined or performed any procedures with respect to these estimates, nor have they expressed any opinion or any other form of assurance on this information or its achievability, and assume no responsibility for, and disclaim any association with, this prospective financial information. 68 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION The Unaudited Pro Forma Condensed Combined Financial Information of Computer Associates, Platinum and Sterling Software presented below is derived from the historical consolidated financial statements of each of Computer Associates, Platinum and Sterling Software. On May 28, 1999 Computer Associates acquired Platinum. The Unaudited Pro Forma Condensed Combined Financial Information is prepared using the purchase method of accounting, with Computer Associates treated as the acquiror and as if the transactions had been completed as of April 1, 1998 for statement of operations purposes and on December 31, 1999 for balance sheet purposes. For a summary of the proposed business combination, see "The Offer" beginning on page 30 of this prospectus. The Unaudited Pro Forma Condensed Combined Financial Information is based upon the historical financial statements of Computer Associates, Platinum and Sterling Software adjusted to give effect to the business combination. The pro forma assumptions and adjustments for each transaction scenario are described in the accompanying notes presented on the following pages. The assumptions and related pro forma adjustments have been developed from (1) the audited consolidated financial statements of Computer Associates contained in Computer Associates' Annual Report on Form 10-K for the fiscal year ended March 31, 1999 and from the unaudited financial statements of Computer Associates contained in Computer Associates' Quarterly Report on Form 10-Q for the period ended December 31, 1999, which are incorporated by reference in this prospectus, (2) the audited consolidated financial statements of Platinum contained in the Platinum Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and from the unaudited financial statements of Platinum contained in Platinum's Quarterly Report on Form 10-Q for the period ended March 31, 1999, which are incorporated by reference in this prospectus, and (3) the audited financial statements of Sterling Software contained in Sterling Software's Annual Report on Form 10-K for the fiscal year ended September 30, 1999 and from the unaudited financial statements of Sterling Software contained in Sterling Software's Quarterly Report on Form 10-Q for the period ended December 31, 1999, which are incorporated by reference in this prospectus. In addition, the audited financial statements contained in Sterling Software's Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and the unaudited financial statements of Sterling Software contained in Sterling Software's Quarterly Reports on Form 10-Q for the periods ended June 30, 1998, December 31, 1998, March 31, 1999 and June 30, 1999 have been used to conform the financial reporting periods of Sterling Software to those of Computer Associates. Furthermore, the ultimate determination of the purchase price paid for the acquisition of Sterling Software may change significantly from the current estimate. For the purpose of the Unaudited Pro Forma Condensed Combined Financial Information presented below, the purchase price has been estimated based upon the market price of $69.75 for each Computer Associates common share, that being the last quoted price on the NYSE Composite Transaction Tape on February 11, 2000. The final purchase price will be based largely upon the average Computer Associates trading price at the time the antitrust condition and registration statement effectiveness condition have both been met. As a result of these uncertainties, the final determination and allocation of purchase price may differ from the amounts assumed in this Unaudited Pro Forma Condensed Combined Financial Information and those differences may be material. The unaudited pro forma results of operations reflect adjustments, which are based upon preliminary estimates, to reflect the allocation of purchase consideration to the acquired assets and liabilities of Sterling Software. The final allocation of the purchase consideration will be determined after the completion of the offer and the merger and will be based on appraisals and a comprehensive final evaluation of the fair value of Sterling Software's tangible assets acquired, liabilities assumed, identifiable intangible assets and goodwill at the time of the merger. The final determination of 69 tangible and intangible assets may result in depreciation and amortization expense that is different than the preliminary estimates of these amounts. To the extent that a portion of the purchase price is allocated to in-process research and development, a charge would be recognized for the period in which the merger occurs. That charge may be material to Computer Associates' results of operations. The Unaudited Pro Forma Condensed Combined Financial Information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Computer Associates would have been had the offer and the merger occurred on the date assumed, nor is it necessarily indicative of future consolidated results of operations or financial position. The Unaudited Pro Forma Condensed Combined Financial Information does not include the realization of cost savings from operating efficiencies, synergies or other restructurings resulting from the merger. The Unaudited Pro Forma Condensed Combined Financial Information should be read in conjunction with the separate historical consolidated financial statements and accompanying notes of Computer Associates, Platinum and Sterling Software that are incorporated by reference in this prospectus. 70 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS OF COMPUTER ASSOCIATES INTERNATIONAL, INC. FOR THE YEAR ENDED MARCH 31, 1999 (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PRE-STERLING (A) STERLING HISTORICAL (A) PLATINUM SOFTWARE HISTORICAL SOFTWARE COMPUTER HISTORICAL PRO FORMA PRO FORMA STERLING PRO FORMA PRO FORMA ASSOCIATES PLATINUM ADJUSTMENTS RESULTS SOFTWARE ADJUSTMENTS RESULTS ---------- ---------- ----------- ------------ ---------- ----------- ---------- Revenue: Product revenue and other related income......................... $4,511 $ 784 $5,295 $546 $5,841 Maintenance fees................. 742 184 926 194 1,120 ------ ------ ----- ------ ---- ---- ------ Total revenue.................. 5,253 968 6,221 740 6,961 Costs and expenses: Selling, marketing and administrative................. 2,038 592 2,630 432 3,062 Product development and enhancements................... 423 197 620 68 688 Commissions and royalties........ 263 98 361 34 395 Depreciation and amortization.... 325 93 $ 306 (D) 724 47 $299 (J) 1,070 Interest expense, net............ 123 2 230 (E) 355 (35) 320 Purchased research and development.................... 69 69 10 79 Special charges.................. 1,071 (F) 241 (G) (20)(H) 1,292 65 (G) 1,357 ------ ------ ----- ------ ---- ---- ------ Total costs and expenses....... 4,243 1,292 516 6,051 621 299 6,971 Income (loss) before income taxes.......................... 1,010 (324) (516) 170 119 (299) (10) Income tax expense (benefit)..... 384 7 (123)(I) 268 45 (I) 313 ------ ------ ----- ------ ---- ---- ------ Net income (loss)................ 626 (331) (393) (98) 74 (299) (323) ====== ====== ===== ====== ==== ==== ====== Basic earnings (loss) per share.......................... $ 1.15 $(0.55) ====== ====== Basic weighted average shares used in computation............ 545 591 (K) Diluted earnings (loss) per share.......................... $ 1.11 $(0.55) ====== ====== Diluted weighted average shares used in computation............ 562 591 (K)
71 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS OF COMPUTER ASSOCIATES INTERNATIONAL, INC. FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PRE-STERLING (A) STERLING HISTORICAL (A) PLATINUM SOFTWARE HISTORICAL SOFTWARE COMPUTER HISTORICAL PRO FORMA PRO FORMA STERLING PRO FORMA PRO FORMA ASSOCIATES PLATINUM ADJUSTMENTS RESULTS SOFTWARE ADJUSTMENTS RESULTS ---------- ---------- ----------- ------------ ---------- ----------- ---------- Revenue: Product revenue and other related income......................... $4,002 $ 83 $4,085 $485 $4,570 Maintenance fees................. 638 27 665 162 827 ------ ---- ---- ------ ---- ----- ------ Total revenue................ 4,640 110 4,750 647 5,397 Costs and expenses: Selling, marketing and administrative................. 1,805 130 1,935 354 2,289 Product development and enhancements................... 412 412 56 468 Commissions and royalties........ 229 12 241 36 277 Depreciation and amortization.... 430 15 $ 51 (D) 496 52 $ 224 (J) 772 Interest expense, net............ 244 1 38 (E) 283 (21) 262 Purchased research and development.................... 646 646 74 720 Special charges.................. 80 (G) 80 ------ ---- ---- ------ ---- ----- ------ Total costs and expenses..... 3,766 158 89 4,013 631 224 4,868 Income (loss) before income taxes.......................... 874 (48) (89) 737 16 (224) 529 Income tax expense (benefit)..... 570 (18) (21)(I) 531 35 (I) 566 ------ ---- ---- ------ ---- ----- ------ Net income (loss)................ 304 (30) (68) 206 (19) (224) (37) ====== ==== ==== ====== ==== ===== ====== Basic earnings (loss) per share.......................... $ 0.56 $(0.06) ====== ====== Basic weighted average shares used in computation............ 538 585 (K) Diluted earnings (loss) per share.......................... $ .55 $(0.06) ====== ====== Diluted weighted average shares used in computation............ 555 585 (K)
72 PRO FORMA CONDENSED COMBINED BALANCE SHEET OF COMPUTER ASSOCIATES INTERNATIONAL, INC. AS OF DECEMBER 31, 1999 (UNAUDITED) (IN MILLIONS)
(A) HISTORICAL HISTORICAL COMPUTER STERLING PRO FORMA COMBINED PRO ASSOCIATES SOFTWARE ADJUSTMENTS FORMA ---------- ---------- ----------- ------------ Assets: Cash and cash equivalents...................... $ 294 $ 377 $ 671 Marketable securities.......................... 96 112 208 Trade and installment accounts receivable...... 2,016 239 2,255 Inventories and other assets................... 88 29 117 ------- ------ ------ ------- Total current assets......................... 2,494 757 3,251 Installment accounts receivable, due after one year........................................... 3,680 18 3,698 Property and equipment........................... 744 73 817 Purchased software products...................... 1,130 88 $ (88)(B) 1,130 Excess of cost over net assets acquired.......... 3,971 226 3,167 (B) 7,364 Investments and other noncurrent assets.......... 213 64 (60)(B) 217 ------- ------ ------ ------- Total assets................................. 12,232 1,226 3,019 16,477 ======= ====== ====== ======= Liabilities and Stockholders' Equity: Loans payable and current portion of long-term debt......................................... 932 932 Other current liabilities...................... 1,924 195 170 (C) 2,289 Long-term debt................................. 4,765 38 4,803 Deferred income taxes.......................... 1,096 1,096 Deferred maintenance revenue................... 457 139 (70)(B) 526 Stockholders' equity........................... 3,058 854 2,919 (B) 6,831 ------- ------ ------ ------- Total liabilities and stockholders' equity... 12,232 1,226 3,019 16,477 ======= ====== ====== =======
- ------------------------ (A) Certain reclassifications were made to conform the presentation of Sterling Software and Platinum to that of Computer Associates. (B) Estimated valuation adjustments of Sterling Software's assets and liabilities resulting from the preliminary allocation of the purchase price. A final allocation and reclassification to in process research and development expense and purchased software is dependent upon analysis which has not progressed to a stage at which there is sufficient information to make such an allocation. (C) Represents an accrual associated with estimated compensation payments arising from the change of control ($85 million), estimated termination of leases ($70 million), and other acquisition related expenses ($15 million). (D) Represents the applicable period of amortization expense of capitalized purchased software and excess of cost over net assets acquired. Amortization of purchased software is expected to be recognized ratably over a seven-year period. Amortization of the excess of cost over net assets acquired is expected to be recognized ratably over a fifteen-year period. (E) Represents the applicable period of interest expense at 6.5% per annum on borrowings of $3.5 billion. Annual interest expense before taxes would change by approximately $4.4 million for each 1/8% change in the interest rate of the debt. 73 (F) Represents a $1,071 million one-time charge related to Computer Associates' 1995 Stock Plan. (G) Represents historical restructuring charges, merger costs and other one time charges for Platinum and historical reorganization expenses for Sterling Software. (H) Represents the elimination of a $20 million fee charged to Platinum by Computer Associates at the time of entering into the merger agreement providing for the acquisition. Platinum expensed this fee as incurred. (I) Represents the estimated tax effect of the pro forma adjustments at an estimated tax rate of 37.5% and assumes no tax benefit associated with goodwill amortization. (J) Represents the applicable period of amortization expense calculated using a 10 year amortization period. This 10 year period is Computer Associates' best estimate of the overall amortization period until such time the analysis and independent appraisal is sufficient to allocate the purchase price and amortization period to the applicable intangibles. Annual amortization expense would be reduced by approximately $10 million for every $100 million of purchase price allocated to in-process purchased research and development. (K) Represents Computer Associates' outstanding common shares for the period and an estimated 46.5 million shares to be issued as a result of the merger (using an exchange ratio of 0.5634). The Sterling Software stock options were excluded since they would be anti-dilutive. 74 DESCRIPTION OF COMPUTER ASSOCIATES CAPITAL STOCK The following description of the terms of the capital stock of Computer Associates is not meant to be complete and is qualified by reference to Computer Associates' Restated Certificate of Incorporation, which is incorporated in this prospectus by reference. See "Where You Can Find More Information." AUTHORIZED CAPITAL STOCK Under Computer Associates' certificate of incorporation, Computer Associates' authorized capital stock consists of (i) 1.1 billion shares of common stock, par value $.10 per share, and (ii) 10,000,000 shares of preferred stock, without par value, of which 500,000 shares have been designated Series One Junior Participating Preferred Stock. At the close of business on February 7, 2000, approximately 541,972,678 shares of Computer Associates common stock were issued and outstanding and no shares of Computer Associates preferred stock were issued and outstanding. The Computer Associates board of directors is authorized to provide for the issuance from time to time of Computer Associates preferred stock in series and, as to each series, to fix the designation, the dividend rate and the preferences, if any, which dividends on such series will have compared to any other class or series of capital stock of Computer Associates, the voting rights, if any, the voluntary and involuntary liquidation prices, the conversion or exchange privileges, if any, applicable to such series and the redemption price or prices and the other terms of redemption, if any, applicable to such series. Cumulative dividends, dividend preferences and conversion, exchange and redemption provisions, to the extent that some or all of these features may be present when shares of Computer Associates preferred stock are issued, could have an adverse effect on the availability of earnings for distribution to the holders of Computer Associates common stock or for other corporate purposes. COMPUTER ASSOCIATES COMMON STOCK FULL PAYMENT AND NONASSESSABILITY. The outstanding shares of Computer Associates common stock are, and the shares of Computer Associates common stock issued pursuant to the offer and the merger will be, duly authorized, validly issued, fully paid and nonassessable. VOTING RIGHTS. Each holder of Computer Associates common stock is entitled to one vote for each share of Computer Associates common stock held of record on the applicable record date on all matters submitted to a vote of stockholders. DIVIDEND RIGHTS; RIGHTS UPON LIQUIDATION. The holders of Computer Associates common stock are entitled to receive, from funds legally available for the payment thereof, dividends when and as declared by resolution of the Computer Associates board of directors, subject to any preferential dividend rights granted to the holders of any outstanding Computer Associates preferred stock. In the event of liquidation, each share of Computer Associates common stock is entitled to share pro rata in any distribution of Computer Associates' assets after payment or providing for the payment of liabilities and the liquidation preference of any outstanding Computer Associates preferred stock. PREEMPTIVE RIGHTS. Holders of Computer Associates common stock have no preemptive rights to purchase, subscribe for or otherwise acquire any unissued or treasury shares or other securities. RIGHTS PLAN. For a description of the rights to acquire Computer Associates preferred stock that are attached to shares of Computer Associates common stock, see "Comparison of Rights of Holders of Computer Associates Shares and Sterling Software Shares--Comparison of Charter and By-law Provisions--Rights Plan." TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR ChaseMellon Shareholder Services, L.L.C. is the transfer and dividend paying agent and registrar for the Computer Associates common stock. 75 COMPARISON OF RIGHTS OF HOLDERS OF COMPUTER ASSOCIATES SHARES AND STERLING SOFTWARE SHARES Upon completion of the offer and the merger, stockholders of Sterling Software will become stockholders of Computer Associates, rather than stockholders of Sterling Software. As Computer Associates stockholders, the rights of former Sterling Software stockholders will be governed by Computer Associates' charter and bylaws, which differ in certain material respects from Sterling Software's charter and bylaws. Delaware is the jurisdiction of incorporation of both Computer Associates and Sterling Software. As Computer Associates stockholders, the rights of former Sterling Software stockholders will continue to be governed by the Delaware General Corporation Law. The following is a comparison of: - the current rights of Sterling Software stockholders under the Delaware General Corporation Law and the Sterling Software charter and bylaws and - the rights Sterling Software stockholders would have as Computer Associates stockholders under the Delaware General Corporation Law and the Computer Associates charter and bylaws upon the consummation of the offer and the merger. The comparison summarizes the material differences but is not intended to list all differences and is qualified by reference to Delaware law, the Computer Associates charter and bylaws and the Sterling Software charter and bylaws. COMPARISON OF CHARTER AND BY-LAW PROVISIONS
STERLING SOFTWARE COMPUTER ASSOCIATES -------------------------------- -------------------------------- BOARD OF DIRECTORS CLASSIFIED BOARD Divided into three classes, as Consists of single class serving nearly equal in number as one- year term. possible, with each class serving a staggered three-year term. REMOVAL OF DIRECTORS Any director may be removed for Under the Delaware General cause only, at any special or Corporation Law, any director annual meeting, by the may be removed, with or without affirmative vote of a majority cause, by the holders of a in number of shares of the majority of the shares then stockholders present in person entitled to vote at an election or by proxy at such meeting of directors. entitled to vote for the election of such director. FILLING OF BOARD Vacancies on the board of Vacancies on the board of VACANCIES directors may be filled by the directors may be filled by a vote of a majority of the majority vote of the remaining directors then in office. directors or by the plurality of the votes cast at a meeting of the stockholders. SIZE OF BOARD The number of directors may be Board must consist of three or fixed from time to time by more directors, as fixed from resolution of the board. Under time to time by resolution of the Delaware General Corporation the board. The current number of Law, the board must consist of directors is nine. one or more directors. The current number of directors is nine.
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STERLING SOFTWARE COMPUTER ASSOCIATES -------------------------------- -------------------------------- STOCKHOLDER MEETINGS ANNUAL MEETING Held on date fixed by board. Held on date fixed by board. CALLING A SPECIAL Only the President, the board of Only the President or the board MEETING directors or stockholders of directors may call a special entitled to cast at least 20% of meeting. the votes which all stockholders are entitled to cast may call a special meeting. QUORUM REQUIREMENTS The presence in person or by The presence, in person or by proxy of the holders of a proxy, of the holders of a majority of the shares entitled majority of the shares entitled to vote at the meeting to vote at the meeting constitute a quorum for that constitute a quorum for that meeting, except as otherwise meeting. provided by the Delaware General Corporation Law. CERTAIN VOTING The vote of a majority of the At all stockholder meetings for REQUIREMENTS shares having voting power the election of directors, a present in person or represented plurality of the votes cast is by proxy at such meeting is sufficient to elect directors to required for all matters except the board. In all matters other certain amendments to the bylaws than the election of directors, (which require a majority vote the affirmative vote of a of all shares outstanding) and majority of the votes cast at the election of directors (which the meeting constitutes the act require a plurality vote). of the stockholders. Sterling Software's charter requires the vote of the holders of at least 75% of the voting power of all shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, to alter, amend or adopt any provision inconsistent with, or repeal, Article Sixth of the charter. Article Sixth provides that the election of directors need not be by written ballot, that there will be a classified board and that advance notice of nominations for the election of directors will be given in a manner provided in the bylaws.
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STERLING SOFTWARE COMPUTER ASSOCIATES -------------------------------- -------------------------------- STOCKHOLDER ACTION BY Stockholder action must be taken Any action required to be taken WRITTEN CONSENT at an annual or special meeting at a stockholder meeting, or any and not by written consent. other action which may be taken at a stockholder meeting, may be taken without a meeting, without prior notice and without a vote, if a written consent or consents setting forth the action so taken is signed by the holders of the outstanding stock having no less than the minimum number of votes that would be necessary to authorize such an action at a meeting. Computer Associates must give prompt notice of the taking of corporate action without a meeting by less than a unanimous written consent to stockholders who have not consented in writing and who, if the action had been taken at a stockholder meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date of such written consent. ADVANCE NOTICE FOR To bring a matter, including the To bring a matter, including the STOCKHOLDER NOMINATIONS nomination of directors, before nomination of directors, before AND OTHER BUSINESS an annual meeting, a stockholder an annual meeting, a generally must give written stockholder's notice must be notice of a proposed matter not delivered to or mailed and less than 90 days prior to the received at the principal anniversary date of the executive offices of Computer immediately preceding annual Associates no less than 60 days meeting, but if the annual nor more than 90 days prior to meeting is called for a date the first anniversary of the that is not within 45 days preceding year's annual meeting, before or after such anniversary provided that, in the event that date, notice by the stockholder the date of the annual meeting must be received no later than is changed by more than 30 days the close of business on the from such anniversary date, the tenth day following the day on stockholder's notice must be which notice of the date of the received no later than the close annual meeting was mailed or of business on the tenth day public disclosure of the date of following the earlier of the day the annual meeting was made, on which notice of the date of whichever first occurs. the meeting was mailed or public disclosure was made.
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STERLING SOFTWARE COMPUTER ASSOCIATES -------------------------------- -------------------------------- In the case of a special meeting In the case of a special of stockholders called for the meeting, the stockholder's purpose of electing directors, notice must be delivered to or the stockholder's notice must be mailed and received at the received no later than the close Computer Associates' principal of business on the tenth day executive offices no later than following the earlier of the day the close of business on the on which notice of the date of tenth day following the earlier the special meeting was mailed of the day on which notice of or public disclosure was made. the date of the meeting was Sterling Software's bylaws mailed or public disclosure was contain requirements as to the made. Computer Associates' form and content of the notice. bylaws contain requirements as to the form and content of the notice. AMENDMENTS TO ORGANIZATIONAL DOCUMENTS CERTIFICATE OF Under the Delaware General Under the Delaware General INCORPORATION Corporation Law, the board must Corporation Law, the board must adopt a resolution setting forth adopt a resolution setting forth any proposed amendment to any proposed amendment to Sterling Software's charter, Computer Associates' charter, declare its advisability and declare its advisability and either call a special meeting of either call a special meeting of stockholders or direct that the stockholders or direct that the proposed amendment be considered proposed amendment be considered at the next annual meeting of at the next annual meeting of stockholders. At such meeting, stockholders. At such meeting, the amendment must be approved the amendment must be approved by vote of a majority of all by vote of a majority of all outstanding shares entitled to outstanding shares entitled to vote on the proposed amendment, vote on the proposed amendment, except that charter provisions except that charter provisions requiring a greater vote may requiring a greater vote may only be amended by such vote. only be amended by such vote. Sterling Software's certificate Computer Associates' certificate of incorporation provides that of incorporation provides that the charter may not be amended the aggregate number of in any manner that would authorized shares of Computer materially alter or change the Associates' class A preferred powers, preferences or special stock may be increased by an rights of the holders of amendment approved solely by the Sterling Software's series A majority vote of the outstanding preferred stock so as to affect shares of Computer Associates' them adversely without the common stock (or solely with a affirmative vote of the holders lesser vote of the common stock, of at least 80% of the or solely by action of the outstanding shares of series A board, if permitted by law at preferred stock, voting together the time). as a single class.
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STERLING SOFTWARE COMPUTER ASSOCIATES -------------------------------- -------------------------------- Furthermore, the certificate of incorporation states that, whenever Computer Associates is authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the certificate of incorporation shall entitle the holder of such share the right to vote at any stockholder meeting except as required by the Delaware General Corporation Law, provided that no share of any such class which is otherwise denied voting power will entitle the holder of such share to vote upon the increase or decrease in the number of authorized shares of such class. Under the Delaware General Corporation Law, the holders of the outstanding shares of a class, whether or not entitled to vote on such matter by the charter, are entitled to vote as a class if the proposed amendment would increase or decrease the aggregate number of authorized shares of such class, the par value of shares of such class, or alter or change the powers, preferences, or special rights of the shares of such class so as to affect them adversely. BYLAWS Generally may be amended by vote Computer Associates' bylaws of stockholders entitled to at permit an amendment of the least a majority of the votes bylaws, (1) by the affirmative which all stockholders are vote of 51 percent of the entitled to cast at the relevant stockholders at any annual or meeting, or by the vote of a special meeting, provided that majority of directors. notice of such meeting is given which mentions the proposed amendment as one of the purposes of the meeting, (2) by written consent of the stockholders or (3) by action by the board of directors.
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STERLING SOFTWARE COMPUTER ASSOCIATES -------------------------------- -------------------------------- Computer Associates' charter provides that the power to make, alter or repeal the bylaws and to adopt any new by law, except a by law classifying directors for election for staggered terms, is vested in the board. CAPITALIZATION AUTHORIZED STOCK Common Stock: 250 million Common stock: 1.1 billion shares; preferred stock: 10 shares; preferred stock: million shares. 10,000,000 shares, of which 500,000 have been designated Series One Junior Participating Preferred Stock. PREFERRED STOCK The board is authorized to issue The board is authorized to issue preferred stock from time to preferred stock from time to time in one or more series, with time in one or more series, with terms to be fixed by the board. terms to be fixed by the board. RIGHTS PLANS Sterling Software has a rights Computer Associates has a rights agreement dated as of December agreement dated as of June 18, 18, 1996 and amended on March 1991 and amended on May 17, 12, 1998 and February 14, 2000. 1995. Generally, the rights The rights agreement is agreement is triggered by (i) triggered by, among other the acquisition of a third party things, acquisition by a third of 20% or more of Computer party of 15% or more of Sterling Associates' total outstanding Software's total outstanding common stock, (ii) the common stock. The board may determination by the board of redeem rights issued under the directors and a majority of the rights plan at any time. The disinterested directors that a rights plan has been amended to 15% stockholder is an "Adverse exempt the transactions Person" (one who is seeking contemplated by the merger short-term financial gain or agreement and the tender whose ownership block is likely agreement. to have a material adverse effect on Computer Associates' business), (iii) any reclassification of securities or recapitalization of Computer Associates' securities which has the effect of increasing by 1% or more the proportionate share of the stock of Computer Associates held by an acquiring third party or an Adverse Person, or (iv) the occurrence of self-dealing transactions by an acquiring third party or an Adverse Person. Under certain circumstances, the board may redeem the rights issued under the rights plan.
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STERLING SOFTWARE COMPUTER ASSOCIATES -------------------------------- -------------------------------- SHARE REPURCHASES Under the Delaware General Under the Delaware General Corporation Law, Sterling Corporation Law, Computer Software may generally Associates may generally repurchase its own shares unless repurchase its own shares unless its capital is impaired or such its capital is impaired or such repurchase would cause any repurchase would cause any impairment of Sterling impairment of Computer Software's capital. Associates' capital. EXCULPATION AND Sterling Software's certificate Computer Associates' certificate INDEMNIFICATION OF of incorporation provides that of incorporation provides that DIRECTORS, OFFICERS AND to the fullest extent permitted no director will be personally EMPLOYEES by the Delaware General liable for monetary damages for Corporation Law no director of any breach of fiduciary duty, the corporation will be liable except for a breach of the to the corporation or its director's duty of loyalty to stockholders for monetary the corporation or its damages for breach of fiduciary stockholders, any acts or duty as a director. omissions not in good faith or Sterling Software's bylaws which involve intentional provide that Sterling Software misconduct or a knowing will indemnify its directors and violation of the law, a officers to the fullest extent violation of a Delaware General permitted by the Delaware Corporation Law provision General Corporation Law, and may relating to the unlawful payment if and to the extent authorized of dividends or unlawful stock by the board of directors so purchase or redemption, or in indemnify any other person whom connection with any transaction the board has the power to from which the director derived indemnify against any liability, an improper personal benefit. expense or other matter. Computer Associates' bylaws provide that the corporation will indemnify any director or officer to the fullest extent permitted by law if such director or officer is involved in litigation or other legal action by reason of the fact that he is or was a director or officer.
SUMMARY OF CERTAIN STATUTORY PROVISIONS APPRAISAL RIGHTS Under Delaware law, appraisal rights, or rights of a stockholder to receive the fair value of his stock in connection with a merger or consolidation, may be available in connection with a statutory merger or consolidation in certain specific situations. Appraisal rights are not available under the Delaware General Corporation Law when a corporation is to be the surviving corporation and no vote of its stockholders is required to approve the merger or consolidation. In addition, no appraisal rights are available to holders of shares of any class of stock which is either: - listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc., or 82 - held of record by more than 2,000 stockholders, unless such stockholders are required by the terms of the merger or consolidation to accept anything other than: -- shares of the surviving corporation, -- shares of stock that are listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 stockholders, -- cash in lieu of fractional shares, or -- any combination of the foregoing. Stockholders who perfect their appraisal rights are entitled to receive cash from the corporation equal to the value of their shares as established by judicial appraisal. Corporations may enlarge these statutory rights by including in their certificate of incorporation a provision allowing the appraisal rights in any merger or consolidation in which the corporation is a constituent corporation. Neither Computer Associates' nor Sterling Software's charter contains a provision enlarging such appraisal rights. In addition, appraisal rights are not available under Delaware law in the event of the sale of all or substantially all of a corporation's assets or the adoption of an amendment to its certificate of incorporation, unless such rights are granted in the corporate charter. Neither Computer Associates' nor Sterling Software's charter grants such rights. CERTAIN BUSINESS COMBINATIONS Delaware law restricts the ability of certain persons to acquire control of a Delaware corporation. Section 203 of the Delaware General Corporation Law limits specified business combinations of Delaware corporations with interested stockholders. Under the Delaware General Corporation Law, if a person acquires beneficial ownership of 15% or more of the stock of a Delaware corporation, thereby becoming an interested stockholder, that person generally may not engage in specified transactions with the corporation for a period of three years following the time that such stockholder became an interested stockholder unless: - the corporation's board of directors approved the acquisition of stock or the transaction prior to the time that the person became an interested stockholder, - upon consummation of the transaction in which the person became an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding voting stock owned by directors who are also officers and certain employee stock ownership plans, or - at or subsequent to such time, the transaction is approved by the board of directors and at an annual or special meeting by the affirmative vote of 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Sterling Software has represented to us in the merger agreement that all actions necessary to ensure that Section 203 of the Delaware General Corporation Law does not apply to us in connection with the offer, the merger and the other transactions contemplated by the merger agreement and the tender agreement have been taken. 83 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements, including statements concerning the business, future financial position, results of operations, business strategy and anticipated benefits of our proposed business combination and plans and objectives of management for future operations of Computer Associates and Sterling Software. Forward-looking statements can be found, among other places, under "Summary," "The Proposed Combination," "Background of the Offer" and "Unaudited Pro Forma Condensed Combined Financial Information." Generally, the words "will," "may," "should," "continue," "believes," "expects," "anticipates" or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. Statements regarding the expected benefits of our proposed business combination with Sterling Software are based on expectations that Computer Associates believes are reasonable, but we can give no assurance that such expectations will prove to have been correct. Factors that could cause actual results to differ materially include, among others: - risks, uncertainties and assumptions relating to global economic conditions - market acceptance of competing technologies - the availability and cost of new computer software products - our ability to maintain or increase market share in our core business while expanding our product base into other markets - increasing dependency on large dollar enterprise transactions with individual clients - our ability to maintain existing relationships with customers - our ability to recruit and retain qualified personnel - the strength of our distribution channels - our ability to effectively manage fixed and variable expense growth relative to revenue growth - possible disruptions resulting from organizational changes - our ability to effectively integrate acquired products and operations, including those of Sterling Software and - increasing dependency on lower profit margin businesses, such as professional services. These and other risk factors are discussed in more detail in this prospectus. See "Risk Factors" beginning on page 24. Many such factors are beyond our ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. We disclaim any intent or obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise. LEGAL MATTERS The legality of Computer Associates common stock offered by this prospectus will be passed upon by Steven M. Woghin, Senior Vice President and General Counsel of Computer Associates. Mr. Woghin is paid a salary by Computer Associates, is a participant in various employee benefit plans offered to employees of Computer Associates generally and owns and has options to purchase shares of Computer Associates common stock. Covington & Burling, New York, New York, acted as counsel to Computer Associates in connection with the merger agreement. 84 EXPERTS The consolidated financial statements of Computer Associates International, Inc. appearing in Computer Associates International, Inc.'s Annual Report (Form 10-K) for the year ended March 31, 1999, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Sterling Software, Inc. appearing in Sterling Software's Annual Report (Form 10-K) for the year ended September 30, 1999, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Platinum as of December 31, 1998 and 1997, and for each of the years in the three-year period ended December 31, 1998, have been incorporated herein by reference in reliance on the reports of KPMG LLP, Arthur Andersen LLP, Ernst & Young LLP and Luboshitz, Kasierer & Co., independent certified public accounts, incorporated by reference herein, and upon the authority of said firms as experts in accounting and auditing. 85 ANNEX A DIRECTORS AND EXECUTIVE OFFICERS OF COMPUTER ASSOCIATES The name, age, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of Computer Associates are set forth below. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Computer Associates and each individual has held such occupation for at least the last five years. Each director and executive officer listed below is a citizen of the United States of America, except for Willem F.P. de Vogel and Roel Pieper who are citizens of The Netherlands. Unless otherwise indicated below, the business address of each person is c/o Computer Associates, One Computer Associates Plaza, Islandia, New York 11749-7000. DIRECTORS (INCLUDING EXECUTIVE OFFICERS WHO ARE DIRECTORS)
NAME AND PRESENT PRINCIPAL OCCUPATION OR BUSINESS ADDRESS AGE EMPLOYMENT; FIVE-YEAR EMPLOYMENT HISTORY - --------------------------------------- -------- ----------------------------------------------------- Russell M. Artzt....................... 53 Director of Computer Associates since 1980. Executive Vice President-Research and Development since April 1987 and the Senior Development Officer since 1976. Alfonse M. D'Amato..................... 61 Director of Computer Associates since 1999, Partner Park Strategies LLC in Park Strategies LLC, a business consulting firm, 101 Park Avenue, Suite 2507 since January 1999. United States Senator from New York, New York 10178 January 1981 until January 1999. During his tenure, he served as Chairman of the Senate Committee on Banking, Housing and Urban Affairs, and Chairman of the Commission on Security and Cooperation in Europe. He is also a director of Avis Rent-A-Car, Inc., and NRT Incorporated. Willem F.P. de Vogel................... 49 Director of Computer Associates since 1991. President Three Cities Research, Inc. of Three Cities Research, Inc., a private investment 650 Madison Avenue, 24th Floor management firm in New York City, since 1981. From New York, New York 10022 August 1981 to August 1990, Mr. de Vogel served as a director of Computer Associates. He is also a director of Morton Industrial Group. Irving Goldstein....................... 61 Director of Computer Associates since 1990. Former Director General and Chief Executive Officer of INTELSAT, an international satellite telecommunications company from February 1992 to October 1998. He was Chairman and Chief Executive Officer of COMSAT (formerly known as Communications Satellite Corporation) from October 1985 to February 1992 and President from May 1983 to October 1985, and was a director from May 1983 to February 1992. Richard A. Grasso...................... 53 Director of Computer Associates since January 1994. New York Stock Exchange Chairman and Chief Executive Officer of the New York 11 Wall Street Stock Exchange since June 1995. He was Executive Vice New York, New York 10005 Chairman of the New York Stock Exchange from 1991 to 1995 and President and Chief Operating Officer of the New York Stock Exchange from 1988 to 1995.
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NAME AND PRESENT PRINCIPAL OCCUPATION OR BUSINESS ADDRESS AGE EMPLOYMENT; FIVE-YEAR EMPLOYMENT HISTORY - --------------------------------------- -------- ----------------------------------------------------- Shirley Strum Kenny.................... 65 Director of Computer Associates since July 1994. President's Office President of State University of New York at Stony State University of Brook since 1994. She was President of Queens College New York at Stony Brook of the City University of New York from 1989 to 1994. Stony Brook, New York 11794 She is also a director of Toys "R" Us, Inc. Sanjay Kumar........................... 37 Director of Computer Associates since January 1994. President and Chief Operating Officer since January 1994. He was Senior Vice President Planning from April 1989 to December 1992 and Executive Vice President Operations from January 1993 to December 1993. Roel Pieper............................ 44 Director of Computer Associates since March 1999. Executive Vice President of Royal Philips Electronics, an electronics company, from 1998 until May 1999. From 1997 to 1998, he was Senior Vice President, Worldwide Sales and Marketing, of Compaq Computer Corporation. He was President and Chief Executive Officer of Tandem Computers from 1996 until its merger with Compaq Computer Corporation in 1997. From 1993 to 1996, he was President and Chief Executive Officer of AT&T's Unix System Laboratories. Charles B. Wang........................ 55 Director of Computer Associates since 1976. Chief Executive Officer since 1976 and Chairman of the Board since April 1980. He is also a director of Symbol Technologies, Inc.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
NAME AND PRESENT PRINCIPAL OCCUPATION OR BUSINESS ADDRESS AGE EMPLOYMENT; FIVE-YEAR EMPLOYMENT HISTORY - --------------------------------------- -------- ----------------------------------------------------- Michael A. McElroy..................... 55 Vice President and Secretary. He was elected Secretary effective January 1997 and has been a Vice President since 1989. Lisa Savino............................ 34 Vice President and Treasurer since November 1997. She was Vice President and Assistant Treasurer April 1996 to November 1997. She was Assistant Vice President and Assistant Treasurer from April 1995 to April 1996. From 1990 to March 1995, she held various positions at Computer Associates. Ira H. Zar............................. 38 Senior Vice President Finance and Chief Financial Officer since July 1998. He was Senior Vice President Finance of Computer Associates since November 1997. He was Senior Vice President and Treasurer of Computer Associates from April 1994 to October 1997 and Vice President Finance from April 1990 to April 1994.
A-2 DIRECTORS AND OFFICERS OF SILVERSMITH ACQUISITION CORP. The present directors and officers of Silversmith Acquisition Corp. are set forth below, along with their respective positions with Silversmith Acquisition Corp.
NAME AGE POSITION WITH MERGER SUBSIDIARY - ---- -------- ----------------------------------------------------- Michael A. McElroy..................... 55 Director, Vice President and Assistant Secretary of Silversmith Acquisition Corp. since its incorporation on February 11, 2000. Steven M. Woghin....................... 53 Director, Vice President, Secretary and Treasurer of Silversmith Acquisition Corp. since its incorporation on February 11, 2000. Senior Vice President and General Counsel of Computer Associates since April 1995. He was Vice President, Legal of Computer Associates from April 1992 to March 1995. Ira H. Zar............................. 38 Director, President and Assistant Treasurer of Silversmith Acquisition Corp. since its incorporation on February 11, 2000.
None of the executive officers and directors of Computer Associates or Silversmith Acquisition Corp. currently is a director of, or holds any position with, Sterling Software or any of its subsidiaries. We believe that none of our directors, executive officers, affiliates or associates beneficially owns any equity securities, or rights to acquire any equity securities, of Sterling Software. We believe no such person has been involved in any transaction with Sterling Software or any of Sterling Software's directors, executive officers, affiliates or associates which is required to be disclosed pursuant to the rules and regulations of the SEC. A-3 The letter of transmittal, certificates for Sterling Software shares and any other required documents should be sent or delivered by each Sterling Software stockholder or his or her broker, dealer, commercial bank, trust company or other nominee to the depositary at one of its addresses set forth below. The Depositary for the offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. BY MAIL: BY HAND DELIVERY: BY OVERNIGHT DELIVERY: Reorganization Department Reorganization Department Reorganization Department PO Box 3301 120 Broadway, 13th Floor 85 Challenger Road South Hackensack, NJ 07606 New York, NY 10271 Mail Drop-Reorg Dept. Ridgefield Park, NJ 07660 BY FACSIMILE TRANSMISSION: (for Eligible Institutions only) Fax: (201) 296-4293 Confirm by Telephone: (201) 296-4860
Any questions or requests for assistance or additional copies of the prospectus, the letter of transmittal and the notice of guaranteed delivery and related exchange offer materials may be directed to the information agent at its telephone number and location listed below. You may also contact your local broker, commercial bank, trust company or nominee for assistance concerning the offer. The Information Agent for the offer and the merger is: [LOGO] 156 FIFTH AVENUE NEW YORK, NEW YORK 10010 (212) 929-5500 (CALL COLLECT) OR CALL TOLL FREE (800) 322-2885 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation--a "derivative action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's charter, by-laws, disinterested director vote, stockholder vote, agreement or otherwise. As permitted by Section of 145 of the Delaware General Corporation Law, Article EIGHTH of Computer Associates' Restated Certificate of Incorporation, as amended, provides: "The corporation shall to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein, shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person." Computer Associates' Restated Certificate of Incorporation, as amended, also limits the personal liability of directors for monetary damages in certain instances and eliminates director liability for monetary damages arising from any breach of the director's duty of care. Computer Associates maintains insurance on behalf of any person who is or was a director, officer, employee or agent of Computer Associates, or is or was serving at the request of Computer Associates as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not Computer Associates would have the power to indemnify him against such liability under the provisions of Computer Associates' Restated Certificate of Incorporation, as amended. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - --------------------- ------------------------------------------------------------ 2.1 Agreement and Plan of Merger dated as of February 14, 2000, among Computer Associates, Silversmith Acquisition Corp. and Sterling Software.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - --------------------- ------------------------------------------------------------ 4.1* Provisions of the Restated Certificate of Incorporation of Computer Associates dated February 3, 1999, that define the rights of security holders of Computer Associates (incorporated by reference to Exhibit 3.(I) to Computer Associates' Form 10-Q for the quarter ended December 31, 1998). 4.2* Provisions of the Bylaws of Computer Associates, as amended effective January 19, 1999, that define the rights of security holders of Computer Associates (incorporated by reference to Exhibit 3.(II) to Computer Associates' Form 10-Q for the quarter ended December 31, 1998). 4.3* Rights Agreement dated as of June 18, 1991 between Computer Associates and Manufacturers Hanover Trust Company (incorporated by reference to Exhibit 4 to Computer Associates' Form 8-K dated June 18, 1991). 4.4* Amendment No. 1 dated May 17, 1995 to Rights Agreement dated as of June 18, 1991 (incorporated by reference to Exhibit C to Computer Associates' Form 10-K for the fiscal year ended March 31, 1995). 5.1 Opinion of Steven M. Woghin, Senior Vice President and General Counsel of Computer Associates, regarding the legality of the securities being issued. 8.1 Opinion of Covington & Burling. 10.1 Agreement dated as of February 14, 2000, between Silversmith Acquisition Corp. and certain stockholders of Sterling Software. 10.2 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and Sam Wyly. 10.3 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and Charles J. Wyly, Jr. 10.4 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and Sterling L. Williams. 10.5 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and Geno P. Tolari. 10.6 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and F.L. "Mike" Harvey. 10.7 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and Don J. McDermett, Jr. 10.8 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and B. Carole Morton. 10.9 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and Mark A. Theel. 10.10 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and R. Logan Wray. 10.11 Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and Evan A. Wyly. 10.12 Form of Amendment to Change in Control Severance Agreement, dated as of February 14, 2000, by and among Sterling Software, Computer Associates and certain non-executive officers of Sterling Software. 10.13 Agreement (SERP Agreement), dated as of February 15, 2000, by and among Sterling Software, Computer Associates and Geno P. Tolari.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - --------------------- ------------------------------------------------------------ 12.1 Statements regarding computation of ratios of earnings to fixed charges. 23.1 Consent of KPMG LLP. 23.2 Consent of Ernst & Young LLP. 23.3 Consent of Ernst & Young LLP. 23.4 Consent of Ernst & Young LLP. 23.5 Consent of Arthur Andersen LLP. 23.6 Consent of Luboshitz, Kasierer & Co. 23.7 Consent of Steven M. Woghin, Senior Vice President and General Counsel of Computer Associates (included in Exhibit 5.1). 23.8 Consent of Covington & Burling (included in Exhibit 8.1). 24.1 Power of Attorney (included on the signature page of this Registration Statement). 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Brokers, Dealers, etc. 99.4 Form of Letter to Clients. 99.5 Form of Letter to Participants in Sterling Software's 401(k) plan. 99.6 Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
- ------------------------ * Incorporated by reference. (b) Not applicable. (c) Not applicable. ITEM 22. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being make, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; II-3 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, PROVIDED, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time be deemed to be the initial BONA FIDE offering thereof. (c) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by a person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (d) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (a) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a) (3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (e) Insofar as indemnification for liabilities arising under the Securities Act 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 SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event II-4 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 Securities Act and will be governed by the final adjudication of such issue. (f) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (g) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not subject of and included in the registration statement when it became effective. II-5 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Islandia, State of New York, on February 22, 2000. COMPUTER ASSOCIATES INTERNATIONAL, INC. By: /s/ STEVEN M. WOGHIN ---------------------------------------------- Name: Steven M. Woghin Title: Senior Vice President and General Counsel
POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Charles B. Wang, Steven M. Woghin and Ira H. Zar, with full power to act alone, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed by the registrant pursuant to Rule 462(b) of the Securities Act, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ CHARLES B. WANG ------------------------------------------- Chairman of the Board and February 22, 2000 Charles B. Wang Chief Executive Officer Senior Vice President /s/ IRA H. ZAR Finance, Principal ------------------------------------------- Financial and Accounting February 22, 2000 Ira H. Zar Officer /s/ RUSSELL M. ARTZT ------------------------------------------- Director February 22, 2000 Russell M. Artzt /s/ ALFONSE M. D'AMATO ------------------------------------------- Director February 22, 2000 Alfonse M. D'Amato
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SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLEM F.P. DE VOGEL ------------------------------------------- Director February 22, 2000 Willem F.P. de Vogel /s/ IRVING GOLDSTEIN ------------------------------------------- Director February 22, 2000 Irving Goldstein /s/ RICHARD A. GRASSO ------------------------------------------- Director February 22, 2000 Richard A. Grasso /s/ SHIRLEY STRUM KENNY ------------------------------------------- Director February 22, 2000 Shirley Strum Kenny /s/ SANJAY KUMAR ------------------------------------------- Director February 22, 2000 Sanjay Kumar /s/ ROEL PIEPER ------------------------------------------- Director February 22, 2000 Roel Pieper
II-7 EX-2.1 2 EXHIBIT 2.1 ================================================================================ AGREEMENT AND PLAN OF MERGER Dated as of February 14, 2000 Among COMPUTER ASSOCIATES INTERNATIONAL, INC., SILVERSMITH ACQUISITION CORP. And STERLING SOFTWARE, INC. ================================================================================ TABLE OF CONTENTS Page ---- INTRODUCTION...................................................................1 ARTICLE I THE OFFER SECTION 1.1. The Offer......................................................1 SECTION 1.2. Company Action.................................................4 SECTION 1.3. Directors......................................................5 ARTICLE II THE MERGER SECTION 2.1. The Merger.....................................................6 SECTION 2.2. Closing........................................................6 SECTION 2.3. Effective Time.................................................6 SECTION 2.4. Effects of the Merger..........................................6 SECTION 2.5. Certificate of Incorporation and By-Laws.......................6 SECTION 2.6. Directors......................................................7 SECTION 2.7. Officers.......................................................7 ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES SECTION 3.1. Effect on Capital Stock.........................................7 (a) Capital Stock of Merger Subsidiary...................................7 (b) Cancellation of Treasury Stock and Parent-Owned Stock................7 (c) Conversion of Company Common Stock...................................7 (d) Adjustment of Exchange Ratio.........................................7 Page ---- SECTION 3.2. Exchange of Certificates........................................8 (a) Exchange Agent.......................................................8 (b) Exchange Procedure...................................................8 (c) Distributions with Respect to Unexchanged Shares.....................9 (d) No Further Ownership Rights in Company Common Stock..................9 (e) Termination of Exchange Fund; No Liability...........................9 (f) No Fractional Shares................................................10 (g) Investment of Exchange Fund.........................................11 (h) Lost Certificates...................................................11 SECTION 3.3. Dissenting Shares.............................................11 SECTION 3.4. Company Options...............................................11 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. Representations and Warranties of the Company..................14 (a) Organization, Standing and Corporate Power..........................14 (b) Subsidiaries........................................................14 (c) Capital Structure...................................................15 (d) Authority; Noncontravention.........................................15 (e) SEC Documents; Financial Statements; No Undisclosed Liabilities.....17 (f) Information Supplied................................................17 (g) Absence of Certain Changes or Events................................18 (h) Litigation..........................................................19 (i) Absence of Changes in Stock and Benefit Plans.......................19 (j) Participation and Coverage in Benefit Plan..........................20 (k) ERISA Compliance....................................................20 (l) Taxes...............................................................21 (m) Voting Requirements.................................................22 (n) State Takeover Statutes; Rights Agreement...........................22 (o) Brokers; Schedule of Fees and Expenses..............................23 (p) Permits; Compliance with Laws; Environmental Matters................23 (q) Contracts; Debt Instruments.........................................24 (r) Title to Properties.................................................26 (s) Opinion of Financial Advisor........................................26 (t) Interests of Officers and Directors.................................26 (u) Software............................................................26 (v) Intellectual Property...............................................28 -ii- Page ---- (w) No Infringement.....................................................29 (x) Change of Control...................................................30 SECTION 4.2. Representations and Warranties of Parent and Merger Subsidiary.....................................................30 (a) Organization, Standing and Corporate Power..........................30 (b) Capital Structure...................................................30 (c) Authority; Noncontravention.........................................31 (d) SEC Documents; Financial Statements; No Undisclosed Liabilities.....32 (e) Information Supplied................................................32 (f) Absence of Certain Changes or Events................................32 (g) Litigation..........................................................32 (h) Compliance with Applicable Laws.....................................33 (i) Brokers.............................................................33 (j) No Prior Activities; Assets of Merger Subsidiary....................33 (k) Opinion of Financial Advisor........................................33 (l) Share Ownership.....................................................33 ARTICLE V COVENANTS OF THE COMPANY SECTION 5.1. Conduct of Business...........................................34 SECTION 5.2. State Takeover Statutes.......................................36 SECTION 5.3. Access to Information.........................................36 SECTION 5.4. Affiliates....................................................36 SECTION 5.5. No Solicitation by the Company................................37 SECTION 5.6. Litigation....................................................38 SECTION 5.7. Rights Agreement..............................................38 ARTICLE VI COVENANTS OF PARENT AND MERGER SUBSIDIARY SECTION 6.1. Listing.......................................................39 SECTION 6.2. Indemnification...............................................39 SECTION 6.3. Obligations of Merger Subsidiary..............................40 SECTION 6.4. Voting of Shares..............................................40 SECTION 6.5. Employees.....................................................40 -iii- Page ---- ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.1. Shareholder Approval; Preparation of S-4 and Proxy Statement/Prospectus..........................................41 SECTION 7.2. HSR Act Filings; Reasonable Efforts; Notification.............42 SECTION 7.3. Public Announcements..........................................44 SECTION 7.4. Confidentiality...............................................45 ARTICLE VIII CONDITIONS PRECEDENT SECTION 8.1. Conditions to Each Party's Obligation To Effect the Merger.....45 (a) Shareholder Approval................................................45 (b) Purchase of Shares in the Offer.....................................45 (c) No Injunctions or Restraints........................................45 (d) Form S-4............................................................45 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER, FEES AND EXPENSES SECTION 9.1. Termination...................................................45 SECTION 9.2. Effect of Termination.........................................46 SECTION 9.3. Amendment.....................................................46 SECTION 9.4. Extension; Waiver.............................................46 SECTION 9.5. Fees and Expenses.............................................47 ARTICLE X GENERAL PROVISIONS SECTION 10.1. Nonsurvival of Representations and Warranties.................48 SECTION 10.2. Notices.......................................................48 SECTION 10.3. Interpretation................................................49 SECTION 10.4. Counterparts..................................................49 SECTION 10.5. Entire Agreement; No Third-Party Beneficiaries................50 SECTION 10.6. GOVERNING LAW.................................................50 SECTION 10.7. Assignment....................................................50 -iv- SECTION 10.8. Enforcement...................................................50 SECTION 10.9. Severability..................................................50 Annex I Conditions to the Offer -v- AGREEMENT AND PLAN OF MERGER, DATED AS OF FEBRUARY 14, 2000, AMONG COMPUTER ASSOCIATES INTERNATIONAL, INC., A DELAWARE CORPORATION ("PARENT"), SILVERSMITH ACQUISITION CORP., A DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF PARENT ("MERGER SUBSIDIARY"), AND STERLING SOFTWARE, INC., A DELAWARE CORPORATION (THE "COMPANY"). -------------------------------------------------------------- INTRODUCTION The Board of Directors of each of Parent, Merger Subsidiary and the Company have unanimously approved the acquisition of the Company by Parent and Merger Subsidiary. In furtherance of such acquisition, it is proposed that Merger Subsidiary shall make an exchange offer (the "OFFER") to exchange shares of common stock, par value $.10 per share ("PARENT COMMON STOCK"), of Parent for all of the issued and outstanding shares of common stock, par value $.10 per share (the "COMPANY COMMON STOCK"), of the Company (the "SHARES"), including the associated Rights (defined in Section 4.1(c)), in accordance with the terms provided in this Agreement. The parties to this Agreement intend that, to the extent that the Offer and the Merger qualify as a "REORGANIZATION" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), and the rules and regulations promulgated thereunder, this Agreement constitutes a plan of reorganization. Simultaneously with the execution and delivery of this Agreement and as a condition and inducement to the willingness of Parent and Merger Subsidiary to enter into this Agreement, Parent and certain stockholders of the Company (collectively, the "STOCKHOLDERS") are entering into an agreement (the "TENDER AGREEMENT") pursuant to which the Stockholders will agree to tender for exchange all of their Shares in the Offer, to vote to adopt and approve this Agreement and to take certain other actions in furtherance of the transactions contemplated by this Agreement upon the terms and subject to the conditions set forth in the Tender Agreement. Parent, Merger Subsidiary and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the other transactions contemplated by this Agreement and also to prescribe various conditions to the Offer and the other transactions contemplated by this Agreement. The parties agree as follows: ARTICLE I THE OFFER SECTION 1.1. THE OFFER. (a) Provided that (i) this Agreement shall not have been terminated in accordance with Section 9.1 and (ii) none of the events set forth in Annex I hereto shall have occurred or be existing, Merger Subsidiary shall, as promptly as practicable after the date hereof, commence the Offer. Each Share (including the associated Right) accepted by Merger Subsidiary in accordance with the Offer shall be exchanged for the right to receive from Merger Subsidiary that number of fully paid and nonassessable shares of Parent Common Stock equal to the Exchange Ratio. For purposes of this Agreement, "EXCHANGE RATIO" shall mean 0.5634; provided that if the Average Parent Trading Price (x) is less than $63.10, then, unless Parent makes the Cash Election (defined below), the Exchange Ratio shall equal the quotient of (A) $35.55 divided by (B) the Average Parent Trading Price, or (y) is greater than $77.12, then the Exchange Ratio shall equal the quotient of (A) $43.45 divided by (B) the Average Parent Trading Price, calculated in each case to the nearest ten thousandth (i.e., four decimal places (.xxxx)). If the Average Parent Trading Price is less than $63.10, Parent (in its sole discretion by giving the Company notice thereof by no later than the close of business on the business day immediately succeeding the day on which the Average Parent Trading Price is determined) may elect (the "CASH ELECTION") to reduce the Exchange Ratio that would otherwise be in effect by paying in cash (such amount of cash per Share, the "CASH ELECTION AMOUNT") all or any portion of the excess of (x) $35.55 over (y) the product of (A) 0.5634 and (B) the Average Parent Trading Price. If Parent makes the Cash Election, the Exchange Ratio shall be adjusted to equal the quotient of (x) the excess of (A) $35.55 over (B) the Cash Election Amount divided by (y) the Average Parent Trading Price. As used in this Agreement, the term "AVERAGE PARENT TRADING PRICE" shall mean the ten trading day average of the daily average of the high and low sales price per share of Parent Common Stock on the New York Stock Exchange, Inc. (the "NYSE") composite tape (as reported in The Wall Street Journal, or, if not reported therein, any other authoritative source) ending on the trading day immediately preceding the day on which the later to occur of (x) the waiting period under the HSR Act (defined below in Section 4.1(d)) and any other applicable Antitrust Laws (defined below in Section 7.2(b)) the expiration or termination of which is a condition to the Offer applicable to the Offer expires or terminates and (y) the Form S-4 (defined below in Section 1.1(b)) becomes effective under the Securities Act (defined below in Section 4.1(e)). The initial expiration date of the Offer shall be the twentieth business day following commencement of the Offer. The Offer shall be subject to the condition that there shall be validly tendered in accordance with the terms of the Offer prior to the expiration date of the Offer and not withdrawn a number of Shares which, together with the Shares then owned by Parent and Merger Subsidiary, represents at least a majority of the total number of outstanding Shares, assuming the exercise of all outstanding options, rights and convertible securities (if any) and the issuance of all Shares that the Company is obligated to issue (such total number of outstanding Shares being hereinafter referred to as the "FULLY DILUTED SHARES") (the "MINIMUM CONDITION") and to the other conditions set forth in Annex I hereto. Parent and Merger Subsidiary expressly reserve the right to waive the conditions to the Offer and to make any change in the terms or conditions of the Offer; provided that, without the written consent of the Company, no change may be made which changes the form or amount of consideration to be paid (other than in connection with the Cash Election described above or by adding consideration), imposes conditions to the Offer in addition to those set forth in Annex I, changes or waives the Minimum Condition, extends the Offer (except as set forth in the following two sentences), or makes any other change to any condition to the Offer set forth in Annex I which is adverse to the holders of Shares. Subject to the terms of the Offer and this Agreement and the satisfaction (or waiver to the extent permitted by this Agreement) of the conditions to the Offer, Merger Subsidiary shall accept for payment all Shares validly tendered 2 and not withdrawn pursuant to the Offer as soon as practicable after the applicable expiration date of the Offer and shall pay for all such Shares promptly after acceptance; provided that (x) Merger Subsidiary may (or, if the conditions set forth in clause (1), (2), (3) or (4), or subclause (a), (b), (c) or (d) of clause (5), of Annex I exist, shall) extend the Offer for extension periods not in excess of 15 business days if, at the scheduled expiration date of the Offer or any extension thereof, any of the conditions to the Offer shall not have been satisfied, until such time as such conditions are satisfied or waived (provided that, if at any scheduled expiration date, all of the conditions to the Offer have been satisfied or waived other than the Minimum Condition, Merger Subsidiary shall only be required to extend the Offer for an additional 20 business days following such scheduled expiration date; provided further that Merger Subsidiary shall not be required to extend the Offer if there is no reasonable possibility of all of the conditions to the Offer being satisfied on or before September 30, 2000), and (y) Merger Subsidiary may extend the Offer if and to the extent required by the applicable rules and regulations of the Securities and Exchange Commission (the "SEC"). In addition, Merger Subsidiary may extend the Offer after the acceptance of Shares thereunder for a further period of time by means of a subsequent offering period under Rule 14d-11 promulgated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), of not more than 20 business days to meet the objective (which is not a condition to the Offer) that there be validly tendered, in accordance with the terms of the Offer, prior to the expiration date of the Offer (as so extended) and not withdrawn a number of Shares, which together with Shares then owned by Parent and Merger Subsidiary, represents at least 90% of the Fully Diluted Shares. Notwithstanding anything to the contrary set forth herein, no certificates or scrip representing fractional shares of Parent Common Stock shall be issued in connection with the exchange of Parent Common Stock for Shares upon consummation of the Offer, and in lieu thereof each tendering stockholder who would otherwise be entitled to a fractional share of Parent Common Stock in the Offer will be paid an amount in cash equal to the product obtained by multiplying (A) the fractional share interest such holder (after taking into account all shares of Company Common Stock held at the Effective Time by such holder) would otherwise be entitled by (B) the closing price for a share of Parent Common Stock as reported on the NYSE Composite Transaction Tape (as reported in The Wall Street Journal, or, if not reported thereby, any other authoritative source) on the date Merger Subsidiary accepts Shares for exchange in the Offer. (b) As soon as practicable after the date of this Agreement, Parent shall prepare and file with the SEC a registration statement on Form S-4 to register the offer and sale of Parent Common Stock pursuant to the Offer (the "FORM S-4"). The Form S-4 will include a preliminary prospectus containing the information required under Rule 14d-4(b) promulgated under the Exchange Act (the "PRELIMINARY PROSPECTUS"). As soon as practicable on the date of commencement of the Offer, Parent and Merger Subsidiary shall (i) file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer which will contain or incorporate by reference all or part of the Preliminary Prospectus and form of the related letter of transmittal (together with any supplements or amendments thereto, collectively the "OFFER DOCUMENTS") and (ii) cause the Offer Documents to be disseminated to holders of Shares. Parent, Merger Subsidiary and the Company each agree promptly to correct any information provided by it for use in the Form S-4 or the Offer Documents if and to the extent that it shall have become false or misleading in any material respect. Parent and Merger Subsidiary agree to take all steps 3 necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. The Company and its counsel shall be given a reasonable opportunity to review and comment on the Schedule TO, the Form S-4 and the Offer Documents prior to its being filed with the SEC. SECTION 1.2. COMPANY ACTION. (a) The Company hereby consents to the Offer and represents that its Board of Directors, at a meeting duly called and held, has unanimously (i) determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger (defined below in Section 2.1), are advisable and are fair to and in the best interest of the Company's stockholders, (ii) approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger, and the Tender Agreement and the transactions contemplated thereby, which approval constitutes approval under Section 203 of the General Corporation Law of the State of Delaware (the "DELAWARE LAW") such that the Offer, the Merger, this Agreement and the Tender Agreement and the other transactions contemplated hereby and thereby are not and shall not be subject to any restriction of Section 203 of Delaware Law, and (iii) resolved to recommend acceptance of the Offer and approval and adoption of this Agreement and the Merger by the Company's stockholders (the recommendations referred to in this clause (iii) are collectively referred to in this Agreement as the "RECOMMENDATIONS"). The Company further represents that Goldman Sachs & Co. ("GOLDMAN SACHS") has rendered to the Company's Board of Directors its opinion that the consideration to be received by the Company's stockholders pursuant to this Agreement is fair to such stockholders from a financial point of view. The Company has been advised that all of its directors and executive officers presently intend to tender their Shares pursuant to the Offer. The Company will promptly furnish Parent and Merger Subsidiary pursuant to the terms of their Confidentiality Agreements with a list of its stockholders, mailing labels and any available listing or computer file containing the names and addresses of all record holders of Shares and lists of securities positions of Shares held in stock depositories, in each case as of the most recent practicable date, and will provide to Parent and Merger Subsidiary such additional information (including, without limitation, updated lists of stockholders, mailing labels and lists of securities positions) and such other assistance as Parent or Merger Subsidiary may reasonably request in connection with the Offer. (b) As soon as practicable on the day that the Offer is commenced, the Company will file with the SEC and disseminate to holders of Shares a Solicitation/Recommendation Statement on Schedule 14D-9 (the "SCHEDULE 14D-9") which shall reflect the Recommendations; provided that the Board of Directors of the Company may withdraw, modify or change such Recommendations if but only if (i) it believes in good faith, based on such matters as it deems relevant, including the advice of the Company's financial advisors, that a Superior Proposal (defined in Section 5.5(b) hereof) has been made and (ii) it has determined in good faith, after consultation with outside legal counsel that the withdrawal, modification or change of such Recommendation is, in the good faith judgment of the Board of Directors, required by the Board to comply with its fiduciary duties imposed by Delaware Law. The Company, Parent and Merger Subsidiary each agree promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material 4 respect. The Company agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given a reasonable opportunity to review and comment on the Schedule 14D-9 prior to its being filed with the SEC. SECTION 1.3. DIRECTORS. (a) Effective upon the acceptance for payment by Merger Subsidiary of a majority of the Shares pursuant to the Offer (the "APPOINTMENT TIME"), Parent shall be entitled to designate the number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors (giving effect to the election of any additional directors pursuant to this Section) and (ii) the percentage that the number of Shares owned by Parent or Merger Subsidiary (including Shares accepted for payment) bears to the total number of Shares outstanding, and the Company shall take all action necessary to cause Parent's designees to be elected or appointed to the Company's Board of Directors, including, without limitation, increasing the number of directors, or seeking and accepting resignations of incumbent directors, or both; provided that, prior to the Effective Time (defined below in Section 2.3), the Company's Board of Directors shall always have at least two members who were directors of the Company prior to consummation of the Offer (each, a "CONTINUING DIRECTOR"). If the number of Continuing Directors is reduced to less than two for any reason prior to the Effective Time, the remaining and departing Continuing Directors shall be entitled to designate a person to fill the vacancy. At such times, the Company will use its best efforts to cause individuals designated by Parent to constitute the same percentage as such individuals represent on the Company's Board of Directors of (x) each committee of the Board, (y) each board of directors of each subsidiary (defined below in Section 4.1(a)) and (z) each committee of each such board. Notwithstanding anything in this Agreement to the contrary, in the event that Parent's designees are elected to the Company's Board of Directors prior to the Effective Time, the affirmative vote of the Continuing Directors shall be required for the Company to (a) amend or terminate this Agreement or agree or consent to any amendment or termination of this Agreement, (b) waive any of the Company's rights, benefits or remedies hereunder, (c) extend the time for performance of Parent's and Merger Subsidiary's respective obligations hereunder, or (d) approve any other action by the Company which is reasonably likely to adversely affect the interests of the stockholders of the Company (other than Parent, Merger Subsidiary and their affiliates (other than the Company and its subsidiaries)), with respect to the transactions contemplated by this Agreement. (b) The Company's obligations to appoint designees to the Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-l promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-l in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-l to fulfill its obligations under this Section 1.3. Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. 5 ARTICLE II THE MERGER SECTION 2.1. THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the relevant provisions of Delaware Law, Merger Subsidiary shall be merged with and into the Company (the "MERGER") at the Effective Time. Following the Merger, the separate corporate existence of Merger Subsidiary shall cease and the Company shall continue as the surviving corporation (the "SURVIVING CORPORATION") and shall succeed to and assume all the rights and obligations of Merger Subsidiary in accordance with Delaware Law. SECTION 2.2. CLOSING. The closing of the Merger (the "CLOSING") will take place at 10:00 a.m. on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Section 8.1, at the offices of Covington & Burling, 1330 Avenue of the Americas, New York, New York 10019, unless another date or place is agreed to in writing by the parties hereto (such date upon which the Closing occurs, the "CLOSING DATE"). SECTION 2.3. EFFECTIVE TIME. Subject to the provisions of this Agreement, as soon as practicable following the satisfaction or waiver of the conditions set forth in Article VIII, the parties shall file a certificate of merger or other appropriate documents (the "CERTIFICATE OF MERGER") executed in accordance with the relevant provisions of Delaware Law and shall make all other filings or recordings required under Delaware Law. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Delaware Secretary of State, or at such other time as Parent and the Company shall agree and specify in the Certificate of Merger (the time the Merger becomes effective, the "EFFECTIVE TIME"). SECTION 2.4. EFFECTS OF THE MERGER. The Merger shall have the effects set forth in Section 259 of the Delaware Law. SECTION 2.5. CERTIFICATE OF INCORPORATION AND BY-LAWS. (a) The certificate of incorporation of the Company, as in effect immediately prior to the Effective Time, shall be amended as of the Effective Time so that the Fourth Article of such certificate of incorporation reads in its entirety as follows: "The total number of shares of all classes of stock which the corporation shall have authority to issue is 1,000 shares of common stock, par value $.10 per share.", and that the Ninth Article of such certificate of incorporation is deleted in its entirety, and, as so amended, such certificate of incorporation shall be the certificate of incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) Subject to Section 6.2, the By-Laws of Merger Subsidiary as in effect at the Effective Time shall be the By-Laws of the Surviving Corporation, until changed or amended. 6 SECTION 2.6. DIRECTORS. The directors of Merger Subsidiary at the Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their successors are duly elected and qualified. SECTION 2.7. OFFICERS. The officers of Merger Subsidiary at the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their successors are duly elected and qualified. ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES SECTION 3.1. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Company Common Stock or any shares of capital stock of Merger Subsidiary: (a) CAPITAL STOCK OF MERGER SUBSIDIARY. Each issued and outstanding share of the capital stock of Merger Subsidiary shall be converted into and become one fully paid and nonassessable share of common stock, par value $.10 per share, of the Surviving Corporation. (b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each share of Company Common Stock that is owned by the Company or by any subsidiary of the Company and each share of Company Common Stock that is owned by Parent, Merger Subsidiary or any other subsidiary of Parent shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) CONVERSION OF COMPANY COMMON STOCK. Subject to Section 3.2(f), each issued and outstanding share of Company Common Stock (other than shares to be canceled in accordance with Section 3.1(b) or shares as to which appraisal rights, if any, have been exercised in accordance with Section 3.3) shall be converted into the right to receive (the "MERGER CONSIDERATION") such number of fully paid and nonassessable shares of Parent Common Stock as is equal to the Exchange Ratio and, if Parent has made the Cash Election in connection with the Offer, an amount in cash equal to the Cash Election Amount. As of the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration and any cash in lieu of fractional shares of Parent Common Stock to be issued in exchange therefor upon surrender of such certificate in accordance with Section 3.2(f) and any dividends or other distributions to which such holder is entitled pursuant to Section 3.2(c), in each case, without interest. (d) ADJUSTMENT OF EXCHANGE RATIO. In the event Parent changes (or establishes a record date for changing) the number of shares of Parent Common Stock issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend, recapitalization, subdivision, 7 reclassification, combination, exchange of shares or similar transaction with respect to the outstanding Parent Common Stock and the record date therefor shall be prior to the Effective Time, the Exchange Ratio and the Parent stock prices for determining any adjustments thereto and calculations thereof shall be proportionately adjusted to reflect such stock split, stock dividend, recapitalization, subdivision, reclassification, combination, exchange of shares of similar transaction. SECTION 3.2. EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. As of the Effective Time, Parent shall enter into an agreement with such bank or trust company as may be designated by Parent, and reasonably acceptable to the Company (the "EXCHANGE AGENT"), which shall provide that Parent shall deposit with the Exchange Agent as of the Effective Time, for the benefit of the holders of shares of Company Common Stock, for exchange in accordance with this Article III, through the Exchange Agent, as well as any cash payable in connection with the Merger pursuant to the Cash Election (if Parent has made such Cash Election) certificates representing the shares of Parent Common Stock (such shares of Parent Common Stock, together with any dividends or distributions with respect thereto with a record date after the Effective Time, any Excess Shares (defined in Section 3.2(f)) and any cash (including cash proceeds from the sale of the Excess Shares) payable in lieu of any fractional shares of Parent Common Stock being hereinafter referred to as the "EXCHANGE FUND") issuable or payable pursuant to Section 3.1 in exchange for outstanding shares of Company Common Stock, as well as any cash payable in connection with the Merger pursuant to the Cash Election (if Parent has made such Cash Election). For purposes of determining the number of shares of Parent Common Stock and amount of cash, if applicable, to be deposited by Parent in the Exchange Fund, Parent shall assume that no holder of Shares will perfect such holder's right to appraisal of such holders Shares, if any. (b) EXCHANGE PROCEDURE. As soon as practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (the "CERTIFICATES") whose shares were converted into the right to receive the Merger Consideration pursuant to Section 3.1, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in a form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration into which the shares of Company Common Stock shall have been converted pursuant to Section 3.1, cash in lieu of fractional shares of Parent Common Stock to which such holder is entitled pursuant to Section 3.2(f) and any dividends or other distributions to which such holder is entitled pursuant to Section 3.2(c), and the Certificate so surrendered shall be canceled. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so 8 surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. At any time after the Effective Time, each Certificate shall be deemed to represent only the right to receive upon surrender the Merger Consideration into which the shares of Company Common Stock shall have been converted pursuant to Section 3.1, cash in lieu of any fractional shares of Parent Common Stock as contemplated by Section 3.2(f) and any dividends or other distributions to which such holder is entitled pursuant to Section 3.2(c), in each case, without interest thereon. (c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other distributions with respect to Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 3.2(f), in each case until the surrender of such Certificate in accordance with this Article III. Subject to the effect of applicable escheat laws, following surrender of any such Certificate, there shall be paid to the holder of the certificate representing whole shares of Parent Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 3.2(f) and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole shares of Parent Common Stock. (d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All Merger Consideration paid upon the surrender of Certificates in accordance with the terms of this Article III (including any cash paid pursuant to Section 3.2(f)) shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock represented by such Certificates, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article III. (e) TERMINATION OF EXCHANGE FUND; NO LIABILITY. Any portion of the Exchange Fund which remains undistributed to the holders of the Certificates for twelve months after the Effective Time shall be delivered to Parent, upon demand, and any holders of the Certificates who have not theretofore complied with this Article III shall thereafter look only to Parent for payment of their claim for Merger Consideration, any dividends or distributions with respect to Parent Common Stock and any cash in lieu of fractional shares of Parent Common Stock. None of Parent, Merger Subsidiary, the Company or the Exchange Agent shall be liable to any person in respect of any shares of Parent Common Stock, any dividends or distributions with respect thereto, any cash 9 in lieu of fractional shares of Parent Common Stock or any cash from the Exchange Fund, in each case delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate shall not have been surrendered prior to one year after the Effective Time (or immediately prior to such date on which any amounts payable pursuant to this Article III would otherwise escheat to or become the property of any Governmental Entity (as defined in Section 4.1(d)), any such amounts shall, to the extent permitted by applicable escheat law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. Any portion of the Merger Consideration deposited in the Exchange Fund pursuant to this Section 3.2 in consideration of Shares for which appraisal rights, if any, have been perfected shall be returned to Parent, upon demand. (f) NO FRACTIONAL SHARES. (i) No certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates pursuant to this Article III, no dividend or distribution of Parent shall relate to such fractional share interests and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Parent. (ii) As promptly as practicable following the Effective Time, the Exchange Agent shall determine the excess of (A) the number of whole shares of Parent Common Stock delivered to the Exchange Agent by Parent pursuant to Section 3.2(a) over (B) the aggregate number of whole shares of Parent Common Stock to be distributed to former holders of Company Common Stock pursuant to Section 3.2(b) (such excess being herein called the "EXCESS SHARES"). Following the Effective Time, the Exchange Agent shall, on behalf of former stockholders of the Company, sell the Excess Shares at then-prevailing prices on the NYSE, and in round lots to the extent practicable. The Exchange Agent shall use reasonable efforts to complete the sale of the Excess Shares as promptly following the Effective Time as, in the Exchange Agent's sole judgment, is practicable consistent with obtaining the best execution of such sales in light of prevailing market conditions. Until the net proceeds of such sale or sales have been distributed to the holders of Certificates formerly representing Company Common Stock, the Exchange Agent shall hold such proceeds in trust for such holders (the "COMMON SHARES TRUST"). The Surviving Corporation shall pay all commissions, transfer taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent, incurred in connection with such sale of the Excess Shares. The Exchange Agent shall determine the portion of the Common Shares Trust to which each former holder of Company Common Stock is entitled, if any, by multiplying the amount of the aggregate net proceeds comprising the Common Shares Trust by a fraction, the numerator of which is the amount of the fractional share interest to which such former holder of Company Common Stock is entitled (after taking into account all shares of Company Common Stock held at the Effective Time by such holder) and the denominator of which is the aggregate amount of fractional share interests to which all former holders of Company Common Stock are entitled. (iii) Notwithstanding the provisions of Section 3.2(f)(ii), Parent may elect at its option, exercised prior to the Effective Time, in lieu of the issuance and sale of Excess Shares and the making of the payments hereinabove contemplated, to pay each former holder of Company Common Stock an amount in cash equal to the product obtained by multiplying (A) the fractional 10 share interest to which such former holder (after taking into account all shares of Company Common Stock held at the Effective Time by such holder) would otherwise be entitled by (B) the closing price for a share of Parent Common Stock as reported on the NYSE Composite Transaction Tape (as reported in The Wall Street Journal, or, if not reported thereby, any other authoritative source) on the Closing Date, and, in such case, all references herein to the cash proceeds of the sale of the Excess Shares and similar references shall be deemed to mean and refer to the payments calculated as set forth in this Section 3.2(f)(iii). (iv) As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of Certificates formerly representing Company Common Stock with respect to any fractional share interests, the Exchange Agent shall make available such amounts to such holders of Certificates formerly representing Company Common Stock subject to and in accordance with the terms of Section 3.2(c). (g) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any cash included in the Exchange Fund, as directed by Parent, on a daily basis in reasonably prudent investments. Any interest and other income resulting from such investments shall be paid to Parent. (h) LOST CERTIFICATES. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such person of a bond in such reasonable amount as Parent may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificate the applicable Merger Consideration with respect thereto and, if applicable, any unpaid dividends and distributions on shares of Parent Common Stock deliverable in respect thereof and any cash in lieu of fractional shares, in each case pursuant to this Agreement. SECTION 3.3. DISSENTING SHARES. Notwithstanding Section 3.1(c), if Parent has made the Cash Election or if the Merger is effectuated persuant to Section 253 of the Delaware Law, Shares outstanding immediately prior to the Effective Time and held by a holder who has demanded appraisal for such Shares in accordance with Delaware Law shall not be converted into a right to receive the Merger Consideration, unless such holder fails to perfect or withdraws or otherwise loses his right to appraisal. If after the Effective Time such holder fails to perfect or withdraws or loses his right to appraisal, such Shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Shares, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. SECTION 3.4. COMPANY OPTIONS. (a) Parent and the Company shall take all actions necessary to provide that each outstanding option to purchase shares of Company Common Stock granted under any stock option plan, program or agreement to which the Company or any of its subsidiaries is a party (collectively, the "STOCK PLANS") to an individual listed in Section 3.4 of the Company Disclosure Schedule (defined in Section 4.1(b)) ("MANAGEMENT OPTIONS") shall 11 become fully vested and exercisable as of immediately prior to the consummation of the Offer and shall become and represent, effective as of the consummation of the Offer, an option to acquire the number of shares of Parent Common Stock (a "PARENT MANAGEMENT OPTION"), rounded up to the nearest whole share, determined by multiplying (i) the number of shares of Company Common Stock subject to such Management Option immediately prior to the consummation of the Offer by (ii) the Option Exchange Ratio (as hereinafter defined), at an exercise price per share of Parent Common Stock (increased to the nearest whole cent) equal to the exercise price per share of such Management Option divided by the Option Exchange Ratio; provided, however, that in the case of any Management Option to which Section 421 of the Code applies by reason of its qualification as an incentive stock option under Section 422 of the Code, the conversion formula shall be adjusted if necessary to comply with Section 424(a) of the Code. Following the consummation of the Offer, each Parent Management Option shall be exercisable upon the same terms and conditions as were applicable to the related Management Option immediately prior to the consummation of the Offer. The Option Exchange Ratio shall be the sum of the Exchange Ratio plus, in the event of a Cash Election, the number determined by dividing the amount of cash consideration per share of Company Common Stock that would be included in the Merger Consideration by the Average Parent Trading Price. (b) Notwithstanding Section 3.4(a), upon an election by the holder of a Management Option (made pursuant to a written notice to the Company not less than two days prior to the consummation of the Offer), such holder's Management Option shall be canceled upon the consummation of the Offer and the holder shall receive, in consideration of such cancellation, an amount in cash payable as soon as practicable following the cancellation of such Management Option equal to the product of (A) the excess, if any, of (x) the Cancellation Price (as hereinafter defined) over (y) the per share exercise price of such Management Option multiplied by (B) the number of shares of Company Common Stock subject to such Management Option. Any such payment shall be further reduced by any income tax or employment tax withholding required under the Internal Revenue Code of 1986, as amended (the "CODE"). The Cancellation Price shall be (x) the Option Exchange Ratio multiplied by (y) the Average Parent Trading Price. (c) Parent and the Company shall take all actions necessary to provide that each outstanding option, other than a Management Option, to purchase shares of Company Common Stock ("COMPANY Options") granted under a Company Option Plan shall become and represent, effective as of the consummation of the Offer, an option to acquire the number of shares of Parent Common Stock (a "PARENT OPTION"), rounded up to the nearest whole share, determined by multiplying (i) the number of shares of Company Common Stock subject to such Company Option immediately prior to the consummation of the Offer by (ii) the Option Exchange Ratio, at an exercise price per share of Parent Common Stock (increased to the nearest whole cent) equal to the exercise price per share of such Company Option divided by the Option Exchange Ratio; provided, however, that in the case of any Company Option to which Section 421 of the Code applies by reason of its qualification as an incentive stock option under Section 422 of the Code, the conversion formula shall be adjusted if necessary to comply with Section 424(a) of the Code. After the consummation of the Offer, each Parent Option shall be exercisable upon the same terms and conditions as were applicable to the related Company Option immediately prior to the consummation of the Offer. 12 (d) The Company and Parent agree that each of the Stock Plans and the stock option plans of Parent ("PARENT STOCK PLANS") shall be amended, to the extent necessary, to reflect the transactions contemplated by this Agreement, including, but not limited to the conversion of shares of Company Common Stock held or to be awarded or paid pursuant to such benefit plans, programs or arrangements into shares of Parent Common Stock on a basis consistent with the transactions contemplated by this Agreement. (e) Parent shall (i) reserve for issuance the number of shares of Parent Common Stock that will become subject to the benefit plans, programs and arrangements referred to in this Section 3.4, (ii) issue or cause to be issued the appropriate number of shares of Parent Common Stock pursuant to applicable plans, programs and arrangements, upon the exercise or maturation of rights existing thereunder on the Effective Time or thereafter granted or awarded, and (iii) as soon as practicable following the date of this Agreement (and in any event no later than the date of the consummation of the Offer), prepare and file with the SEC and use its reasonable best efforts to have declared effective prior to consummation of the Offer a registration statement on Form S-8 (in respect of the Company's Amended and Restated 1996 Stock Option Plan and 1999 Employee Stock Option Plan) registering a number of shares of Parent Common Stock necessary to fulfill Parent's obligations under this Section 3.4 and covering the exercise of the Parent Options and Parent Management Options and the sale or other transfer of the shares of Parent Common Stock issued upon exercise of such options. Such registration statements shall be kept effective (and the current status of the prospectus required thereby shall be maintained) for at least as long as any Parent Option or Parent Management Option remains outstanding. (f) As soon as practicable after the consummation of the Offer, Parent shall deliver to the holders of Parent Options or Parent Management Options appropriate notices setting forth such holders' rights pursuant to the respective Stock Plans and the agreements evidencing the grants of such options and that such options and the related agreements shall be assumed by Parent and shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 3.4). (g) Notwithstanding the foregoing provisions of this Section 3.4, the Company's Amended and Restated Employee Stock Purchase Plan (the "ESPP") shall operate in accordance with its terms in connection with the Offer and the Merger. (h) Parent and the Company shall take all such steps as may be required to cause the transactions contemplated by this Section 3.4 and any other dispositions of equity securities of the Company (including derivative securities) or acquisitions of Parent equity securities (including derivative securities) in connection with this Agreement by each individual who is a director or officer of the Company to be exempt under Rule 16b-3 promulgated under the Exchange Act, such steps to be taken in accordance with the No-Action Letter dated January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher & Flom LLP. 13 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Each exception set forth in the Company Disclosure Schedule (defined below in Section 4.1(b)) to the representations and warranties in this Section 4.1 and each other response to this Agreement set forth in the Company Disclosure Schedule is identified by reference to, or has been grouped under a heading referring to, a specific individual Section of this Agreement and relates only to such Section, except to the extent that one section of the Company Disclosure Schedule specifically refers to another section thereof. Except as set forth in the Company Disclosure Schedule, the Company represents and warrants to Parent and Merger Subsidiary as follows: (a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Company and each of its Significant Subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power and authority, as the case may be, to carry on its business as now being conducted. Each of the Company and each of its subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) could not reasonably be expected to have a material adverse effect on the condition (financial or otherwise), business, assets or results of operations of the Company and its subsidiaries taken as a whole except that occurrences due solely to a disruption of the Company's or its subsidiaries' businesses solely as a result of the announcement of the execution of this Agreement and the transactions proposed to be consummated by this Agreement shall be excluded from consideration for purposes of the effect of an action or inaction on the Company and its subsidiaries taken as a whole (a "COMPANY MATERIAL ADVERSE EFFECT"). The Company has delivered or made available to Parent complete and correct copies of its certificate of incorporation and by-laws and the certificates of incorporation and by-laws of its Significant Subsidiaries, in each case as amended to the date of this Agreement. For purposes of this Agreement, a "SUBSIDIARY" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person; a "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity; and a "SIGNIFICANT SUBSIDIARY" means any direct or indirect subsidiary of the Company that has annual revenues or total assets of at least $10 million. (b) SUBSIDIARIES. Section 4.1(b) of the disclosure schedule delivered by the Company to Parent and Merger Subsidiary prior to the execution of this Agreement (the "COMPANY DISCLOSURE SCHEDULE") lists each subsidiary of the Company and its respective jurisdiction of incorporation and indicates whether such subsidiary is a Significant Subsidiary. All the outstanding shares of capital stock of each such subsidiary have been validly issued and are fully paid and nonassessable and are owned by the Company, by another subsidiary of the Company or by the 14 Company and another such subsidiary, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "LIENS") and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock). Except for the capital stock of its subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any person. (c) CAPITAL STRUCTURE. The authorized capital stock of the Company consists of 250,000,000 shares of Company Common Stock and 10,000,000 shares of preferred stock, par value $.10 per share (the "COMPANY PREFERRED STOCK"). As of February 9, 2000, (i) 82,499,131 shares of Company Common Stock were issued and outstanding (which number could be understated by up to 12,162 Shares issuable upon Company Options which were recently exercised), including associated Preferred Share Purchase Rights (the "RIGHTS") issued pursuant to the Rights Agreement, dated as of December 16, 1996 (the "RIGHTS AGREEMENT"), between the Company and The First National Bank of Boston, as Rights Agent, (ii) no shares of Company Preferred Stock were issued and outstanding, (iii) 5,885,115 shares of Company Common Stock were held by the Company in its treasury or by any of the Company's subsidiaries, (iv) 22,353,364 shares of Company Common Stock were reserved for issuance pursuant to the Stock Plans (of which 20,416,405 are subject to outstanding Company Options) and (v) 2,343,973 shares of Company Common Stock were reserved for issuance pursuant to the ESPP. Except as set forth above and except for the Company Preferred Stock issuable upon exercise of the Rights, at the time of execution of this Agreement, no shares of capital stock or other voting securities of the Company are issued, reserved for issuance or outstanding. All outstanding shares of capital stock of the Company are, and all shares which may be issued pursuant to the Stock Plans will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no outstanding bonds, debentures, notes or other indebtedness or securities of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote. Except as set forth above, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or of any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, or undertaking. There are no outstanding rights, commitments, agreements, or undertakings of any kind obligating the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock or other voting securities of the Company or any of its subsidiaries or any securities of the type described in the two immediately preceding sentences. The Company has delivered or made available to Parent complete and correct copies of the Stock Plans and all forms of Company Options. Section 4.1(c) of the Company Disclosure Schedule sets forth a complete and accurate list of all Company Options outstanding as of the date of this Agreement and the exercise price of each outstanding Company Option. (d) AUTHORITY; NONCONTRAVENTION. The Company has the requisite corporate power and authority to enter into this Agreement and, subject to the approval of this Agreement by 15 the affirmative votes of holders of a majority of the outstanding shares of Company Common Stock (unless such approval is not required to effectuate the Merger pursuant to Section 253 of the Delaware Law) (the "COMPANY SHAREHOLDER VOTE") with respect to the Merger, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of the Merger if required under Delaware Law, to approval of this Agreement by the Company Shareholder Vote. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its subsidiaries under, (i) the certificate of incorporation or by-laws of the Company or the comparable charter or organizational documents of any of its Significant Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its subsidiaries or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its subsidiaries or their respective properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, violations, defaults, rights, losses or Liens that individually or in the aggregate could not reasonably be expected to (x) have a Company Material Adverse Effect, (y) impair the Company's ability to perform its obligations under this Agreement or (z) prevent or materially delay the consummation of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by (collectively, "CONSENTS") any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (a "GOVERNMENTAL ENTITY"), is required by or with respect to the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except for (i) the filing of a premerger notification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and any applicable filings under similar foreign antitrust or competition laws and regulations, (ii) the filing with the SEC of (A) the Schedule 14D-9, (B) a proxy statement relating to the Company Stockholders Meeting (defined below in Section 7.1(b)) (as amended or supplemented from time to time, the "COMPANY PROXY STATEMENT"), and (C) such reports under the Exchange Act and the Securities Act, as may be required in connection with this Agreement and the Tender Agreement and the transactions contemplated hereby and thereby, (iii) such filings as may be required under state securities or "blue sky" laws, (iv) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, and (v) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be made or obtained individually or in the aggregate could not reasonably be expected to (x) have a Company Material Adverse Effect, (y) 16 impair the Company's ability to perform its obligations under this Agreement or (z) prevent or materially delay the consummation of the transactions contemplated by this Agreement. (e) SEC DOCUMENTS; FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The Company has filed all required reports, schedules, forms, statements and other documents with the SEC since October 1, 1996 (the "COMPANY SEC DOCUMENTS"). As of their respective dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Documents, and none of the Company SEC Documents when filed contained any untrue statement of a material fact or omitted 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. The financial statements of the Company included in the Company SEC Documents as of their respective dates comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments not material in amount). Except as reflected in the financial statements of the Company included in the Company Filed SEC Documents, neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which are required by generally accepted accounting principles to be set forth on a consolidated balance sheet of the Company and its consolidated subsidiaries or in the notes thereto other than any liabilities and obligations incurred since September 30, 1999 in the ordinary course of business or which, individually or in the aggregate, are not expected to have a Company Material Adverse Effect. (f) INFORMATION SUPPLIED. Neither the Schedule 14D-9, nor any of the information supplied or to be supplied by the Company or its subsidiaries or representatives for inclusion or incorporation by reference in the Form S-4, the Post-Effective Amendment (defined below in Section 7.1(a)) or the Offer Documents will, at the respective times any such documents or any amendments or supplements thereto are filed with the SEC, are first published, sent or given to shareholders or become effective under the Securities Act, contain any 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 not misleading. The Company Proxy Statement will not, at the time the Company Proxy Statement is first mailed to the Company's shareholders or, at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Schedule 14D-9 and the Company Proxy Statement will comply as to form in all material respects with the requirements of all applicable laws, including the Exchange Act and the rules and regulations thereunder. No representation or warranty is made by the Company with respect to statements made or 17 incorporated by reference therein based on information supplied by Parent or Merger Subsidiary specifically for inclusion or incorporation by reference therein. (g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement (the "COMPANY FILED SEC DOCUMENTS") or in Section 4.1(g) of the Company Disclosure Schedule and except as expressly contemplated by this Agreement, since September 30, 1999, the Company and its subsidiaries have conducted their business only in the ordinary course consistent with past practice, and there has not been (i) as of the date of this Agreement, any event, occurrence or development which has had or could reasonably be expected to have a Company Material Adverse Effect, (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Company's capital stock or any repurchase, redemption or other acquisition by the Company or any of its subsidiaries of any outstanding shares of capital stock or other securities of the Company or any of its subsidiaries, (iii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iv) (A) any granting by the Company or any of its subsidiaries to any current or former director, officer or employee of the Company or any of its subsidiaries of any increase in compensation or benefits (including the acceleration in the exercisability of options to purchase, or in the vesting of, Company Common Stock (or other property)), except in the ordinary course of business consistent with past practice or as was required under employment agreements in effect as of September 30, 1999, (B) any granting by the Company or any of its subsidiaries to any such director, officer or employee of any increase in severance or termination pay (including the acceleration in the exercisability of options to purchase, or in the vesting of, Company Common Stock (or other property)), except as was required under employment, severance or termination agreements or plans in effect as of September 30, 1999, or (C) any entry by the Company or any of its subsidiaries into any employment, deferred compensation, severance or termination agreement with any such current or former director, officer or employee, (v) any damage, destruction or loss, whether or not covered by insurance, that has had or could reasonably be expected to have a Company Material Adverse Effect, (vi) any change in accounting methods, principles or practices by the Company or any of its subsidiaries, (vii) any amendment of any material term of any outstanding security of the Company or any of its subsidiaries, (viii) any incurrence, assumption or guarantee by the Company or any of its subsidiaries of any indebtedness for borrowed money other than in the ordinary course of business consistent with past practice, but in no event in the amount of more than $1,000,000 in the aggregate, (ix) any creation or assumption by the Company or any of its subsidiaries of any Lien on any asset other than in the ordinary course of business consistent with past practice, but in no event in the amount of more than $500,000 for any one transaction or $1,000,000 in the aggregate, (x) any making of any loan, advance or capital contributions to or investment in any person other than (A) loans, advances or capital contributions to or investments in wholly-owned subsidiaries or entities that became wholly-owned subsidiaries made in the ordinary course of business consistent with past practice and (B) investments made in accordance with the Company's investment guidelines, a copy of which has been made available to Parent, and in the ordinary course of business consistent with past practice, (xi) any transaction or commitment made, or any contract or agreement entered into, by the Company or any of its subsidiaries relating to its assets or business (including the acquisition or disposition of any assets or the merger or consolidation with any person) or any 18 relinquishment by the Company or any of its subsidiaries of any contract or other right, in either case, material to the Company and its subsidiaries taken as a whole, other than transactions and commitments in the ordinary course of business consistent with past practice and those contemplated by this Agreement, but in the case of transactions or commitments outside of the ordinary course of business in no event representing commitments on behalf of the Company or any of its subsidiaries of more than $500,000 for any transaction and $1,000,000 for any series of transactions, (xii) except as set forth in Section 4.1(g) of the Company Disclosure Schedule, as of the date hereof, any change in policy or practice for licensing Company software to third parties, through discounts or similar practices, lengthening the term of licenses or changing the basis of pricing, (xiii) any labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Company or any of its subsidiaries, which employees were not subject to a collective bargaining agreement at September 30, 1999, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees or (xiv) any agreement, commitment, arrangement or undertaking by the Company or any of its subsidiaries to perform any action described in clauses (i) through (xiii) above. (h) LITIGATION. Except as disclosed in the Company Filed SEC Documents or in Section 4.1(h) of the Company Disclosure Schedule, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries (and the Company is not aware of any basis for any such suit, action or proceeding) that, individually or in the aggregate, could reasonably be expected to (i) have a Company Material Adverse Effect, (ii) impair the ability of the Company to perform its obligations under this Agreement or (iii) prevent or materially delay the consummation of any of the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its subsidiaries having, or which, insofar as reasonably can be foreseen, in the future would have, any such effect. Section 3.1(h) of the Company Disclosure Schedule sets forth, with respect to any pending suit, action or proceeding to which the Company or any its subsidiaries is a party and which involves claims which if adversely determined would exceed $2,000,000, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed. (i) ABSENCE OF CHANGES IN STOCK AND BENEFIT PLANS. Except as disclosed in Section 4.1(g) and (i) of the Company Disclosure Schedule or as expressly permitted by this Agreement, since September 30, 1999, there has not been (i) any acceleration, amendment or change of the period of exercisability or vesting of any Company Options or restricted stock, stock bonus or other awards under the Stock Plans (including any discretionary acceleration of the exercise periods or vesting by the Company's Board of Directors or any committee thereof or any other persons administering a Stock Plan) or authorization of cash payments in exchange for any Company Options, restricted stock, stock bonus or other awards granted under any of such Stock Plans or (ii) any adoption or amendment by the Company or any of its subsidiaries of any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, stock appreciation right, retirement, vacation, severance, disability, death benefit, hospitalization, medical, workers' compensation, supplementary unemployment benefits or other plan, arrangement or understanding 19 (whether or not legally binding) providing benefits to any current or former employee, officer or director of the Company or any of its subsidiaries or any beneficiary thereof entered into, maintained or contributed to, as the case may be, by the Company or any of its subsidiaries (collectively, "BENEFIT PLANS"). (j) PARTICIPATION AND COVERAGE IN BENEFIT PLAN. Except with respect to changes required by law, there has been no adoption of, amendment to, written interpretation or announcement (whether or not written) by the Company or any of its subsidiaries relating to, or change in employee participation or coverage under, any Benefit Plan which would increase materially the expense of maintaining such Benefit Plan above the level of the expense incurred in respect thereof for the fiscal year ended on September 30, 1999. (k) ERISA COMPLIANCE. (i) Section 4.1(k) of the Company Disclosure Schedule contains a list of all "EMPLOYEE PENSION BENEFIT PLANS" (defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), "EMPLOYEE WELFARE BENEFIT PLANS" (defined in Section 3(l) of ERISA) and all other material Benefit Plans maintained, or contributed to, by the Company or any of its subsidiaries or ERISA affiliates (defined below) for the benefit of any current or former employees, officers or directors of the Company or any of its subsidiaries or ERISA affiliates or under which the Company or any of its subsidiaries or ERISA affiliates has any material liability. The Company has delivered or made available to Parent complete and correct copies of (A) each material Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof) and all amendments thereto and written interpretations thereof, (B) the most recent summary plan description for each material Benefit Plan for which such summary plan description is required and (C) each trust agreement and group annuity or insurance contract relating to any Benefit Plan. For purposes of this Agreement, "ERISA AFFILIATE" of the Company means any person which, together with the Company or any of its subsidiaries, would be treated as a single employer under Section 414 of the Code. The only Benefit Plans which individually or collectively would constitute an "EMPLOYEE PENSION BENEFIT PLAN" defined in Section 3(2) of ERISA (the "PENSION PLANS") are identified as such in Section 4.1(k) of the Company Disclosure Schedule. (ii) Each Benefit Plan has been maintained and administered in compliance with its terms in all material respects and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, and is, to the extent required by applicable law or contract, fully funded without having any deficit or unfunded actuarial liability. Any Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified and nothing has occurred that could reasonably be expected to cause the loss of such qualified status. (iii) No Benefit Plan is covered by Title IV of ERISA and no contributions to any Benefit Plan are required under Section 412 of the Code. Neither the Company nor any of its subsidiaries has incurred or reasonably expects to incur any liability under Title IV of ERISA or Section 4975 of the Code or any material liability or penalty under Section 4980B of the Code or Section 502(i) of ERISA. 20 (iv) To the knowledge of the Company, there are no pending or anticipated material claims against or otherwise involving any of the Benefit Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Benefit Plan activities) has been brought against or with respect to any Benefit Plan. (v) All material contributions, reserves or premium payments, required to be made as of the date hereof to or with respect to the Benefit Plans have been made or provided for. (vi) Except as required by law, neither the Company nor any of its subsidiaries has any obligations for post-retirement or post-termination health and life benefits under any Benefit Plan. (l) TAXES. As used in this Agreement, "TAX" or "TAXES" shall include all Federal, state, local and foreign income, property, sales, excise and other taxes, tariffs or governmental charges or assessments of any nature whatsoever as well as any interest, penalties and additions thereto. Except as set forth in Section 4.1(l) of the Company Disclosure Schedule: (i) The Company and each of its subsidiaries have timely filed all tax returns, statements, reports and forms required to be filed with any tax authority (collectively, the "TAX RETURNS") and in accordance with all applicable laws. All such tax returns are correct and complete in all respects. All taxes shown as due and payable on the Tax Returns have been paid and all other taxes of the Company or any of its subsidiaries have been adequately reserved for in the financial statements included in the Company Filed SEC Documents. There are no Liens on any of the assets of the Company or any of its subsidiaries that arose in connection with any failure (or alleged failure) to pay any tax. (ii) The Company and each of its subsidiaries has withheld and timely paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (iii) No dispute or claim concerning any tax liability of the Company or any of its subsidiaries has been proposed or claimed in writing or, to the knowledge of the Company, threatened by any authority. The Company has provided Parent with correct and complete copies of its Federal income tax returns for taxable years ending September 30, 1994 through September 30, 1998, and examination reports, and statements of deficiencies with respect to Federal income taxes, if any, assessed against or agreed to by the Company and any of its subsidiaries with respect to Federal income taxes for taxable years ending September 30, 1994 through September 30, 1998. (iv) Neither the Company nor any of its subsidiaries has waived any statute of limitations in respect of taxes or agreed to any extension of time with respect to a tax assessment or deficiency. (v) Neither the Company nor any of its subsidiaries has filed a consent pursuant to Section 341(f) of the Code concerning collapsible corporations. Neither the Company nor any of its subsidiaries is a party to any tax allocation or sharing agreement. Neither the Company nor any 21 of its subsidiaries has any liability for the taxes of any person (other than the Company and any of its subsidiaries that is currently a member of the Company's affiliated group filing a consolidated federal income tax return) under Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (vi) As of the date of the most recent financial statements included in the Company Filed SEC Documents, the unpaid taxes of the Company and its subsidiaries did not exceed the liability for taxes (rather than any reserve for deferred taxes established to reflect timing differences between book and tax income) set forth on the face of such financial statements. (vii) Neither the Company nor any of its subsidiaries is required to include in income any adjustment pursuant to Section 481(a) of the Code (or similar provisions of other law or regulations) in its current or in any future taxable period by reason of a change in accounting method nor does the Company or any of its subsidiaries have any knowledge that the Internal Revenue Service (or other taxing authority) has proposed or is considering proposing, any such change in accounting method. (viii) Neither the Company nor any of its subsidiaries is a party to any agreement, contract, or arrangement that, individually or collectively, could give rise to the payment of any amount (whether in cash or property, including Company Common Stock) that would not be deductible pursuant to the terms of Section 162(m), 280G or, to the knowledge of the Company, 162(a)(i) of the Code. (ix) Neither the Company nor any of its subsidiaries has constituted either a "DISTRIBUTING CORPORATION" or a "CONTROLLED CORPORATION" (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (A) in the two years prior to the date of this Agreement, or (B) in a distribution that could otherwise constitute part of a "PLAN" or "SERIES OF RELATED TRANSACTIONS" (within the meaning of Section 355(e) of the Code) in conjunction with the Offer or the Merger, or both. (m) VOTING REQUIREMENTS. In the event that Section 253 of the Delaware Law is inapplicable and unavailable to effectuate the Merger, the Company Shareholder Vote is the only vote of the holders of the Company's capital stock necessary to approve and adopt this Agreement and the transactions contemplated hereby. (n) STATE TAKEOVER STATUTES; RIGHTS AGREEMENT. (i) The Board of Directors of the Company has approved this Agreement and the Tender Agreement and the consummation of the Offer, the Merger and the other transactions contemplated by this Agreement and the Tender Agreement, and such approval constitutes approval of this Agreement and the Tender Agreement and the consummation of the Offer, the Merger and the other transactions contemplated by this Agreement and the Tender Agreement by the Board of Directors of the Company under the provisions of Section 203 of Delaware Law and represents all the action necessary to ensure that such Section 203 does not apply to Parent in connection with the Offer, the Merger and the other transactions contemplated by this Agreement and the Tender Agreement. To the knowledge of the Company, no other "FAIR PRICE", "MORATORIUM", "CONTROL SHARE ACQUISITION", or other anti-takeover 22 statute or similar statute or regulation, applies or purports to apply this Agreement or the Tender Agreement, or the Offer, the Merger or the other transactions contemplated by this Agreement and the Tender Agreement. (ii) The Company has amended, or will amend within two business days of the date of this Agreement, the Rights Agreement to provide that neither Parent nor any of its affiliates will become an Acquiring Person (defined in the Rights Agreement), that no Distribution Date or Shares Acquisition Date (each defined in the Rights Agreement) will occur, and that the Rights will not separate from the underlying shares of Company Common Stock or give the holders thereof the right to acquire securities of any party hereto, in each case as a result of the execution, delivery or performance of this Agreement or the Tender Agreement or the consummation of the Offer, the Merger or the other transactions contemplated by this Agreement or the Tender Agreement. (o) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker, financial advisor or other person, other than Goldman Sachs and Broadview International L.L.C., the fees and expenses of which will be paid by the Company (and a copy of whose engagement letter and a calculation of the fees that would be due thereunder has been provided to Parent), is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement or the Tender Agreement based upon arrangements made by or on behalf of the Company or any of its subsidiaries. No such engagement letter obligates the Company to continue to use the services or pay fees or expenses in connection with any future transaction. (p) PERMITS; COMPLIANCE WITH LAWS; ENVIRONMENTAL MATTERS. (i) Each of the Company and its subsidiaries has in effect all Federal, state, local and foreign governmental approvals, authorizations, certificates, filings, franchises, licenses, notices, permits and rights ("PERMITS") necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted, and there has occurred no default under any such Permit, except for the absence of Permits and for defaults under Permits which absence or defaults, individually or in the aggregate, could not reasonably be expected to have a Company Material Adverse Effect. The Company and its subsidiaries have been, and are, in compliance with all applicable statutes, laws, ordinances, regulations, rules, judgments, decrees or orders of any Governmental Entity, and neither the Company nor any of its subsidiaries has received any notice from any Governmental Entity or any other person that either the Company or any of its subsidiaries is in violation of, or has violated, any applicable statutes, laws, ordinances, regulations, rules, judgments, decrees or orders, except such failures to comply or violations as, individually or in the aggregate, could not reasonably be expected to have a Company Material Adverse Effect. (ii) Neither the Company nor any of its subsidiaries has (i) placed, held, located, released, transported or disposed of any Hazardous Substance (defined below) on, under, from or at any of the Company's or any of its subsidiaries' properties or any other properties, other than in a manner that could not, in all such cases taken individually or in the aggregate, reasonably be expected to have or result in a Company Material Adverse Effect, (ii) any knowledge of the presence of any Hazardous Substances that have been released into the environment on, under or at any of the Company's or any of its subsidiaries' properties other than that which could not 23 reasonably be expected to have or result in a Company Material Adverse Effect, or (iii) received any written notice (A) of any violation of any applicable statute, law, ordinance, regulation, rule, judgment, decree or order of any Governmental Entity relating to any matter of pollution, protection of the environment or environmental regulation or control or regarding Hazardous Substances (collectively, "ENVIRONMENTAL LAWS") that has not been resolved or settled with the relevant Governmental Entity, (B) of the institution or pendency of any suit, action, claim, proceeding or investigation by any Governmental Entity or any third party in connection with any such violation, (C) requiring the response to or remediation of Hazardous Substances at or arising from any of the Company's or any of its subsidiaries' properties or any other properties, (D) alleging non-compliance by the Company or any of its subsidiaries with the terms of any permit required under any Environmental Law in any manner reasonably likely to require material expenditures or to result in material liability or (E) demanding payment of a material amount for response to or remediation of Hazardous Substances at or arising from any of the Company's or any of its subsidiaries' properties or any other properties. For purposes of this Agreement, the term "HAZARDOUS SUBSTANCE" shall mean any material defined as toxic or hazardous, including any petroleum and petroleum products, under any applicable Environmental Law. (q) CONTRACTS; DEBT INSTRUMENTS. (i) Except as otherwise disclosed in Section 4.1(q)(i)(A)-(E) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries is a party to or subject to: (A) any union contract, or any employment, consulting, severance, termination, or indemnification agreement, contract or arrangement providing for future payments, written or oral, with any current or former officer or director which (1) exceeds $200,000 per annum or (2) requires aggregate annual payments or total payments over the life of such agreement, contract or arrangement to such current or former officer, consultant, director or employee in excess of $200,000 or $500,000, respectively, and is not terminable by it or its subsidiary on 30 days' notice or less without penalty or obligation to make payments related to such termination; (B) any joint venture contract or similar arrangement or any other agreement not in the ordinary course of business which has involved or is expected to involve a sharing of revenues of $1,000,000 per annum or more with other persons; (C) any lease for real or personal property in which the amount of payments which the Company is required to make on an annual basis exceeds $1,000,000; (D) to the knowledge of the Company, any material agreement, contract, policy, license, Permit, document, instrument, arrangement or commitment involving revenues to the Company in excess of $2,000,000 which has not been terminated or performed in its entirety and not renewed which may be, by its terms, terminated by reason of the execution of this Agreement or the Tender Agreement or the consummation of the Offer, the Merger or the other transactions contemplated by this Agreement or the Tender Agreement; or 24 (E) any agreement, contract, policy, license, Permit, document, instrument, arrangement or commitment that provides for an express non-competition covenant with any person or in any geographic area and which limits in any material respect the ability of the Company to compete in its current business lines. (ii) All contracts, policies, agreements, leases, licenses, Permits, documents, instruments, arrangements and other commitments listed in Section 4.1(q)(i)(A)-(E) and Section 4.1(q)(iv) of the Company Disclosure Schedule or otherwise disclosed in the Company Filed SEC Documents are valid and binding agreements of the Company or a subsidiary of the Company and are in full force and effect, and neither the Company, any of its subsidiaries nor, to the knowledge of the Company, any other party thereto, is in default in any material respect under the terms of any such contract, plan, arrangement, agreement, lease, license, Permit, instrument or other commitment. (iii) Neither the Company nor any subsidiary of the Company is in default in any material respect under the terms of any exclusive license or distribution agreement or arrangement that, by its terms, provides for payments to the Company or any of its subsidiaries of $1,000,000 or more per annum, or any other material license or distribution agreement or arrangement. To the knowledge of the Company, none of the parties to any of the contracts identified in Section 4.1(q)(i)(A)-(E) of the Company Disclosure Schedule or otherwise disclosed in the Company Filed SEC Documents has terminated, or materially reduced the amount of its business with the Company or any of its subsidiaries in the future. (iv) Set forth in Section 4.1(q)(iv) of the Company Disclosure Schedule is (A) a list of all loan or credit agreements, notes, bonds, mortgages, indentures and other agreements and instruments pursuant to which any indebtedness of the Company or any of its subsidiaries in an aggregate principal amount in excess of $5,000,000 is outstanding or may be incurred and (B) the respective principal amounts currently outstanding thereunder. For purposes of this Section 4.1(q)(iv), "INDEBTEDNESS" shall mean, with respect to any person, without duplication, (A) all obligations of such person for borrowed money, or with respect to deposits or advances of any kind to such person, (B) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (C) all obligations of such person upon which interest charges are customarily paid, (D) all obligations of such person under conditional sale or other title retention agreements relating to property purchased by such person, (E) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding obligations of such person to creditors for raw materials, inventory, services and supplies incurred in the ordinary course of such person's business), (F) all capitalized lease obligations of such person, (G) all obligations of others secured by any Lien on property or assets owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (H) all obligations of such person under interest rate or currency swap transactions (valued at the termination value thereof), (I) all letters of credit issued for the account of such person (excluding letters of credit issued for the benefit of suppliers to support accounts payable to suppliers incurred in the ordinary course of business), (J) all obligations of such person to purchase securities (or other property) which arises out of or in connection with the sale of the same or substantially similar securities or property, and (K) all guarantees and 25 arrangements having the economic effect of a guarantee of such person of any indebtedness of any other person. (r) TITLE TO PROPERTIES. (i) Each of the Company and its subsidiaries has good and marketable title to, or valid leasehold interests in, all its properties and assets, free and clear of all Liens, except for defects in title, easements, restrictive covenants and similar encumbrances or impediments that, in the aggregate, do not and could not reasonably be expected to have a Company Material Adverse Effect. (ii) Each of the Company and its subsidiaries has complied in all material respects with the terms of all leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect. Each of the Company and each of its subsidiaries enjoys peaceful and undisturbed possession under all such leases. (s) OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of Goldman Sachs dated the date hereof, a copy of which has been or promptly will be provided to Parent, to the effect that, as of such date, the consideration to be received by the Company's stockholders pursuant to this Agreement is fair to the Company's stockholders from a financial point of view. (t) INTERESTS OF OFFICERS AND DIRECTORS. Except as described in the Company Filed SEC Documents and except for agreements or transactions between or among the Company and its subsidiaries on the one hand and Sterling Commerce, Inc. and its subsidiaries on the other hand and except as set forth in Section 4.1(t) of the Company Disclosure Schedule, none of the Company's officers or directors has any material direct or indirect interest in any material property, real or personal, tangible or intangible, including inventions, patents, copyrights, trademarks, trade names, trade secrets or know-how, used in or pertaining to the business of the Company or that of its subsidiaries, or any supplier, distributor or customer of the Company or any of its subsidiaries, except for the normal rights of a stockholder and rights under existing employee benefit plans. (u) SOFTWARE. (i) "OWNED SOFTWARE" shall mean all computer programs (source code or object code) owned by the Company or any subsidiary of the Company, including without limitation any computer programs in the development or testing phase. "LICENSED SOFTWARE" shall mean all computer programs (source code or object code) licensed to the Company or any subsidiary of the Company by any third party (other than any off-the-shelf computer program that is so licensed under a shrink wrap license) (the Licensed Software and the Owned Software, the "SOFTWARE"). (ii) Except as specified in Section 4.1(u)(ii) of the Company Disclosure Schedule, Company, directly or through its subsidiaries, has good, marketable and exclusive title to, and the valid power and right to sell, license, lease, transfer, use or otherwise exploit, all of the Owned Software and all copyrights thereof, free and clear of all Liens. The Company, directly or through its subsidiaries, is in actual possession of or has necessary control over (A) the source code and object code for each computer program included in the Owned Software and (B) the object code and, to the extent required for the use of the Software as currently used in the Company's 26 business or as offered to the Company's customers or potential customers, the source code, for each computer program included in the Licensed Software. The Company, directly or through its subsidiaries, is in possession of or has necessary control over all documentation (including without limitation all related engineering specifications, program flow charts, installation and user manuals) and know-how required for the use of the Software as currently used in the Company's business or as offered to the Company's customers or potential customers. The Software constitutes all of the computer programs necessary to conduct the Company's business as now conducted. Except as specified in Section 4.1(u)(ii) of the Company Disclosure Schedule or pursuant to agreements entered into in the ordinary course of business or made available to Merger Subsidiary or its representatives, no person other than the Company and its subsidiaries has any material right or interest of any kind or nature in or with respect to the Owned Software or any portion thereof or any rights to sell, license, lease, transfer, use or otherwise exploit the Owned Software or any portion thereof. (iii) Since the Company and its subsidiaries have owned the Owned Software, the Company and its subsidiaries have disclosed source code to the Owned Software only pursuant to confidentiality terms that reasonably protect the Company's rights in such Owned Software. Except as disclosed in accordance with such confidentiality agreements or valid source code escrow agreements, no person (other than Company and its subsidiaries) is in possession of any source code for any computer program included in the Owned Software. (iv) There are no material defects in (a) any Licensed Software included in the Owned Software, or (b) in the Owned Software, in each case of the currently Company supported versions thereof, that would substantially adversely affect the functioning thereof in accordance with any published specifications therefor or which would cause the foregoing Software to fail to be Year 2000 compliant. For the purposes of this Section, "YEAR 2000 COMPLIANT" shall mean: (A) the capability to correctly recognize and accurately process dates expressed as a four-digit number (or the binary equivalent or other machine readable iteration thereof) (collectively, the "FOUR-DIGIT DATES"); (B) the capability to accurately execute calculations using Four-Digit Dates; (C) the functionality (both on-line and batch), including entry, inquiry, maintenance and update, to support processing involving Four-Digit Dates; (D) the capability to generate interfaces and reports that support processing involving Four-Digit Dates; (E) the capability to generate and successfully transition, without human intervention, into the year 2000 using the correct system date and to thereafter continue processing with Four-Digit Dates; and (F) the capability to provide correct results in forward and backward data calculations spanning century boundaries, including the conversion of pre-2000 dates currently stored as two-digit dates; provided, however, that no representation or warranty is made as to the effect that defects in computer programs, hardware or systems provided by third parties (or the inability of such programs, hardware or systems, other than those contemplated by the documentation for the Software to be used in conjunction with the Software, to properly exchange date data with the Software) may, when used in conjunction with the Software, have on the foregoing capabilities. Other than in the ordinary course of business, the Company has made no representation, warranties or disclosures of any sort regarding the Company's, any subsidiary's, or any of the Software's Year 2000 Compliance. The Company and its subsidiaries have not received notices from its material providers of products and services of non Year 2000 Compliance. 27 (v) Except as set forth in Section 4.1(u) of the Company Disclosure Schedule, none of the sale, license, lease, transfer, use, reproduction, distribution, modification or other exploitation by the Company, any subsidiary of the Company or any of their respective successors or assigns of any version or release of any computer program included in the Software obligates or will obligate the Company, any subsidiary of the Company or any of their respective successors or assigns to pay any royalty, fee or other compensation to any other person other than in amounts that are not material in the aggregate. (vi) Except as specified in Section 4.1(u)(vi) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries markets and none of them is obligated to the licensor of the Licensed Software to support (other than Level One), any Licensed Software. (vii) Except as specified in Section 4.1(u)(vii) of the Company Disclosure Schedule, no material agreement, license or other arrangement pertaining to any of the Software (including without limitation any development, distribution, marketing, user or maintenance agreement, license or arrangement) to which the Company or any subsidiary of the Company is a party will terminate or become terminable by any party thereto as a result of the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. Section 4.1(u)(vii) of the Company Disclosure Schedule sets forth the general licensing policies of the Company and its subsidiaries by category of Software. (v) INTELLECTUAL PROPERTY. (i) For purposes of this Section 4.1(v), "INTELLECTUAL PROPERTY" shall mean all patents, trademarks, trade names, service marks, and domain names and registered copyrights and material non-registered copyrights used by the Company or any subsidiary of the Company in connection with the conduct of the Company's business, and all registrations of or applications for registration of any of the foregoing, including any additions thereto or extensions, continuations, renewals or divisions thereof, together with all trade dress, trade secrets, processes, formulae, designs, know-how and other intellectual property rights that are so used. Parent has heretofore been furnished with a true and correct summary of each U.S. and foreign registration or application for U.S. and foreign registration of patents, trademarks and tradenames which is registered with, or in respect of which any application for registration has been filed with, any Governmental entity, dated January 31, 2000, entitled Client Status Report and Status of Patent Applications Authorized by Sterling Software, Inc. dated January 31, 2000. All such registrations and applications are valid and subsisting, in full force and effect, and have not been cancelled, expired or abandoned (except as otherwise noted in such reports). The Company is listed in the records of the appropriate Governmental Entity or foreign government equivalent entity as the sole owner of record for each such application and registration. (ii) The Intellectual Property includes all of the intellectual property rights owned or licensed by the Company and its subsidiaries that are reasonably necessary to conduct the Company's business as it is now conducted, and includes all of the intellectual property rights owned by or licensed to the Company and its subsidiaries that are used in the development, marketing, licensing or support of the Software. Except as specified in Section 4.1(v)(ii) of the Company Disclosure Schedule, (A) the Company, directly or through its subsidiaries, has good, 28 marketable and exclusive title to, and the valid power and right to use, the Intellectual Property owned by the Company or its subsidiaries free and clear of all Liens and (B) no person or entity other than the Company and its subsidiaries has any right or interest of any kind or nature in or with respect to the Intellectual Property or any portion thereof or any rights to use, market or exploit the Intellectual Property or any portion thereof other than pursuant to agreements entered into in the ordinary course of business. (iii) The Company and its subsidiaries take reasonable measures to protect the confidentiality of its material trade secrets, know-how or other confidential information, including by generally requiring employees, independent contractors and licensees having access thereto to execute written non-disclosure agreements that adequately protect the Company's and its subsidiaries' proprietary interests in and to such trade secrets, know-how and other confidential information. (w) NO INFRINGEMENT. (i) Except as specified in Section 4.1(w)(i) of the Company Disclosure Schedule, neither the existence nor the sale, license, lease, transfer, use, reproduction, distribution, modification or other exploitation by the Company, any subsidiary of the Company of any Software or Intellectual Property, as such Software or Intellectual Property, as the case may be, is or was, or is currently contemplated to be, sold, licensed, leased, transferred, used or otherwise exploited by such persons, does, did or will (i) infringe on any patent, trademark, copyright or other right of any person, (ii) constitute a misuse or misappropriation of any trade secret, know-how, process, proprietary information or other right of any other person, or (iii) entitle any other person to any interest therein, or right to compensation from the Company, any subsidiary of the Company or any of their respective successors or assigns, by reason thereof (it being understood and agreed that, insofar as the foregoing representation and warranty relates to Software and Intellectual Property that is licensed to the Company or any subsidiary of the Company by any third party, or as it relates to patents and trademarks, such representation and warranty is made only to the Company's knowledge). Except as specified in Section 4.1(w)(i) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries has received any complaint, assertion, threat or allegation or otherwise has notice of any lawsuit, claim, demand, proceeding or investigation involving matters of the type contemplated by the immediately preceding sentence or is aware of any facts or circumstances that could reasonably be expected to give rise to any lawsuit, claim, demand, proceeding or investigation. Except as specified in Section 4.1(w)(i) of the Company Disclosure Schedule, there are no material restrictions on the ability of the Company, any subsidiary of the Company or any of their respective successors or assigns to sell, license, lease, transfer, use, reproduce, distribute, modify or otherwise exploit any Software or Intellectual Property. (ii) Except as specified in Schedule 4.1(w)(ii) of the Company Disclosure Schedule, the Company and its subsidiaries are not aware of any material infringement, misappropriation or other violation of any Software or Intellectual Property, and no lawsuit, claim, demand, proceeding or investigation brought by the Company or any of its subsidiaries with respect to Owned Software is pending against any third party. 29 (x) CHANGE OF CONTROL. Except as described in Section 4.1(x) of the Company Disclosure Schedule, the execution and delivery of this Agreement and the Tender Agreement and the consummation of the transactions contemplated hereby and thereby will not (i) result in any payment (including severance, unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any current or former director, employee or independent contractor of the Company or any of its subsidiaries, from the Company or any of its subsidiaries under any Stock Plan, Benefit Plan, agreement or otherwise, (ii) materially increase any benefits otherwise payable under any Stock Plan, Benefit Plan, agreement or otherwise or (iii) result in the acceleration of the time of payment, exercise or vesting of any such benefits. SECTION 4.2. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY. Parent and Merger Subsidiary jointly and severally represent and warrant to the Company as follows: (a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of Parent and Merger Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted. Each of Parent and Merger Subsidiary is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) could not reasonably be expected to have a material adverse effect on the condition (financial or otherwise), business, assets or results of operations of Parent and its subsidiaries taken as a whole (a "PARENT MATERIAL ADVERSE EFFECT"). Parent has provided the Company with complete and correct copies of its and Merger Subsidiary's certificate of incorporation and by-laws. (b) CAPITAL STRUCTURE. As of the date of this Agreement, the authorized capital stock of Parent consists of 1,100,000,000 shares of Parent Common Stock and 500,000 shares of preferred stock, par value $.10 per share ("PARENT PREFERRED STOCK"). At the close of business on February 7, 2000, (i) 541,972,678 shares of Parent Common Stock were issued and outstanding including associated Preferred Share Purchase Rights issued pursuant to the Rights Agreement, dated June 18, 1991 and amended as of May 17, 1995, between the Company and The Chase Manhattan Bank (as successor to Manufacturers Hanover Trust Company), as Rights Agent, (ii) no shares of Parent Preferred Stock were issued and outstanding, (iii) 89,008,601 shares of Parent Common Stock were held by Parent in its treasury, and (iv) approximately 87,179,000 shares of Parent Common Stock were reserved for future issuance pursuant to Parent's various stock option and stock purchase plans described in, or incorporated by reference in, the Parent SEC Documents (defined below in Section 4.2(d)). Except as set forth above, at the close of business on February 7, 2000 and except for the Parent Preferred Stock issuable upon exercise of the Preferred Share Purchase Rights described above, no shares of capital stock or other voting securities of Parent were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of Parent are, and all shares which may be issued pursuant to this Agreement will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. As of the date of this Agreement, there are outstanding no bonds, debentures, notes or other indebtedness of Parent having the right to vote (or convertible into, or exchangeable for, securities having the 30 right to vote) on any matters on which stockholders of Parent may vote. As of the date of this Agreement, the authorized capital stock of Merger Subsidiary consists of 1,000 shares of common stock, par value $.01 per share, all of which have been validly issued, are fully paid and nonassessable and are owned by Parent free and clear of any Liens. (c) AUTHORITY; NONCONTRAVENTION. Parent and Merger Subsidiary have the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Parent and Merger Subsidiary and the consummation by Parent and Merger Subsidiary of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Parent and Merger Subsidiary. This Agreement has been duly executed and delivered by Parent and Merger Subsidiary and constitutes a valid and binding obligation of Parent and Merger Subsidiary, enforceable against each of them in accordance with its terms. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent or any of its subsidiaries under, (i) the certificate of incorporation or by-laws of Parent or Merger Subsidiary, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent or any of its subsidiaries or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent, Merger Subsidiary or any other subsidiary of Parent or their respective properties or assets, other than, in the case of clause (ii) or (iii), any such conflicts, violations, defaults, rights, losses or Liens that individually or in the aggregate could not reasonably be expected to (x) have a Parent Material Adverse Effect, (y) impair the ability of Parent and Merger Subsidiary to perform their respective obligations under this Agreement or (z) prevent or materially delay the consummation of any of the transactions contemplated by this Agreement. No Consent is required by or with respect to Parent or Merger Subsidiary in connection with the execution and delivery by Parent and Merger Subsidiary of this Agreement or the consummation by Parent or Merger Subsidiary of the transactions contemplated by this Agreement, except for (i) the filing of a premerger notification and report form by Parent under the HSR Act and any applicable filings under similar foreign antitrust or competition laws and regulations, (ii) the filing with the SEC of (A) the Form S-4, (B) the Offer Documents, and (C) such reports under the Exchange Act as may be required in connection with this Agreement, the Tender Agreement and the transactions contemplated hereby and thereby, (iii) such filings as may be required under state securities or "blue sky" laws, (iv) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (v) such filings with and approvals of the NYSE to permit the shares of Parent Common Stock that are to be issued upon consummation of the Offer and in the Merger to be listed on the NYSE, and (vi) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be made or obtained individually or in the aggregate could not reasonably be expected to (x) have a Parent Material Adverse Effect, (y) impair the 31 Parent's or Merger Subsidiary's ability to perform its obligations under this Agreement or (z) prevent or materially delay the consummation of the transactions contemplated by this Agreement. (d) SEC DOCUMENTS; FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. Parent has filed all required reports, forms and other documents with the SEC since April 1, 1996 (the "PARENT SEC DOCUMENTS"). As of their respective dates, the Parent SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC Documents, and none of the Parent SEC Documents contained any untrue statement of a material fact or omitted 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. The financial statements of Parent included in the Parent SEC Documents as of their respective dates comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved and fairly present in all material respects the consolidated financial position of Parent and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments not material in amount). (e) INFORMATION SUPPLIED. Neither the Offer Documents or the Form S-4 or the Post-Effective Amendment, nor any of the information supplied or to be supplied by Parent or its subsidiaries or representatives for inclusion or incorporation by reference in the Schedule 14D-9 or the Company Proxy Statement will, at the respective times any such documents or any amendments or supplements thereto are filed with the SEC, are first published, sent or given to shareholders or become effective under the Securities Act or, in the case of the Company Proxy Statement, at the time of the Company Stockholders Meeting, contain any 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 not misleading. The Offer Documents and the Form S-4 and the Post-Effective Amendment will comply as to form in all material respects with the requirements of all applicable laws, including the Securities Act and the Exchange Act, as applicable, and the rules and regulations thereunder. No representation or warranty is made by Parent or Merger Subsidiary with respect to statements made or incorporated by reference therein based on information supplied by the Company for inclusion or incorporation by reference therein. (f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Parent SEC Documents filed and publicly available prior to the date of this Agreement (the "PARENT FILED SEC DOCUMENTS"), from September 30, 1999 to the date of this Agreement, there has not been any event, occurrence or development of a state of circumstances that has had or could reasonably be expected to have a Parent Material Adverse Effect. (g) LITIGATION. Except as disclosed in the Parent Filed SEC Documents, as of the date of this Agreement, there is no suit, action or proceeding pending or, to the knowledge of Parent, threatened against or affecting Parent or any of its subsidiaries that, individually or in the 32 aggregate, could reasonably be expected to (i) have a Parent Material Adverse Effect, (ii) impair the ability of Parent to perform its obligations under this Agreement or (iii) prevent or materially delay the consummation of the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Parent or any of its subsidiaries having, or which is reasonably likely to have, any such effect. (h) COMPLIANCE WITH APPLICABLE LAWS. As of the date of this Agreement, each of Parent and its subsidiaries has in effect all Permits necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted, and there has occurred no default under any such Permit, except for the absence of Permits and for defaults under Permits which absence or default, individually or in the aggregate, could not reasonably be expected to have a Parent Material Adverse Effect. As of the date of this Agreement, Parent and its subsidiaries have been, and are, in compliance with all applicable statutes, laws, ordinances, rules, orders and regulations of any Governmental Entity, except for such failures to comply or violations as, individually or in the aggregate, could not reasonably be expected to have a Parent Material Adverse Effect. (i) BROKERS. No broker, investment banker, financial advisor or other person, other than Morgan Stanley & Co. Incorporated ("MORGAN STANLEY"), the fees and expenses of which will be paid by Parent, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement or the Tender Agreement based upon arrangements made by or on behalf of Parent or Merger Subsidiary. (j) NO PRIOR ACTIVITIES; ASSETS OF MERGER SUBSIDIARY. Merger Subsidiary was formed solely for the purpose of the Merger and engaging in the transactions contemplated hereby. As of the date hereof and the Effective Time, except for obligations or liabilities incurred in connection with its incorporation or organization and the transactions contemplated hereby and activities, agreements or arrangements in connection with the transactions contemplated hereby, Merger Subsidiary has not and will not have (i) incurred, directly or indirectly through any of its subsidiaries or affiliates, any obligations or liabilities, (ii) engaged in any business or activities of any type or kind whatsoever or (iii) entered into any agreements or arrangements with any person. (k) OPINION OF FINANCIAL ADVISOR. Parent has received the opinion of Morgan Stanley dated the date hereof, a copy of which has been or promptly will be provided to the Company, to the effect that, as of such date, the Exchange Ratio is fair to Parent from a financial point of view. (l) SHARE OWNERSHIP. As of the date of this Agreement, none of Parent, Merger Subsidiary nor any of their direct or indirect subsidiaries owns any shares of Common Stock of the Company. 33 ARTICLE V COVENANTS OF THE COMPANY SECTION 5.1. CONDUCT OF BUSINESS. Except as expressly provided in this Agreement or as set forth in Section 5.1 of the Company Disclosure Schedule or with the prior written consent of Parent, during the period from the date of this Agreement to the Appointment Time, the Company shall, and shall cause its subsidiaries to, carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing businesses shall be unimpaired at the Effective Time. Except as expressly provided in this Agreement or as set forth in Section 5.1 of the Company Disclosure Schedule, without limiting the generality of the foregoing, during the period from the execution and delivery of this Agreement to the Appointment Time, the Company shall not, and shall not permit any of its subsidiaries to: (a) (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly owned subsidiary of the Company to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries (other than internal restructuring of wholly owned subsidiaries consistent with past practice) or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (b) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than the issuance of Company Common Stock (1) upon the exercise of Company Options outstanding on the date of this Agreement, (2) pursuant to the ESPP in accordance with its present terms and not in violation of this Agreement, or (3) pursuant to the Rights Agreement); (c) amend the Company's or any Significant Subsidiary's certificate of incorporation, by-laws or other comparable charter or organizational documents; (d) acquire or agree to acquire (including by merger, consolidation or acquisition of stock or assets) any business, including through the acquisition of any interest in any corporation, partnership, joint venture, association or other business organization or division thereof; (e) (i) mortgage or otherwise encumber or subject to any Lien or, except in the ordinary course of business consistent with past practice or pursuant to existing contracts or commitments, sell, lease, transfer or otherwise dispose of any of the Company Intellectual Property 34 Rights or any other material properties or assets or (ii) except in the ordinary course of business consistent with past practice or pursuant to existing contracts or commitments, license any of the Company Intellectual Property Rights; (f) make or agree to make any new capital expenditures which in the aggregate are in excess of $500,000; (g) make any material tax election (unless required by law) or settle or compromise any material income tax liability; (h) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice and in accordance with their terms, of (i) liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in the Company Filed SEC Documents, (ii) liabilities incurred in the ordinary course of business consistent with past practice, or (iii) other liabilities or obligations not to exceed in the aggregate $2,500,000 or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; (i) commence a lawsuit other than (i) for the routine collection of amounts owed or (ii) in such cases where the Company in good faith determines that the failure to commence suit would result in a material impairment of a valuable aspect of the Company's business, provided that the Company consults with Parent prior to filing such suit; (j) (i) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any "KEEP WELL" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for short-term borrowings incurred in the ordinary course of business (or to refund existing or maturing indebtedness) consistent with past practice and except for intercompany indebtedness between the Company and any of its wholly owned subsidiaries or between such subsidiaries, or (ii) make any loans, advances or capital contributions to, or investments in, any other person; (k) (i) enter into or amend any employment agreement with any executive or , other than in the ordinary course of business, any other employee, (ii) enter into any agreement pursuant to which the Company or any of its subsidiaries will provide services for a term of more than 30 days at a fixed or capped price or otherwise pursuant to terms that are not consistent with agreements entered into by the Company or any of its subsidiaries in the ordinary course of business, (iii) enter into any customer sale or license agreement on terms outside the ordinary course of business as disclosed in Section 5.1(k)(iii) of the Company Disclosure Schedule, (iv) pay commissions to sales employees except on the basis of executed customer contracts with respect to products actually delivered to customers, (v) other than customer licenses and sales contracts, enter 35 into any contract or series of related contracts in excess of $500,000, (vi) enter into or amend any agreement or arrangement for obtaining professional services or advice involving payments of more than $200,000 to any one service provider (provided that this clause (vi) does not apply to legal services or advice obtained in connection with the transactions contemplated by this Agreement), (vii) enter into any product swap transactions that would be in violation of generally accepted accounting principles, (viii) make any determination as to amounts payable under any plan, arrangement, or agreement, providing for discretionary incentive compensation or bonus to any officer, director, employee or independent contractor of the Company or any of its subsidiaries, or (ix) enter into or adopt, or amend any agreement, arrangement, or Benefit Plan so as to increase the liability (whether or not contingent) of the Company or Parent or any of their subsidiaries in respect of compensation or benefits except as may be required by applicable law; or (l) authorize any of, or commit or agree to take any of, the foregoing actions. SECTION 5.2. STATE TAKEOVER STATUTES. The Company and its Board of Directors shall (i) take all reasonable actions necessary to ensure that no "FAIR PRICE", "CONTROL SHARE ACQUISITION", "MORATORIUM" or other anti-takeover statute, or similar statute or regulation, is or becomes applicable to this Agreement or the Tender Agreement, or the Offer, the Merger or any of the other transactions contemplated hereby or thereby and (ii) if any "FAIR PRICE", "CONTROL SHARE ACQUISITION", "MORATORIUM" or other anti-takeover statute, or similar statute or regulation, becomes applicable to this Agreement or the Tender Agreement, or the Offer, the Merger or any other transaction contemplated hereby or thereby, take all action necessary to ensure that the Offer, the Merger and the other transactions contemplated hereby and thereby, may be consummated as promptly as practicable on the terms contemplated hereby and otherwise to minimize the effect of such statute or regulation on the Offer, the Merger and the other transactions contemplated hereby and thereby. SECTION 5.3. ACCESS TO INFORMATION. Subject to applicable law, the Company shall, and shall cause each of its subsidiaries to, afford to Parent, and to Parent's officers, employees, accountants, counsel, financial advisers and other representatives, full access during normal business hours during the period prior to the Effective Time to all their respective properties, books, contracts, commitments, personnel (including for the purpose of interviewing such personnel in connection with the integration process) and records and their accounts' work papers and, during such period, the Company shall, and shall cause each of its subsidiaries to, furnish promptly to Parent (i) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of Federal or state securities laws, (ii) a copy of each material tax return, report and information statement filed by it during such period, and (iii) all other information concerning its business, assets, properties and personnel as Parent may reasonably request; provided that no investigation pursuant to this Section 5.3 shall affect any representation or warranty given by the Company to Parent hereunder. SECTION 5.4. AFFILIATES. Within 10 days after the date of this Agreement, the Company shall deliver to Parent a letter identifying all persons who are to the Company's knowledge "AFFILIATES" of the Company for purposes of Rule 145 under the Securities Act. The Company shall use reasonable efforts to cause each such person to deliver to Parent at least five 36 business days prior to the initial expiration of the Offer, a written agreement covering Rule 145 matters in customary form and reasonably acceptable to Parent and the Company (an "AFFILIATES AGREEMENT") from each such person. SECTION 5.5. NO SOLICITATION BY THE COMPANY. (a) From the date of this Agreement until the Effective Time or, if earlier, the termination of this Agreement in accordance with its terms, the Company shall not (whether directly or indirectly through advisors, agents or other intermediaries), and the Company shall cause its and its subsidiaries' respective officers, directors, advisors, representatives and other agents not to, directly or indirectly, (i) solicit, initiate or knowingly encourage, or take any other action to facilitate, any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal or (ii) participate or engage in substantive discussions or negotiations with, or disclose or provide any non-public information relating to the Company or its subsidiaries or afford access to the properties, books or records of the Company or its subsidiaries to, any person (including any "PERSON" as defined in Section 13(d)(3) of the Exchange Act) that has made an Acquisition Proposal or with or to any Person in contemplation of an Acquisition Proposal or (iii) enter into any agreement or agreement in principle providing for or relating to an Acquisition Proposal; provided, however, that if and only if (A) a person has submitted an unsolicited written Acquisition Proposal (under circumstances in which the Company has complied with its obligations under this Section 5.5(a)) to the Company's Board of Directors, (B) the Company's Board of Directors believes in good faith, based on such matters as it deems relevant, including the advice of the Company's financial advisor, that such Acquisition Proposal is a Superior Proposal and (C) the Company's Board of Directors determines in good faith, based on such matters as it deems relevant, including consultation with the Company's outside legal counsel, that engaging in such negotiations or discussions or providing such information is required to satisfy the fiduciary duties of the Board of Directors of the Company under Delaware Law, then the Company may furnish information to such person with respect to the Company and its subsidiaries (so long as the Company has entered into a customary confidentiality agreement with such party) and participate in negotiations and discussions with such person regarding such Acquisition Proposal; provided further that, after the third business day following Parent's receipt of written notice advising Parent that the Company's Board of Directors is prepared to accept such Superior Proposal, which notice specifies the material terms and conditions of such Superior Proposal and identifies the person making such Superior Proposal, the Board of Directors of the Company may, in response to a Superior Proposal which was not solicited by the Company and which did not otherwise result from a breach of this Section 5.5(a), terminate this Agreement, if the Board of Directors of the Company determines in good faith, based on such matters as it deems relevant, including consultation with the Company's outside legal counsel, that it is required to do so in order to comply with its fiduciary duties to the Company's stockholders under Delaware Law, and, concurrently with such termination, causes the Company to pay the fee payable pursuant to Section 9.5(a) hereof by reason thereof. Nothing contained in this Agreement shall prohibit the Company or the Company's Board of Directors from taking and disclosing to the Company's stockholders a position with respect to a tender or exchange offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making any disclosure required by applicable law or, in the case of the Company's Board of Directors, making any other disclosure to the Company's stockholders that the Company's Board of Directors determines in good faith is required to be made to satisfy the fiduciary duties of the 37 Company's Board of Directors under Delaware Law. The Company shall immediately cease and cause to be terminated and shall cause its affiliates and subsidiaries and its or their respective officers, directors, employees, representatives or agents, to terminate all existing discussions or negotiations, if any, with any persons conducted heretofore with respect to, or that could reasonably be expected to lead to, an Acquisition Proposal. (b) For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any inquiry, proposal or offer from any person (other than Parent, Merger Subsidiary or any of their affiliates) relating to any merger, consolidation, recapitalization, liquidation or other direct or indirect business combination, involving the Company or any Significant Subsidiary or the issuance or acquisition of shares of capital stock or other equity securities of the Company or any Significant Subsidiary representing 15% or more (by voting power) of the outstanding capital stock of the Company or such Significant Subsidiary or any tender or exchange offer that if consummated would result in any person, together with all affiliates thereof, beneficially owning shares of capital stock or other equity securities of the Company or any Significant Subsidiary representing 15% or more (by voting power) of the outstanding capital stock of the Company or such Significant Subsidiary, or the acquisition, license, purchase or other disposition of a substantial portion of the technology, business or assets of the Company or any Significant Subsidiary outside the ordinary course of business or inconsistent with past practice and the term "SUPERIOR PROPOSAL" means any bona fide Acquisition Proposal which is on terms that the Board of Directors of the Company determines in its good faith judgment (after receipt of the advice of a financial advisor of nationally recognized reputation) provides for consideration which would exceed the value of the consideration provided for in the Offer and the Merger, after taking into account all relevant factors, including any conditions to such Acquisition Proposal, the timing of the closing thereof, the risk of nonconsummation, the ability of the person making the Acquisition Proposal to finance the transaction contemplated thereby and any required governmental or other consents, filings and approvals. (c) In addition to the other obligations of the Company set forth in this Section 5.5, the Company shall promptly advise Parent orally and in writing of any request for information with respect to any Acquisition Proposal, or any inquiry with respect to or which is reasonably likely to result in an Acquisition Proposal, the material terms and conditions of such request, Acquisition Proposal or inquiry, and the identity of the person making the same. The Company shall inform Parent on a prompt basis of the status and content of any discussions regarding any Acquisition Proposal with a third party and as promptly as practicable of any change in the price, structure or form of the consideration or material terms of and conditions regarding the Acquisition Proposal. SECTION 5.6. LITIGATION. The Company shall give Parent the opportunity to participate in the defense of any litigation against the Company and/or its directors relating to the transactions contemplated by this Agreement and the Tender Agreement. SECTION 5.7. RIGHTS AGREEMENT. Except as expressly required by this Agreement, the Company shall not, without the prior consent of Parent, amend the Rights 38 Agreement or take any other action with respect to, or make any determination under, the Rights Agreement, including a redemption of the Rights or any action to facilitate an Acquisition Proposal. ARTICLE VI COVENANTS OF PARENT AND MERGER SUBSIDIARY SECTION 6.1. LISTING. Parent shall use its reasonable best efforts to cause the Parent Common Stock to be issued upon the consummation of the Offer and in the Merger and to be issuable upon exercise of Parent Options and Parent Management Options to be approved for listing on the NYSE, subject to official notice of issuance, as promptly as practicable after the date hereof, and in any event prior to the Appointment Time. SECTION 6.2. INDEMNIFICATION. (a) For six years after the Effective Time, Parent and the Surviving Corporation will indemnify and hold harmless (including advancement of expenses) the current and former directors and officers of the Company in respect of acts or omissions occurring on or prior to the Effective Time to the extent provided in the Company's certificate of incorporation, by-laws and indemnity agreements in effect on the date hereof; provided that such indemnification shall be subject to any limitation imposed from time to time under applicable law. Parent will cause to be maintained for a period of not less than two years from the Effective Time the Company's current directors' and officers' insurance and indemnification policy to the extent that it provides coverage for events occurring prior to the Effective Time (the "D&O INSURANCE") for all persons who are directors and officers of the Company on the date of this Agreement, so long as the annual premium therefor would not be in excess of the amount per annum the Company paid in its last full fiscal year, which amount has been disclosed to Parent, on terms and conditions substantially similar to the existing D&O Insurance. If the existing D&O Insurance cannot be maintained, expires or is terminated or canceled during such two-year period, Parent will use reasonable efforts to cause to be obtained as much D&O Insurance as can be obtained for the remainder of such period for an annualized premium not in excess of the amount per annum the Company paid in its last full fiscal year, on terms and conditions substantially similar to the existing D&O Insurance. It is understood that, unless made by a court, any determination as to whether a person seeking indemnification pursuant to this Section 6.2 has met any applicable legal standard for indemnification shall be made by a committee consisting of at least two of Parent's independent directors. (b) In the event Parent or the Surviving Corporation or any of their successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all its properties and assets to any person, then, and in each such case, to the extent necessary to effectuate the purposes of this Section 6.2, proper provision shall be made so that the successors and assigns of Parent and the Surviving Corporation assume the obligations set forth in this Section 6.2; provided that, in the case of any such assignment by Parent or the Surviving Corporation, Parent and the Surviving Corporation shall remain liable for all of their respective obligations under this Agreement. 39 SECTION 6.3. OBLIGATIONS OF MERGER SUBSIDIARY. Parent will take all action necessary to cause Merger Subsidiary to perform its obligations under this Agreement (including ensuring that Merger Subsidiary will at the appropriate times have sufficient shares of Parent Common Stock and funds to consummate the Offer and the Merger in accordance with the terms hereof) and to consummate the Offer and the Merger on the terms and conditions set forth in this Agreement. SECTION 6.4. VOTING OF SHARES. Parent and Merger Subsidiary agree to make a quorum and vote all Shares acquired in the Offer or otherwise beneficially owned by them in favor of approval and adoption of this Agreement and the Merger at the Company Stockholders Meeting. SECTION 6.5. EMPLOYEES. (a) Parent agrees to honor in accordance with their terms all Benefit Plans and all employment and severance agreements in each case listed in Section 6.5 of the Company Disclosure Schedule (or filed as exhibits to the Company Filed SEC Documents), and all accrued benefits vested thereunder; it being understood and agreed that nothing in this Section 6.5(a) shall prevent Parent from terminating any Benefit Plan or other agreement in accordance with its terms. (b) Parent agrees to provide employees of the Company and its subsidiaries retained by Parent with employee benefits in the aggregate no less favorable than those benefits provided to Parent's similarly situated employees; provided that Parent shall be under no obligation to retain any employee or group of employees of the Company or its subsidiaries. (c) For purposes of all employee benefit plans, programs and arrangements maintained by or contributed to by Parent and its subsidiaries (including, after the Closing, the Surviving Corporation), Parent shall, or shall cause its subsidiaries to, cause each such plan, program or arrangement to treat the prior service with the Company and its affiliates of each person who is an employee or former employee of the Company or its subsidiaries immediately prior to the Closing (a "COMPANY EMPLOYEE") (to the same extent such service is recognized under analogous plans, programs or arrangements of the Company or its affiliates prior to the Closing) as service rendered to Parent or its subsidiaries, as the case may be, for purposes of eligibility to participate in and vesting thereunder (but not benefit accrual); provided, however, that such crediting of service shall not operate to duplicate any benefit or the funding of such benefit. Company Employees shall also be given credit for any deductible or co-payment amounts paid in respect of the plan year in which the Closing occurs, to the extent that, following the Closing, they participate in any other plan for which deductibles or co-payments are required. Parent shall also cause each Parent benefit plan to waive any preexisting condition which was waived under the terms of any Benefit Plan immediately prior to the Closing or waiting period limitation which would otherwise be applicable to a Company Employee on or after the Closing. Parent shall recognize any accrued but unused vacation and sabbatical time of the Company Employees as of the Closing Date, in accordance with the terms of such Company policies and Parent shall cause the Company and its subsidiaries to provide such vacation and sabbatical time in accordance with the terms of such Company policies but in no event will Parent be obligated to extend or enlarge the benefits available under such Company policies. 40 ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.1. SHAREHOLDER APPROVAL; PREPARATION OF S-4 AND PROXY STATEMENT/PROSPECTUS. (a) If approval of the Company's stockholders is required by applicable law in order to consummate the Merger other than pursuant to Section 253 of Delaware Law, following the acceptance for exchange of Shares pursuant to the Offer, Parent and the Company shall, as soon as practicable following the acceptance of Shares pursuant to the Offer, prepare and the Company shall file with the SEC the Company Proxy Statement and Parent and the Company shall prepare and Parent shall file with the SEC a post-effective amendment to the Form S-4 (the "POST-EFFECTIVE AMENDMENT") for the offer and sale of the Parent Common Stock pursuant to the Merger and in which the Company Proxy Statement will be included as a prospectus. Each of the Company and Parent shall use all reasonable efforts to have the Post-Effective Amendment declared effective under the Securities Act as promptly as practicable after such filing. The Company will use all reasonable efforts to cause the Company Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after the Post-Effective Amendment is declared effective under the Securities Act. Parent shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified or to file a general consent to service of process) required to be taken under any applicable state securities laws in connection with the issuance of Parent Common Stock in the Offer and the Merger and the Company shall furnish all information concerning the Company and the holders of capital stock of the Company as may be reasonably requested in connection with any such action and the preparation, filing and distribution of the Company Proxy Statement. No filing of, or amendment or supplement to, or correspondence to the SEC or its staff with respect to, the Post-Effective Amendment will be made by Parent, or the Company Proxy Statement will be made by the Company, without providing the other party a reasonable opportunity to review and comment thereon. Parent will advise the Company, promptly after it receives notice thereof, of the time when the Post-Effective Amendment has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Post-Effective Amendment or comments thereon and responses thereto or requests by the SEC for additional information. The Company will advise Parent, promptly after it receives notice thereof, of any request by the SEC for the amendment of the Company Proxy Statement or comments thereon and responses thereto or requests by the SEC for additional information. If at any time prior to the Effective Time any information relating to the Company or Parent, or any of their respective affiliates, officers or directors, should be discovered by the Company or Parent which should be set forth in an amendment or supplement to either of the Post-Effective Amendment or the Company Proxy Statement, so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other parties hereto and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the stockholders of the Company. 41 (b) If approval of the Company's stockholders is required by applicable law in order to consummate the Merger, the Company shall establish, prior to or as soon as practicable following the date upon which the Post-Effective Amendment becomes effective, a record date (which shall be prior to or as soon as practicable following the date upon which the Post-Effective Amendment becomes effective) for, duly call, give notice of, convene and hold a meeting of its stockholders (the "COMPANY STOCKHOLDERS MEETING") for the purpose of considering and taking action upon this Agreement and the Merger and (with the consent of Parent) such other matters as may in the reasonable judgment of the Company be appropriate for consideration at the Company Stockholders Meeting. Once the Company Stockholders Meeting has been called and noticed, the Company shall not postpone or adjourn the Company Stockholders Meeting (other than for the absence of a quorum) without the consent of Parent. Subject to the Company's right, pursuant to Section 1.2(b) hereof, to withdraw or modify the Recommendations, the Board of Directors of the Company shall include in the Post-Effective Amendment and the Company Proxy Statement a copy of the Recommendations as such Recommendations pertain to the Merger and this Agreement. Notwithstanding the foregoing, if approval of the Company's stockholders is required by applicable law in order to consummate the Merger, the Board of Directors of the Company shall submit this Agreement and the Merger for approval to the Company's stockholders whether or not the Board of Directors of the Company determines in accordance with Section 1.2(b) after the date hereof that this Agreement and the Merger are no longer advisable and recommends that the stockholders of the Company reject it. Unless the Board of Directors of the Company has withdrawn its recommendation of this Agreement and the Merger in compliance with this Section 1.2(b), the Company shall use its reasonable best efforts to solicit from stockholders of the Company proxies in favor of this Agreement and the Merger and shall take all other actions necessary or advisable to secure the vote or consent of stockholders required by Delaware Law to effect the Merger. (c) Notwithstanding the foregoing clauses (a) and (b) above, in the event that Merger Subsidiary shall acquire at least 90% of the outstanding Shares in the Offer, the parties hereto shall take all necessary actions to cause the Merger to become effective, as soon as practicable after the expiration of the Offer, without a meeting of stockholders of the Company, in accordance with Section 253 of Delaware Law. SECTION 7.2. HSR ACT FILINGS; REASONABLE EFFORTS; NOTIFICATION. (a) Each of Parent and the Company shall (i) promptly make or cause to be made the filings required of such party or any of its subsidiaries under the HSR Act and any other Antitrust Laws with respect to the Offer, the Merger and the other transactions contemplated by this Agreement and the Tender Agreement, (ii) comply at the earliest practicable date with any request under the HSR Act or such other Antitrust Laws for additional information, documents, or other material received by such party or any of its subsidiaries from the Federal Trade Commission or the Department of Justice or any other Governmental Entity in respect of such filings, the Offer, the Merger or such other transactions, and (iii) cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other inquiry of any such agency or other Governmental Entity under any Antitrust Laws with respect to any such filing, the Offer, the Merger or such other transactions. Each party shall promptly inform the other party of any communication with, and any proposed understanding, undertaking, or agreement with, any Governmental Entity regarding any such filings, the Offer, the Merger or such other transactions. 42 Neither party shall participate in any meeting with any Governmental Entity in respect of any such filings, investigation, or other inquiry without giving the other party notice of the meeting and, to the extent permitted by such Governmental Entity, the opportunity to attend and participate. (b) Each of Parent and the Company shall use all reasonable efforts to resolve such objections, if any, as may be asserted by any Governmental Entity with respect to the Offer, the Merger or any other transactions provided for in this Agreement or the Tender Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other federal, state or foreign statutes, rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, "ANTITRUST LAWS"). In connection therewith, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging the Offer, the Merger or any other transactions provided for in this Agreement or the Tender Agreement as violative of any Antitrust Law, and, if by mutual agreement, Parent and the Company decide that litigation is in their best interests, each of Parent and the Company shall cooperate and use all reasonable efforts vigorously to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent (each an "ORDER"), that is in effect and that prohibits, prevents, or restricts consummation of the Offer, the Merger or any such other transactions. Each of Parent and the Company shall use all reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to the Offer, the Merger and such other transactions as promptly as possible after the execution of this Agreement. (c) Each of the parties agrees to use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer, the Merger, and the other transactions contemplated by this Agreement and the Tender Agreement, including (i) the obtaining of all other necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all other necessary registrations and filings (including other filings with Governmental Entities, if any), (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the preparation of the Form S-4, the Offer Documents, the Schedule 14D-9 and, if necessary, the Merger S-4 and the Company Proxy Statement, and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement and the Tender Agreement. (d) Notwithstanding anything to the contrary in Section 7.2(a), (b) or (c), (i) neither Parent nor any of its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, (ii) neither Parent nor any of its subsidiaries shall be required to take or agree to take any other action or agree to any limitation that could reasonably be expected to have an adverse effect on the business, assets, condition (financial or otherwise), results of operations or prospects of Parent and its subsidiaries taken as a whole or of Parent combined with the Surviving Corporation after the Effective Time, (iii) neither the Company nor its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or 43 agree to take any other action or agree to any limitation that could reasonably be expected to have a Company Material Adverse Effect, (iv) no party shall be required to agree to the imposition of or to comply with, any condition, obligation or restriction on Parent or any of its subsidiaries or on the Surviving Corporation or any of its subsidiaries of the type referred to in subclause (a) or (b) of clause (5) of Annex I or Section 8.1(c) and (v) neither Parent nor Merger Subsidiary shall be required to waive any of the conditions to the Offer set forth in Annex I or any of the conditions of to the Merger set forth in Article VIII. (e) The Company shall give prompt notice to Parent, and Parent or Merger Subsidiary shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in this Agreement becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. (f) The Company shall give prompt notice to Parent, and Parent or Merger Subsidiary shall give prompt notice to the Company, of: (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement or the Tender Agreement; (ii) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement or the Tender Agreement; and (iii) any actions, suits, claims, investigations or proceedings commenced or, to the best of its knowledge threatened against, relating to or involving or otherwise affecting it or any of its subsidiaries which, if pending on the date of this Agreement would have been required to have been disclosed pursuant to Section 4.1 or 4.2 or which relate to the consummation of the transactions contemplated by this Agreement or the Tender Agreement. SECTION 7.3. PUBLIC ANNOUNCEMENTS. Parent and Merger Subsidiary, on the one hand, and the Company, on the other hand, will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement, including the Offer and the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement will be in the form previously agreed to by the parties. 44 SECTION 7.4. CONFIDENTIALITY. Each of Parent and the Company will hold, and will cause its Representatives (defined in the Confidentiality Agreements, each dated February 8, 2000 (the "CONFIDENTIALITY AGREEMENTS"), each between Parent and the Company) to hold, any Evaluation Material (defined in the Confidentiality Agreements) in confidence in accordance with the terms of the relevant Confidentiality Agreement. ARTICLE VIII CONDITIONS PRECEDENT SECTION 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligations of each party to effect the Merger are subject to the satisfaction or, to the extent permitted by applicable law, waiver on or prior to the Closing Date of each of the following conditions: (a) SHAREHOLDER APPROVAL. If required by Delaware Law, this Agreement and the Merger shall have been approved and adopted by the Company Shareholder Vote. (b) PURCHASE OF SHARES IN THE OFFER. Merger Subsidiary shall have accepted for exchange and exchanged all of the Shares tendered pursuant to the Offer unless the failure to consummate the Offer is the result of a willful and material breach of this Agreement by the party asserting such condition. (c) NO INJUNCTIONS OR RESTRAINTS. No judgment, order, decree, statute, law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued by any court or other Governmental Entity of competent jurisdiction or other legal restraint or prohibition shall be in effect preventing or prohibiting consummation of the Merger. (d) FORM S-4. The Form S-4 or the Post-Effective Amendment, as the case may be, shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order, if any. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER, FEES AND EXPENSES SECTION 9.1. TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of this Agreement and the Merger by the shareholders of the Company or Merger Subsidiary: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company: 45 (i) if the Offer shall have expired or been terminated in accordance with the terms of this Agreement without Parent or Merger Subsidiary having accepted for exchange any Shares pursuant to the Offer (provided that Parent and Merger Subsidiary shall not be permitted to terminate this Agreement if the Offer is terminated or expires without Shares being accepted for exchange in violation of this Agreement); (ii) if the Offer shall not have been consummated on or before September 30, 2000, unless the failure to consummate the Offer is the result of a willful and material breach of this Agreement by the party seeking to terminate this Agreement; (iii) if the Merger shall not have been consummated as a result of any condition thereto in Article VIII being incapable of being satisfied; or (iv) if any statute, rule, regulation, injunction or decree having the effects set forth in subclause (a) or (b) of clause (5) of Annex A shall be in effect and shall have become final and nonappealable; (c) by Parent, upon the occurrence of any Trigger Event described in clauses (i) through (iv) of Section 9.5(a); or (d) by the Company, in accordance with Section 5.5(a); provided that, in order for the termination of this Agreement pursuant to this clause (d) to be deemed effective, the Company shall have complied with all provisions of Section 5.5. SECTION 9.2. EFFECT OF TERMINATION. Except for any willful and material breach of this Agreement by any party hereto (which breach and liability therefor shall not be affected by the termination of this Agreement), if this Agreement is terminated by either the Company or Parent as provided in Section 9.1, this Agreement shall become void and have no further effect, without any liability or obligation on the part of Parent, Merger Subsidiary or the Company, other than the provisions of Section 4.1(o), Section 4.2(i), Section 7.4, this Section 9.2, Section 9.5 and Sections 10.5 and 10.6. SECTION 9.3. AMENDMENT. Subject to Section 1.3(a), this Agreement may be amended by the parties at any time before or after any required approval of the transactions contemplated by this Agreement by the shareholders of the Company; provided, however, that, after any such approval, there shall not be made any amendment that by law requires further approval by such shareholders without the further approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed by each of the parties hereto. SECTION 9.4. EXTENSION; WAIVER. Subject to Section 1.3(a), at any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement or 46 (c) subject to the proviso of Section 9.3, waive compliance with any of the agreements or conditions contained in this Agreement. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by each of the parties hereto. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.5. FEES AND EXPENSES. (a) The Company agrees to pay Parent a fee in immediately available funds equal to $175,000,000.00 promptly, but in no event later than one business day, after the termination of this Agreement (or such later date as may apply in the case of clause (i) below) as a result of the occurrence of any of the events set forth below (a "TRIGGER EVENT"): (i) the Company shall have received an Acquisition Proposal, and at any time prior to, or within one year after (unless this Agreement is terminated pursuant to Section 9.1(a) or Section 9.1(b)(iv)), the termination of this Agreement, the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or an agreement in principle (other than a confidentiality agreement permitted by Section 5.5) with respect to any Acquisition Proposal; (ii) any person or group (defined in Section 13(d)(3) of the Exchange Act) (other than Parent or any of its subsidiaries) shall have become the beneficial owner (defined in Rule 13d-3 promulgated under the Exchange Act) of at least 15% of the outstanding Company Common Stock or shall have acquired, directly or indirectly, at least 15% of the assets of the Company and its subsidiaries; (iii) the Company shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in subclause (c) or (d) of clause (5) of Annex I, and (B) is incapable of being or has not been cured by the Company within 10 calendar days after giving written notice to the Company of such breach or failure to perform; or (iv) (1) the Board of Directors of the Company (or any committee thereof) shall have withdrawn or materially modified or amended in a manner adverse to Parent or Merger Subsidiary its approval or recommendation of the Offer, the Merger or this Agreement or its approval of the entry by Parent or Merger Subsidiary into the Tender Agreement, or shall have failed to make such favorable recommendation, or (2) the Board of Directors of the Company (or any committee thereof) shall have recommended to the shareholders of the Company any Acquisition Proposal or shall have resolved to, or publicly announced an intention to, do so. 47 (b) Except as set forth in this Section 9.5, all fees and expenses incurred in connection with the Offer and the Merger, this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether or not the Offer or the Merger is consummated; provided, that if the Offer is not consummated, expenses incurred in connection with the printing and mailing of the documents distributed or to be distributed to stockholders of the Company, all SEC and other regulatory filing fees with respect to the Form S-4 and the NYSE listing fee with respect to the listing of Parent Company Stock to be issued in the Offer and the Merger shall be shared equally by Parent and the Company; provided, further, that if this Agreement is terminated as a result of the occurrence of a Trigger Event, in addition to any amounts paid or payable by the Company to Parent pursuant to Section 9.5(a), the Company shall assume and pay, or reimburse Parent for, all reasonably documented out-of-pocket fees payable and expenses incurred by Parent (including the fees and expenses of its counsel) in connection with this Agreement and the transactions contemplated hereby, up to a maximum of $10,000,000.00 (which amount shall include the fees and expenses allocated to or paid by the Company pursuant to the proviso of the immediately preceding sentence). ARTICLE X GENERAL PROVISIONS SECTION 10.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 10.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. SECTION 10.2. NOTICES. All notices, requests and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) or by telecopy (with copies by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Merger Subsidiary, to Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11788 Attention: Sanjay Kumar Fax: 516-342-3300 48 with a copy to (which shall not constitute notice): Covington & Burling 1330 Avenue of the Americas New York, New York 10019 Attention: Scott F. Smith, Esq. Fax: 212-841-1010 (b) if to the Company, to Sterling Software, Inc. 300 Crescent Court, Suite 1200 Dallas, Texas 75201 Attention: Sterling Williams Fax: 214-981-1205 with a copy to (which shall not constitute notice): Sterling Software, Inc. 300 Crescent Court, Suite 1200 Dallas, Texas 75201 Attention: Don J. McDermett, Jr. Fax: 214-981-1265 Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Attention: Blaine V. Fogg, Esq. Richard J. Grossman, Esq. Fax: 212-735-2000 SECTION 10.3. INTERPRETATION. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "INCLUDE", "INCLUDES" or "INCLUDING" are used in this Agreement, they shall be deemed to be followed by the words "WITHOUT LIMITATION". References herein to the "KNOWLEDGE OF THE COMPANY" shall mean the knowledge of the executive officers of the Company after reasonable inquiry. SECTION 10.4. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become 49 effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. SECTION 10.5. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement and the Confidentiality Agreement (a) constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and (b) except for the provisions of Articles I, II and III and Section 6.2 is not intended to confer upon any person other than the parties any rights or remedies hereunder. SECTION 10.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT THAT THE CONSUMMATION AND EFFECTIVENESS OF THE MERGER AND THE PROVISIONS OF THIS AGREEMENT WHICH ARE MANDITORILY GOVERNED BY DELAWARE LAW SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, DELAWARE LAW. SECTION 10.7. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties; any instrument purporting to make such assignment shall be void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 10.8. ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 10.9. SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 50 Parent, Merger Subsidiary and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. COMPUTER ASSOCIATES INTERNATIONAL, INC. By: /s/ STEVEN M. WOGHIN ------------------------------------ Name: Steven M. Woghin Title: Senior Vice President and General Counsel SILVERSMITH ACQUISITION CORP. By: /s/ STEVEN M. WOGHIN ------------------------------------ Name: Steven M. Woghin Title: Vice President STERLING SOFTWARE, INC. By: /s/ STERLING L. WILLIAMS ------------------------------------ Name: Sterling L. Williams Title: President and Chief Executive Officer 51 ANNEX I CONDITIONS TO THE OFFER Notwithstanding any other provision of the Offer, subject to the terms of this Agreement, Merger Subsidiary shall not be required to accept for exchange or exchange or deliver any shares of Parent Common Stock for, (subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Merger Subsidiary's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer)) any Shares tendered, if by the expiration of the Offer (as it may be extended in accordance with the requirements of Section 1.1), (1) the Minimum Condition shall not have been satisfied, (2) the applicable waiting period under the HSR Act and any other applicable Antitrust Laws shall not have expired or been terminated, (3) the Form S-4 shall not have become effective under the Securities Act or shall be the subject of any stop order or proceedings seeking a stop order, (4) the shares of Parent Common Stock to be issued in the Offer and the Merger shall not have been approved for listing on the NYSE, subject to official notice of issuance, or (5) at any time on or after the date of this Agreement and prior to the acceptance for exchange of Shares pursuant to the Offer, any of the following conditions exist: (a) there shall be instituted or pending any action or proceeding by any Governmental Entity, (i) challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit the making of the Offer, the acceptance for exchange of, or the exchange or delivery of shares of Parent Common Stock for, some of or all the Shares by Parent or Merger Subsidiary or the consummation by Parent or Merger Subsidiary of the Merger, seeking to obtain material damages or otherwise directly or indirectly relating to the transactions contemplated by the Tender Agreement, this Agreement, the Offer or the Merger, (ii) seeking to restrain or prohibit Parent's or Merger Subsidiary's ownership or operation (or that of their respective subsidiaries or affiliates) of all or any portion of the business or assets of the Company and its subsidiaries, taken as a whole, or of Parent and its subsidiaries, taken as a whole, or to compel Parent or any of its subsidiaries or affiliates to dispose of or hold separate all or any portion of the business or assets of the Company and its subsidiaries, taken as a whole, or of Parent and its subsidiaries, taken as a whole, (iii) seeking to impose limitations on the ability of Parent or any of its subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote any Shares acquired or owned by Parent or any of its subsidiaries or affiliates on all matters properly presented to the Company's stockholders or (iv) seeking to require divestiture by Parent or any of its subsidiaries or affiliates of any Shares; or (b) there shall be any action taken, or any statute, rule, regulation, injunction, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to the Tender Agreement, this Agreement, the Offer or the I-1 Merger, by any Governmental Entity that, in the judgment of Parent, is reasonably likely, directly or indirectly, to result in any of the consequences referred to in clauses (i) through (iv) of paragraph (a) above, subject as aforesaid; or (c) the Company shall have breached or failed to perform in any material respect any of its covenants, obligations or agreements under this Agreement (other than Section 5.1(k)), or the Company shall have breached Section 5.1(k) such that the aggregate of all such breaches would materially and adversely affect the Company and its subsidiaries taken as a whole or Parent; or (d) the representations and warranties of the Company set forth in this Agreement that are qualified as to materiality shall not be true and correct as of the date of this Agreement and as of the expiration of the Offer (including any extension thereof) (except to the extent expressly made as of an earlier date, in which case as of such date), or any of the representations and warranties set forth in this Agreement that are not so qualified shall not be true and correct in any material respect as of the date of this Agreement and as of the expiration of the Offer (except to the extent expressly made as of an earlier date, in which case as of such date); provided that this condition shall not be deemed to exist unless any such breaches of representation or warranty (without regard to any "MATERIALITY" or "COMPANY MATERIAL ADVERSE EFFECT" or similar qualifier or threshold), individually or in the aggregate, has had or could reasonably be expected to have, a Company Material Adverse Effect; or (e) this Agreement shall have been terminated in accordance with its terms; or (f) (1) the Board of Directors of the Company (or any committee thereof) shall have withdrawn or materially modified or amended in a manner adverse to Parent or Merger Subsidiary its approval or recommendation of the Offer, the Merger or this Agreement, or its approval of the entry by Merger Subsidiary into the Tender Agreement, or shall have failed to make such favorable recommendation or (2) the Board of Directors of the Company (or any committee thereof) shall have recommended to the shareholders of the Company any Acquisition Proposal or shall have resolved to, or publicly announced an intention to, do so; or (g) the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or agreement in principle (other than a confidentiality agreement permitted by Section 5.5 of this Agreement) with respect to any Acquisition Proposal; or (h) any person or group (defined in Section 13(d)(3) of the Exchange Act) (other than Parent or any of its subsidiaries) shall have become the beneficial owner (defined in Rule 13d-3 promulgated under the Exchange Act) of at least 15% of the outstanding Shares or shall have acquired, directly or indirectly, at least 15% I-2 of the assets of the Company and its subsidiaries; which, in the good faith judgment of Parent in any such case, and regardless of the circumstances (including any action or omission by Parent or Merger Subsidiary) giving rise to any such condition, makes it inadvisable to proceed with such acceptance for exchange or exchange. The foregoing conditions are for the sole benefit of Parent and Merger Subsidiary and may be asserted by Parent regardless of the circumstances (including any action or omission by Parent or Merger Subsidiary) giving rise to any such condition or (other than the Minimum Condition) may, subject to the terms of this Agreement, be waived by Parent and Merger Subsidiary in their reasonable discretion in whole at any time or in part from time to time. The failure by Parent or Merger Subsidiary at any time to exercise its rights under any of the foregoing conditions shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right which may be asserted at any time or from time to time. I-3 EX-5.1 3 EXHIBIT 5.1 EXHIBIT 5.1 [LETTERHEAD OF COMPUTER ASSOCIATES INTERNATIONAL, INC.] February 22, 2000 Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11749-7000 Ladies and Gentlemen: I am Senior Vice President and General Counsel of Computer Associates International, Inc., a Delaware corporation (the "Company"), and I am familiar with the Registration Statement on Form S-4 (the "Registration Statement") being filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended relating to (i) the Company's offer (the "Offer") to issue shares of the Company's Common Stock, par value $.10 per share ("Common Stock"), in exchange for the outstanding shares of common stock, par value $.10 per share, of Sterling Software, Inc., a Delaware corporation ("Sterling Software"), and (ii) the proposed issuance of shares of Common Stock in connection with the merger (the "Merger") of Silversmith Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company ("Merger Sub"), into Sterling Software, pursuant to the terms of the Agreement and Plan of Merger dated as of February 14, 2000, among the Company, Merger Sub and Sterling Software. I have reviewed the Company's Restated Certificate of Incorporation and By-laws and such other corporate records of the Company and documents and certificates of public officials and others as I have deemed necessary as a basis for the opinion hereinafter expressed. Based on the foregoing and having regard for such legal considerations as I deem relevant, I am of the opinion that the shares of Common Stock covered by the Registration Statement when delivered in exchange for shares of Sterling Software common stock pursuant to the Offer and the Merger will be duly authorized, validly issued, fully paid and nonassessable. I hereby consent to the use of my name under the caption "Legal Matter" in the Prospectus constituting a part of the Registration Statement and to the use of this opinion as an Exhibit to the Registration Statement. Very truly yours, /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President and General Counsel EX-8.1 4 EXHIBIT 8.1 EXHIBIT 8.1 [LETTERHEAD OF COVINGTON & BURLING APPEARS HERE] February 22, 2000 Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11749-7000 Re: Computer Associates International, Inc. Registration Statement on Form S-4 Ladies and Gentlemen: We are acting as special tax counsel to Computer Associates International, Inc., a Delaware corporation ("Computer Associates"), in connection with the tender offer (the "Offer") by Computer Associates, through its wholly owned subsidiary, Silversmith Acquisition Corp., a Delaware corporation ("Merger Sub"), for shares of common stock of Sterling Software, Inc., a Delaware corporation ("Sterling Software"), and the proposed merger (the "Merger") of Merger Sub with and into Sterling Software pursuant to the Agreement and Plan of Merger dated as of February 14, 2000, among Computer Associates, Merger Sub, and Sterling Software (the "Merger Agreement"). You have requested our opinion regarding the accuracy of the discussion set forth under the heading "Material Federal Income Tax Consequences" in the Prospectus (the "Prospectus"), which is included in the Registration Statement on Form S-4 (the "Registration Statement"), filed on February 22, 2000 with the Securities and Exchange Commission (the "Commission") in connection with the Offer. In rendering the opinion expressed in this letter, we have examined the Merger Agreement, the Registration Statement (including the Prospectus and all exhibits thereto) and such other documents as we have deemed necessary or advisable. In our examination of the documents and in our reliance upon them in issuing this opinion, we have assumed, with your consent, that all documents submitted to us are authentic originals or, if submitted as photocopies or telecopies, that they faithfully reproduce the originals thereof; that all such documents submitted to us have been or will be duly executed and validly signed (and filed, where applicable) to the extent required in substantially the same form as they have been provided to us; that each executed document will constitute the legal, valid, binding, and enforceable agreement of the signatory parties; that all representations and statements set forth in such documents, which we have not attempted to verify independently, are and will remain true, accurate, and complete in all material respects; that the Offer and the Merger and all related transactions will be carried out in accordance with the terms and conditions of such documents without the waiver or modification of any such terms and conditions; and that all obligations imposed on, or covenants agreed to by, the parties pursuant to any of such documents have been Computer Associates International, Inc. February 22, 2000 Page 2 or will be performed or satisfied in accordance with their terms in all material respects. We also have assumed that the Merger qualifies as a statutory merger under applicable state law. Furthermore, we have assumed that you have disclosed to us all of the documents that are relevant to the transactions that are the subject of this opinion. Based upon and subject to the foregoing, it is our opinion that, although the discussion set forth under the heading "Material Federal Income Tax Consequences" in the Prospectus does not discuss all possible United States federal income tax consequences of the Offer and the Merger to Sterling Software shareholders who surrender shares of Sterling Software common stock pursuant to either the Offer or the Merger, or both, such discussion constitutes, in all material respects, a fair and accurate summary of the United States federal income tax consequences of the Offer and the Merger that are likely to be material to such shareholders who hold shares of Sterling Software common stock as capital assets and who are not subject to special rules under the Internal Revenue Code of 1986, as amended, or do not otherwise have special individual circumstances. Our opinion is expressed as of the date hereof and is based upon existing statutory, regulatory, administrative, and judicial authority and guidance in effect as of the date hereof, any of which may be changed at any time, possibly with retroactive effect. A change in any of the authorities or guidance upon which our opinion is based could affect our conclusions. In addition, our opinion is based solely on the documents that we have examined, the additional information that we have obtained, and the statements, assumptions, and representations referred to herein that we have assumed with your consent to be true, accurate, and complete on the date hereof and at the consummation of the Offer and at the time the Merger becomes effective. Our opinion cannot be relied upon if any of the material facts contained in such documents or such additional information, statements, assumptions or representations referred to herein is, or later becomes, inaccurate. We disclaim any undertaking to advise you of any subsequent change in the facts stated, referenced, or assumed herein or any subsequent change in the authorities or guidance upon which our opinion is based. Our opinion represents our legal judgment and has no official status of any kind. Accordingly, we cannot assure you that the Internal Revenue Service or a court having jurisdiction over the issue will agree with our opinion. Finally, our opinion is limited to the tax matters specifically addressed herein, and no other opinions should be inferred beyond the matters expressly stated. We have not been asked to address, nor have we addressed, any other tax consequences of the Offer or the Merger, including, but not limited to, any other federal, state, local, foreign, transfer, sales, or use tax consequences, or any tax consequences of any other transactions or events contemplated by or referred to in the Merger Agreement or the Registration Statement. We hereby consent to the filing of this letter with the Commission as an exhibit to the Registration Statement, and we consent to the reference to us under the heading "Material Federal Income Tax Consequences" in the Prospectus. In giving our consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Commission thereunder. Except as set forth above, this opinion is not to be used, circulated, quoted from, or otherwise Computer Associates International, Inc. February 22, 2000 Page 3 referred to for any purpose without our prior written consent. Very truly yours, /s/ Covington & Burling EX-10.1 5 EXHIBIT 10.1 Exhibit 10.1 AGREEMENT dated as of February 14, 2000 among Silversmith Acquisition Corp., a Delaware corporation ("BUYER"), and the holders (the "STOCKHOLDERS") of the shares of common stock, $0.10 par value (the "SHARES"), of Sterling Software, Inc., a Delaware CORPORATION (THE "COMPANY"), LISTED ON THE SIGNATURE PAGES HEREOF. In order to induce Buyer and Computer Associates International, Inc., a Delaware corporation ("PARENT"), to enter into an Agreement and Plan of Merger (the "MERGER AGREEMENT") with the Company, Buyer has requested that the Stockholders, and the Stockholders have agreed, to enter into this Agreement. The parties hereto agree as follows: ARTICLE I TENDER OFFER SECTION 1.1. TENDER OF SHARES. (a) Each Stockholder hereby agrees, pursuant to the terms and subject to the conditions set forth herein, to tender for exchange in the Offer (defined in the Merger Agreement) all Shares currently owned by such Stockholder as set forth on the signature page hereto and any additional Shares acquired by such Stockholder (whether by purchase or otherwise) after the date of this Agreement (such "STOCKHOLDER'S SHARES" and, collectively, the "STOCKHOLDER SHARES"). (b) Not later than two days prior to the expiration of the Offer (and within five business days of any acquisition by each Stockholder of any additional Shares), each Stockholder shall, as appropriate, (x) deliver to the Exchange Agent (the "EXCHANGE AGENT") designated in the Offer (i) a letter of transmittal with respect to such Stockholder's Shares complying with the terms of the Offer together with instructions directing the Exchange Agent to make payment for such Shares directly to the Stockholder, (ii) a certificate or certificates representing such Stockholder's Shares and (iii) all other documents or instruments required to be delivered pursuant to the terms of the Offer (such documents in clauses (i) through (iii) collectively being hereinafter referred to as the "TENDER DOCUMENTS"), and/or (y) instruct its broker or such other person who is the holder of record of any Shares Beneficially Owned (as defined herein) by such Stockholder to tender such Shares for exchange in the Offer pursuant to the terms and conditions of the Offer. (c) No Stockholder shall withdraw any tender effected in accordance with Section 1.1(b). ARTICLE II GRANT OF PROXY SECTION 2.1. PROXY. Each Stockholder hereby revokes any and all previous proxies granted with respect to such Stockholder's Shares. Each Stockholder, by this Agreement, with respect to such Stockholder's Shares, does hereby constitute and appoint Buyer, or any nominee of Buyer, with full power of substitution, as its true and lawful attorney and proxy, for and in its name, place and stead, to vote each of such Stockholder's Shares as its proxy, at every annual, special or adjourned meeting, or solicitation of consents, of the stockholders of the Company (including the right to sign its name (as stockholder) to any consent, certificate or other document relating to the Company that the law of the State of Delaware may permit or require) (i) in favor of the adoption of the Merger Agreement and this Agreement and approval of the Merger (defined in the Merger Agreement) and the other transactions contemplated hereby and by the Merger Agreement, (ii) against any proposal for any recapitalization, merger, sale of assets or other business combination between the Company and any person or entity (other than the Merger) or any other action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement not being fulfilled and (iii) in favor of any other matter necessary for the consummation of the transactions contemplated by the Merger Agreement and this Agreement. Each Stockholder further agrees to cause such Stockholder's Shares that are outstanding and owned by it beneficially to be voted in accordance with the foregoing. The proxy granted by each Stockholder pursuant to this Article II is irrevocable, is coupled with an interest and is granted in consideration of Buyer's entering into this Agreement and the Merger Agreement; provided, however, that such proxy shall be revoked upon termination of the Merger Agreement in accordance with its terms. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each of the Stockholders severally represents and warrants to the Buyer that: SECTION 3.1. VALID TITLE. Such Stockholder is the sole, true, lawful and beneficial owner of such Stockholder's Shares with no restrictions on such Stockholder's voting rights or rights of disposition pertaining thereto, except for any such restrictions contemplated herein. Except as may be the case under the arrangements referenced in the footnotes at the end of this Agreement, none of such Stockholder's Shares is subject to any voting trust or other agreement or arrangement with respect to the voting of such Shares. SECTION 3.2. NON-CONTRAVENTION. The execution, delivery and performance by such Stockholder of this Agreement and, subject to compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and securities laws, as applicable, the consummation of the transactions contemplated hereby (i) are within such Stockholder's powers, have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person), (ii) require no action by or in respect of, or filing with, any governmental body, agency, official or authority and (iii) do not and will not contravene or constitute a default under, or give rise to a right of termination, cancellation or acceleration of any right or obligation of such Stockholder or to a loss of any material benefit of such Stockholder under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on such Stockholder or result in the imposition of any lien on any asset of such Stockholder other than -2- any such conflicts, breaches, violations, defaults, obligations, rights or losses that individually or in the aggregate would not (a) materially impair the ability of Stockholder to perform such Stockholder's obligations under this Agreement or (b) prevent or delay the consummation of any of the transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to such Stockholder in connection with the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated by this Agreement, except for applicable requirements, if any, of Sections 13 and 16 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules and regulations thereunder. If this Agreement is being executed in a representative or fiduciary capacity, the person signing this Agreement has full power and authority to enter into and perform such Agreement. SECTION 3.3. BINDING EFFECT. This Agreement has been duly executed and delivered by such Stockholder and, assuming that this Agreement constitutes the valid and binding obligations of the other parties hereto, is the valid and binding agreement of such Stockholder, enforceable against such Stockholder in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity. SECTION 3.4. TOTAL SHARES. Each Stockholder is the record and Beneficial Owner of the number of Shares set forth next to such Stockholder's name on the signature pages hereto. Such Shares constitute all of the Shares owned of record or Beneficially Owned by such Stockholder as of the date hereof. Except as set forth on such signature pages, neither such Stockholder nor any beneficial owner or owners of such Stockholder's Shares own any options to purchase or rights to subscribe for or otherwise acquire any securities of the Company. Each Stockholder has sole voting power and sole power to issue instructions with respect to the matters set forth in Article II of this Agreement, sole power of disposition, sole power of conversion and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Shares beneficially owned by such Stockholder with no limitations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Agreement. The terms "BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any securities shall mean having "BENEFICIAL OWNERSHIP" of such securities as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). SECTION 3.5. FINDER'S FEES. No investment banker, broker or finder is entitled to a commission or fee from Buyer in respect of this Agreement based upon any arrangement or agreement made by or on behalf of such Stockholder. -3- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER The Buyer represents and warrants to each of the Stockholders: SECTION 4.1. CORPORATE POWER AND AUTHORITY. Buyer has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution, delivery and performance by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and is a valid and binding agreement of Buyer, enforceable against it in accordance with its terms. SECTION 4.2. NON-CONTRAVENTION. The execution, delivery and performance by Buyer of this Agreement and, subject to compliance with the HSR Act and securities laws, as applicable, the consummation of the transactions contemplated hereby (i) require no action by or in respect of, or filing with, any governmental body, agency, official or authority and (ii) do not and will not contravene or constitute a default under, or give rise to a right of termination, cancellation or acceleration of any right or obligation of Buyer or to a loss of any material benefit of Buyer under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on Buyer or result in the imposition of any lien on any asset of Buyer other than any such conflicts, breaches, violations, defaults, obligations, rights or losses that individually or in the aggregate would not (a) materially impair the ability of Buyer to perform Buyer's obligations under this Agreement or (b) prevent or delay the consummation of any of the transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to Buyer in connection with the execution and delivery of this Agreement by Buyer or the consummation by Buyer of the transactions contemplated by this Agreement, except for applicable requirements, if any, of the HSR Act, the Securities Act of 1933, Sections 13 and 16 of the Exchange Act and the rules and regulations thereunder. ARTICLE V COVENANTS OF THE STOCKHOLDERS Each of the Stockholders hereby covenants and agrees that: SECTION 5.1. NO PROXIES FOR OR ENCUMBRANCES ON STOCKHOLDER SHARES. Except pursuant to the terms of this Agreement or the Tender Documents, such Stockholder shall not, without the prior written consent of Buyer, directly or indirectly, (i) grant any proxies (other than proxies relating to the election of management's slate of directors at an annual meeting of the Company's stockholders, and other routine matters which would not require the filing of a preliminary proxy statement under Rule 14a-6(a) of the Exchange Act) or enter into any voting -4- trust or other agreement or arrangement with respect to the voting of any such Stockholder's Shares or (ii) sell, assign, transfer, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the direct or indirect sale, assignment, transfer, encumbrance or other disposition of, any such Stockholder's Shares during the term of this Agreement. Except as permitted by the preceding sentences, such Stockholder shall not seek or solicit any such sale, assignment, transfer, encumbrance or other disposition or any such contract, option or other arrangement or assignment or understanding and agrees to notify Buyer promptly and to provide all details requested by Buyer if such Stockholder shall be approached or solicited, directly or indirectly, by any person with respect to any of the foregoing. SECTION 5.2. NO SHOPPING. Such Stockholder, in the capacity as a stockholder, shall not directly or indirectly (i) subject to the fiduciary duty under applicable law of such Stockholder as a director of the Company (if such Stockholder is such a director) as further provided in the Merger Agreement, solicit, initiate or encourage (or authorize any person to solicit, initiate or encourage) any inquiry, proposal or offer from any person to acquire the business, property or capital stock of the Company or any direct or indirect subsidiary thereof, or any acquisition of a substantial equity interest in, or a substantial amount of the assets of, the Company or any direct or indirect subsidiary thereof, whether by merger, purchase of assets, tender offer or other transaction or (ii) subject to the fiduciary duty under applicable law of such Stockholder as a director of the Company (if such Stockholder is such a director) as further provided in the Merger Agreement, participate in any discussion or negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or participate in, facilitate or encourage any effort or attempt by any other person to do or seek any of the foregoing. Such Stockholder shall promptly advise Buyer of the terms of any communications it may receive in the capacity as a stockholder relating to any of the foregoing. SECTION 5.3. CONDUCT OF STOCKHOLDERS. Such Stockholder will not (i) take, agree or commit to take any action that would make any representation and warranty of such Stockholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (ii) omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. SECTION 5.4. DISCLOSURE. Each Stockholder hereby permits Buyer to publish and disclose in the offer documents and, if approval of the Company's stockholders is required under applicable law, a proxy statement (including all documents and schedules filed with the SEC) their identity and ownership of the Shares and the nature of their commitments, arrangements and understandings under this Agreement. ARTICLE VI MISCELLANEOUS SECTION 6.1. EXPENSES. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. -5- SECTION 6.2. ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this Agreement, each of the Buyer and each Stockholder, in the capacity as a Stockholder, agrees to use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations and which may be required under any agreements, contracts, commitments, instruments, understandings, arrangements or restrictions of any kind to which such party is a party or by which such party is governed or bound, to consummate and make effective the transactions contemplated by this Agreement. SECTION 6.3. TERMINATION. This Agreement and the proxies granted pursuant to Section 2.1 will terminate immediately upon the termination of the Merger Agreement in accordance with its terms. SECTION 6.4. SPECIFIC PERFORMANCE. The parties hereto agree that the Buyer may be irreparably damaged if for any reason any Stockholder failed to tender in the Offer, and to not withdraw, such Stockholder's Shares (or other securities covered by this Agreement) in accordance with the terms of this Agreement or to perform any of its other obligations under this Agreement, and that the Buyer would not have an adequate remedy at law for money damages in such event. Accordingly, the Buyer shall be entitled to specific performance and injunctive and other equitable relief to enforce the performance of this Agreement by each Stockholder. This provision is without prejudice to any other rights that the Buyer may have against any Stockholder for any failure to perform its obligations under this Agreement. SECTION 6.5. NOTICES. All notices, requests, claims, demands and other communications hereunder shall be deemed to have been duly given when delivered in person, by telecopy, or by registered or certified mail (postage prepaid, return receipt requested) to such party at its address set forth on the signature page hereto. SECTION 6.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in this Agreement shall not survive delivery of and payment for the Stockholder Shares or the termination of this Agreement. SECTION 6.7. AMENDMENTS. This Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by all the parties hereto. SECTION 6.8. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, PROVIDED that Buyer may assign its rights and obligations to any affiliate of Buyer and PROVIDED, FURTHER, that no Stockholder may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the Buyer. SECTION 6.9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF -6- CONFLICTS OF LAWS THEREOF, EXCEPT TO THE EXTENT DELAWARE OR FEDERAL LAW MANDATORILY GOVERNS. SECTION 6.10. JURISDICTION. Each of the parties hereto (a) consents to submit itself to the exclusive personal jurisdiction of any court of the United States located in the State of Delaware or of any Delaware state court in the event any dispute arises out of this Agreement or the transactions contemplated by this Agreement, and (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court. SECTION 6.11. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. -7- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. SILVERSMITH ACQUISITION CORP. By: /s/ Steven M. Woghin --------------------------- Steven M. Woghin Vice President Computer Associates International, Inc. One Computer Associates Plaza Islandia, New York 11788 Fax: (516) 342-3300 SHARES OPTIONS -0- 100,000 @ $27.625 /s/ Paul V. Barber --------------------------- Paul V. Barber c/o JMI Services 12680 High Bluff Drive Suite 200 San Diego, CA 92130 Fax: SHARES OPTIONS 15,700 75,000 @ $14.125 /s/ Robert J. Donachie --------------------------- Robert J. Donachie c/o The Donachie Company 4925 Greenville Avenue Suite 730 Dallas, Texas 75206 Fax: (214) 369-2190 SHARES OPTIONS 1,600 10,000 @ $14.125 /s/ Michael C. French --------------------------- Michael C. French 3840 Greenbrier Dallas, Texas 75225 Fax: (214) 368-1116 -8- SHARES OPTIONS 2,130 (ESPP) 50,000 @ $13.625 284 (401(k)) 125,000 @ $15.625 /s/ F.L. "Mike" Harvey --------------------------- F.L. "Mike" Harvey 6302 Windcrest Drive Apt. 727 Plano, Texas 75024 Fax: (972) 801-6067 SHARES OPTIONS 1,489 (ESPP) 73,600 @ $14.125 479 (401(k)) 72,400 @ $13.625 /s/ Don J. McDermett, Jr. 84,000 @ $25.9375 --------------------------- 60,000 @ $20.1875 Don J. McDermett, Jr. 4543 Rheims Place Dallas, Texas 75205 Fax: (214) 520-3307 SHARES OPTIONS 5,000 (Ptshp.) 100,000 @ $14.125 /s/ Donald R. Miller, Jr. --------------------------- Donald R. Miller, Jr. 6800 Hunters Glen Dallas, Texas 75205 Fax: (214) SHARES OPTIONS 95 (ESPP) 200,000 @ $14.125 11,536 (401(k)) 50,000 @ $13.625 /s/ B. Carole Morton 57,750 50,000 @ $25.9375 --------------------------- B. Carole Morton 17233 Orozco Street Granada Hills, CA 91344 Fax: (818) SHARES OPTIONS -0- 75,000 @ $14.1875 /s/ Alan W. Steelman (Does not include --------------------------- Shares held by Alan W. Steelman family members) 7112 Round Hill Road McKinney, Texas 75070 Fax: (972) 569-9314 -9- SHARES OPTIONS 2,080 (ESPP) 51,000 @ $14.125 6,232 (401(k)) 109,000 @ $15.625 /s/ Mark A. Theel 1,404 (IRA) 90,000 @ $25.9375 --------------------------- (Does not include shares Mark A. Theel held by family members) Three St. Andrews Court Frisco, Texas 75034 Fax: (972) 624-0719 SHARES OPTIONS 2,251 (ESPP) 775,000 @ $14.125 9,964 (401(k)) 50,000 @ $13.625 /s/ Geno P. Tolari --------------------------- Geno P. Tolari 5300 Deloache Avenue Dallas, Texas 75220 Fax: (214) 691-0671 SHARES OPTIONS 7,000 (Family Trusts) 3,200,000 @ $14.125 520 (401(k)) 400,000 @ $13.625 /s/ Sterling L. Williams (Does not include shares --------------------------- held by family members) Sterling L. Williams 3618 N. Versailles Dallas, Texas 75220 Fax: (214) 520-6454 SHARES OPTIONS 1,273 (ESPP) 197,400 @ $15.625 231 (401(k)) 100,000 @ $25.9375 /s/ R. Logan Wray 77,600 @ $20.1875 --------------------------- R. Logan Wray 5212 Farquhar Dallas, Texas 75209 Fax: (214) 358-3261 SHARES OPTIONS 883,398 (Family Trusts) 800,000 @ $14.125 (Ptshp.) 513,148 (Ptshp.) 100,000 @ $13.625 (Ptshp.) /s/ Charles J. Wyly, Jr. 4,200 (401(k)) --------------------------- Charles J. Wyly, Jr. 5906 Deloache Avenue Dallas, Texas 75225 Fax: (214) -10- SHARES OPTIONS 158,880 (Ptshp.) 200,000 @ $14.125 (Ptshp.) 425 (401(k)) /s/ Evan A. Wyly --------------------------- Evan A. Wyly 6107 St. Andrews Dallas, Texas 75205 Fax: (214) SHARES OPTIONS 521,458 (Family Trusts) 1,525,000 @ $14.125 227,224 (Ptshp.) 200,000 @ $13.625 /s/ Sam Wyly 4,799 (401(k)) --------------------------- (Does not include Sam Wyly shares/options held 3905 Beverly Drive by family members) Dallas, Texas 75205 Fax: (214) 880-4092 -11- EX-10.2 6 EXHIBIT 10.2 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and Sam Wyly (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of November 15, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 1 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $15,899,901 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive and for the execution of the Executive's non-competition covenant in Section 10 hereof. The parties agree that twenty-five (25) percent of the lump sum payment shall be allocable to, and deemed as consideration for, the Executive's non-competition covenant in Section 10 hereof. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 84 months following the Termination Date, arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. Section 4(a)(iv) of the Agreement is hereby amended to read in its entirety as follows: (iv) pay to the Executive, within five (5) business days of the Termination Date, a lump sum in cash in an amount equal to the amount accrued on the books of the Company in respect of the Split Dollar Life Insurance policy applicable to the Executive. 2 6. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 7. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the 60 months following the Termination Date (the "Continuation Period"), the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or 3 (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the Company has given permission in writing, which shall not be unreasonably withheld (or delayed) following the expiration of three years from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. 4 (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. 5 (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 8. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of 6 section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to the Gross Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 9. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 10. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 11. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ Don J. McDermett, Jr. ----------------------------------- Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ Sam Wyly -------------------------------------- Sam Wyly 8 EX-10.3 7 EXHIBIT 10.3 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and Charles J. Wyly (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of November 15, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $7,967,093 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive and for the execution of the Executive's non-competition covenant in Section 10 hereof. The parties agree that twenty-five (25) percent of the lump sum payment shall be allocable to, and deemed as consideration for, the Executive's non-competition covenant in Section 10 hereof. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 84 months following the Termination Date, arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. Section 4(a)(iv) of the Agreement is hereby deleted in its entirety. 6. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 7. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 2 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the 60 months following the Termination Date (the "Continuation Period"), the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the Company has given permission in writing, which shall not be unreasonably withheld 3 (or delayed) following the expiration of three years from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, 4 the Executive shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross-Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 5 8. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross-Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 6 9. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 10. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 11. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ Don J. McDermett, Jr. ----------------------------------- Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ Charles J. Wyly -------------------------------------- Charles J. Wyly 8 EX-10.4 8 EXHIBIT 10.4 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and Sterling L. Williams (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of November 15, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $12,638,596 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 84 months following the Termination Date (the "Continuation Period"), arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. Section 4(a)(iv) of the Agreement is hereby amended in its entirety to read as follows: (iv) immediately following the Termination Date, the Company shall immediately transfer to the Executive, at no cost to the Executive, all ownership, right and title to the whole life insurance policy on the Executive's life funded by the Company. 6. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 2 7. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the Continuation Period, the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or 3 (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the Company has given permission in writing, which shall not be unreasonably withheld (or delayed) following the expiration of three years from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's 4 disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross Up Payment hereunder 5 (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 8. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross-Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent 6 may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 9. The Executive agrees as consideration for the Company's and the Parent's entry into this Amendment that, effective upon consummation of the Offer, the Executive shall be deemed to have waived all rights the Executive may have pursuant to the CEO Agreement with the Company dated November 15, 1999 and that such agreement shall be terminated as of the date of the consummation of the Offer. 10. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 11. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 12. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ Don J. McDermett, Jr. ----------------------------------- Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ Sterling L. Williams -------------------------------------- Sterling L. Williams 8 EX-10.5 9 EXHIBIT 10.5 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and Geno P. Tolari (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of November 15, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 1 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $5,820,091 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 60 months following the Termination Date (the "Continuation Period"), arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. Section 4(a)(iv) of the Agreement is hereby deleted in its entirety. 6. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 7. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in 2 developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the Continuation Period, the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the Company has given permission in writing, which shall not be unreasonably withheld (or delayed) following the expiration of three years from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. 3 (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the 4 Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 8. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of 5 this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 9. The Executive agrees as consideration for the Company's and the Parent's entry into this Amendment that, effective upon consummation of the Offer, the Executive shall be deemed to have waived all rights the Executive may have pursuant to the Executive's 6 Severance Agreement with the Company dated November 15, 1999 and that such agreement shall be terminated as of the date of the consummation of the Offer. 10. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 11. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 12. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ Don J. McDermett, Jr. ----------------------------------- Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ Geno P. Tolari -------------------------------------- Geno P. Tolari 8 EX-10.6 10 EXHIBIT 10.6 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and F.L. "Mike" Harvey (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of October 22, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $1,054,708 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 24 months following the Termination Date (the "Continuation Period"), arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 6. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 2 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the Continuation Period, the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the 3 Company has given permission in writing, which shall not be unreasonably withheld (or delayed) following the expiration of one year from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. 4 (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. 5 (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 7. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross-Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent 6 shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 8. The Executive agrees as consideration for the Company's and the Parent's entry into this Amendment that, effective upon consummation of the Offer, the Executive shall be deemed to have waived all rights the Executive may have pursuant to the Executive's Severance Agreement with the Company dated August 15, 1997 and that such agreement shall be terminated as of the date of the consummation of the Offer. 9. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 10. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 11. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ Don J. McDermett, Jr. ----------------------------------- Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ F.L. "Mike" Harvey -------------------------------------- F.L. "Mike" Harvey 8 EX-10.7 11 EXHIBIT 10.7 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and Don J. McDermett, Jr. (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of November 15, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $2,142,053 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive and for the execution of the Executive's non-competition covenant in Section 10 hereof. The parties agree that twenty-five (25) percent of the lump sum payment shall be allocable to, and deemed as consideration for, the Executive's non-competition covenant in Section 10 hereof. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 48 months following the Termination Date, arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 6. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 2 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the 24 months following the Termination Date (the "Continuation Period"), the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the Company has given permission in writing, which shall not be unreasonably withheld 3 (or delayed) following the expiration of one year from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. The Company and Parent expressly agree that the Executive shall not be in breach of Section 10(a) hereof if the Executive renders legal services as outside counsel to any business, individual or entity. (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. 4 (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. 5 (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 7. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross-Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent 6 shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 8. The Executive agrees as consideration for the Company's and the Parent's entry into this Amendment that, effective upon consummation of the Offer, the Executive shall be deemed to have waived all rights the Executive may have pursuant to the Executive's Severance Agreement with the Company dated November 15, 1999 and that such agreement shall be terminated as of the date of the consummation of the Offer. 9. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 10. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 11. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ R. Logan Wray ----------------------------------- Name: R. Logan Wray Title: Senior Vice President and Chief Financial Officer COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ Don J. McDermett, Jr. -------------------------------------- Don J. McDermett, Jr. 8 EX-10.8 12 EXHIBIT 10.8 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and B. Carole Morton (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of October 22, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $1,306,365 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 24 months following the Termination Date (the "Continuation Period"), arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. The Agreement is hereby amended by the addition of a new Section 4(a)(iv) to read as follows: (iv) The Company hereby ratifies, confirms and acknowledges the Executive's right and entitlement to retiree health benefits under the Company's Employee Health Benefit Plan, as amended on December 31, 1999. 6. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 7. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with 2 the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the Continuation Period, the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the Company has given permission in writing, which shall not be unreasonably withheld (or delayed) following the expiration of one year from the date the Offer is 3 consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or 4 requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 5 8. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross-Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 6 9. The Executive agrees as consideration for the Company's and the Parent's entry into this Amendment that, effective upon consummation of the Offer, the Executive shall be deemed to have waived all rights the Executive may have pursuant to the Executive's Severance Agreement with the Company dated August 15, 1997 and that such agreement shall be terminated as of the date of the consummation of the Offer. 10. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 11. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 12. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ Don J. McDermett, Jr. ----------------------------------- Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ B. Carole Morton -------------------------------------- B. Carole Morton 8 EX-10.9 13 EXHIBIT 10.9 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and Mark A. Theel (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of October 22, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 1 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $921,118 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive and for the execution of the Executive's non-competition covenant in Section 10 hereof. The parties agree that twenty-five (25) percent of the lump sum payment shall be allocable to, and deemed as consideration for, the Executive's non-competition covenant in Section 10 hereof. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 24 months following the Termination Date (the "Continuation Period"), arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 6. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with 2 the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the Continuation Period, the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the 3 Company has given permission in writing, which shall not be unreasonably withheld (or delayed) following the expiration of one year from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. 4 (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross-Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. 5 (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 7. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross-Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent 6 shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 8. The Executive agrees as consideration for the Company's and the Parent's entry into this Amendment that, effective upon consummation of the Offer, the Executive shall be deemed to have waived all rights the Executive may have pursuant to the Executive's Severance Agreement with the Company dated November 1, 1998 and that such agreement shall be terminated as of the date of the consummation of the Offer. 9. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 10. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 11. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ Don J. McDermett, Jr. ----------------------------------- Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ Mark A. Theel -------------------------------------- Mark A. Theel 8 EX-10.10 14 EXHIBIT 10.10 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and R. Logan Wray (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of November 15, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $2,599,418 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive and for the execution of the Executive's non-competition covenant in Section 10 hereof. The parties agree that twenty-five (25) percent of the lump sum payment shall be allocable to, and deemed as consideration for, the Executive's non-competition covenant in Section 10 hereof. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 48 months following the Termination, arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 6. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 2 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the 24 months following the Termination Date (the "Continuation Period"), the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the 3 Company has given permission in writing, which shall not be unreasonably withheld (or delayed) following the expiration of one year from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. 4 (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. 5 (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 7. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross-Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent 6 shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 8. The Executive agrees as consideration for the Company's and the Parent's entry into this Amendment that, effective upon consummation of the Offer, the Executive shall be deemed to have waived all rights the Executive may have pursuant to the Executive's Severance Agreement with the Company dated November 15, 1999 and that such agreement shall be terminated as of the date of the consummation of the Offer. 9. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 10. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 11. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ Don J. McDermett, Jr. ----------------------------------- Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ----------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ R. Logan Wray -------------------------------------- R. Logan Wray 8 EX-10.11 15 EXHIBIT 10.11 AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and Evan A. Wyly (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of October 22, 1999 (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $233,544 as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive. 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for 12 months following the Termination Date (the "Continuation Period"), arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 6. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): 2 10. NON-COMPETITION; CONFIDENTIALITY: (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, during the Continuation Period, the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manu facturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the Company has given permission in writing, which shall not be unreasonably withheld (or delayed) following the expiration of 3 six (6) months from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses. (c) (i) The Executive shall not, without the written consent of the Com pany, disclose to any other person or use, whether directly or indirectly, any Confi dential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termina tion of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or requirement so that 4 the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unen forceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowl edges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 5 7. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Pay ment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penal ties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross-Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 6 8. The Executive agrees as consideration for the Company's and the Parent's entry into this Amendment that, effective upon consummation of the Offer, the Executive shall be deemed to have waived all rights the Executive may have pursuant to the Executive's Severance Agreement with the Company dated August 15, 1997 and that such agreement shall be terminated as of the date of the consummation of the Offer. 9. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 10. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 11. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same Agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By /s/ Don J. McDermett, Jr. ---------------------------------- Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By /s/ Steven M. Woghin ---------------------------------- Name: Steven M. Woghin Title: Senior Vice President & General Counsel /s/ Evan A. Wyly ---------------------------------- Evan A. Wyly 8 EX-10.12 16 EXHIBIT 10.12 FORM OF AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AMENDMENT TO CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Amendment"), dated as of February 14, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent") and [ ] (the "Executive"). WITNESSETH: WHEREAS, the Company and the Executive are parties to a Change in Control Severance Agreement, dated as of [ ] (the "Agreement"); and WHEREAS, the Company, the Parent and the Executive desire to amend the Agreement as set forth in this Amendment; NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This Amendment shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Agreement is hereby amended by replacing every occurrence of the term "Employee Benefits" with the term "Medical Benefits" and by the addition of a definition of Medical Benefits as follows: (c) "Medical Benefits" means the medical, dental, health, hospital, disability and vision benefits provided under any and all benefit policies, plans, programs or arrangements of the Company that may now exist or any successor policies, plans, programs or arrangements that may be adopted hereafter by the Company in which the Executive is entitled to participate or in which the Executive becomes entitled to participate. 3. Section 4(a)(i) is hereby amended to read as follows: (i) pay to the Executive, within five (5) business days after the Termination Date, a lump sum payment in an amount equal to $[ ] as satisfaction in full for Executive's severance pay and loss of certain perquisites and benefits that would otherwise have been enjoyed by the Executive and for the execution of the Executive's non-competition covenant in Section 10 hereof. The parties agree that twenty-five (25) percent of the lump sum payment shall be allocable to, and deemed as consideration for, the Executive's non-competition covenant in Section 10 hereof.(1) 4. Section 4(a)(ii) is hereby amended in its entirety to read as follows: (ii) for [ ] months following the Termination Date, arrange at its sole expense, to provide the Executive with Medical Benefits that are substantially similar to the better of (when considered in the aggregate) (x) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Change in Control, or (y) those Medical Benefits which the Executive was receiving or entitled to receive immediately prior to the Termination Date. If and to the extent that any Medical Benefit described above in this Section 4(a)(ii) cannot be provided under any applicable law or regulation or under any policy, plan, program or arrangement of the Company, then the Company will take all action necessary to ensure that such Medical Benefit is provided through other means to the Executive, his dependents and beneficiaries, as applicable. 5. The Company shall give the Executive the right to purchase (such right to remain open until the expiration of thirty (30) days from the Termination Date) at current book value, the Company vehicle which was customarily provided to the Executive as of immediately prior to the Executive's Date of Termination. 6. The Agreement is hereby amended by the addition of a new Section 10 (and amended as necessary in respect of required renumbering): - ------------------- (1) This sentence is not contained in certain agreements which do not contain a non-competition covenant. 2 10. NON-COMPETITION; CONFIDENTIALITY(2): (a) Executive agrees and acknowledges that reasonable limits on his ability to engage in activities which are competitive with the Company are warranted in order to protect the Company's trade secrets and proprietary information and are warranted in order to protect the Company in developing and maintaining its reputation, good will and status in the marketplace. In that regard, for twenty-four months following the Termination Date (the "Continuation Period"), the Executive will not directly or indirectly, on Executive's own behalf or in the service of or on behalf of any other individual or entity, either as a proprietor, employee, agent, independent contractor, consultant, director, officer, partner or stockholder (other than a stockholder of a corporation listed on a national securities exchange or whose stock is regularly traded in the over-the-counter market, provided that the Executive at no time owns, directly or indirectly, in excess of 5% of the outstanding stock of any class of any such corporation): (i) participate or engage in any activities or business developing, manufacturing, marketing or distributing any products or services offered by the Company as of the Effective Time (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, by and among the Parent, Silversmith Acquisition Corp. and the Company), or any products or services offered by the Company subsequent to the Effective Time and in which the Executive actively participated, recognizing that the Company offers products and services globally ("Competitive Activities"), including, without limitation, (A) selling goods or rendering services of the type (or similar to the type) sold or rendered by the Company, whether by means of electronic, traditional or other form of commerce; (B) soliciting any person or entity that is a current or prospective customer or has been a customer, in each case, of the Company, while the Executive has been employed by the Company (provided that it shall not be deemed a breach of this Agreement if the Executive solicits such customers for goods or services unrelated to the Competitive Activities) and (C) assisting any person in any way to do, or attempt to do, anything prohibited by clauses (A) or (B) above; or (ii) solicit (other than pursuant to general, non-targeted advertisements) any employee of the Company, who was an employee at or prior to the Effective Time, to leave the employment of the Company. (b) Notwithstanding anything to the contrary herein, Executive may remain a director at those companies for which Executive is a director as of the Effective Time, and may engage in any activities or businesses for which the - ------------------- (2) Not all agreements contain a non-competition covenant. 3 Company has given permission in writing, which shall not be unreasonably withheld (or delayed) following the expiration of [ ] from the date the Offer is consummated, provided Executive's engaging in such activities or business would not have a material adverse impact on any of the Company's lines of businesses.(3) (c) (i) The Executive shall not, without the written consent of the Company, disclose to any other person or use, whether directly or indirectly, any Confidential Information (as hereinafter defined) relating to or used by the Company, whether in written, oral or other form. "Confidential Information" shall mean information about the Company, and its clients and customers that is not disclosed by the Company for financial reporting purposes and that was learned by the Executive in the course of employment with the Company, including (without limitation) any proprietary knowledge, product and service designs, trade secrets, manuals, technical information and plans, contracts, systems, procedures, databases, electronic files, disks and printouts, correspondence, internal reports, personnel files, information about Company employees relating to their education, experience, skills, abilities, compensation and benefits, and inter-personal relationships with suppliers to and customers of Company, sales and advertising material, business plans, marketing plans, financial data (including without limitation the revenues, costs or profits associated with services), customer and industry lists, customer information, customer lists coupled with product or service pricing, customer contracts, supplier contacts and other contact information, pricing policies, supplies, agents, risk analyses, engineering information and computer screen designs and computer input and output specifications, inclusive of any pertinent documentation, techniques, processes, technical information and know how. The Executive acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. The Executive's obligations under this Section 10(c) shall survive the termination of the Continuation Period. (ii) Confidential Information does not include information which (A) is or becomes part of the public domain other than as a result of the Executive's disclosure; or (B) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that source is not bound with respect to that information by a confidentiality agreement with the Company or otherwise prohibited from transmitting that information by a contractual, legal or other obligation. - ------------------- (3) The Assistant General Counsel's amendment provides that the Assistant General Counsel will not be in breach of the non-competition covenant if the Assistant General Counsel renders legal services as outside counsel. 4 (iii) If the Executive is requested or (in the opinion of Executive's counsel) required by law or judicial order to disclose any Confidential Information, the Executive shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waiver of the Executive's compliance with the provisions of this Section 10(c). The Executive will not oppose any reasonable action by, and will cooperate with, the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. If, failing the entry of a protective order or the receipt of a waiver hereunder, the Executive is, in the opinion of Executive's counsel, compelled by law to disclose a portion of the Confidential Information, the Executive may disclose to the relevant tribunal without liability hereunder that portion of the Confidential Information which counsel advises the Executive he is legally required to disclose, and each of the parties hereto agrees to exercise such party's best efforts to obtain assurance that confidential treatment will be accorded such Confidential Information. (d) If an award by a court or arbitration panel declares that any term or provision of this Section 10 is excessive in duration or scope or is unreasonable or unenforceable, the parties agree that the court or arbitration panel making such determination shall have the power to reduce the scope, duration or area or the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is a valid and enforceable term or provision, and this Section 10 shall be enforceable as so modified. (e) In the event of a breach or threatened breach by the Executive of the provisions of this Section 10, the Company's remedies in respect of such breach or threatened breach shall be limited to injunctive relief (and the Executive acknowledges that the Company may not have an adequate remedy at law and may seek injunctive relief without the requirement of posting security) and the recovery of actual damages suffered by the Company as a result of a breach of this Section 10 by the Executive. Notwithstanding the foregoing, in no case shall any portion of the lump sum payment set forth in Section 4(a)(i) or any Gross Up Payment hereunder (or any other payments made hereunder) be recoverable by the Parent or the Company (or subject to any set-off, counterclaim or recoupment) in respect of damages resulting from a breach of this Section 10. 5 (f) For the purposes of this Section 10, the term "Company" includes not only Sterling Software, Inc., but also any subsidiary or affiliated corporation of Sterling Software, Inc. 7. Parent shall guarantee the Company's obligations pursuant to the Agreement, including without limitation, Sections 5 and 7 thereof. The Parent and the Company hereby acknowledge that the obligations set forth in such Sections will survive any termination or expiration of this Agreement or termination of Executive's employment for any reason. Each party will notify the other in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. The Parent and the Company shall bear and pay directly all costs and expenses (including legal fees and any interest and penalties) incurred in connection with any such claim or proceeding, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in Section 5(a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company and the Parent also shall pay to the Executive all legal fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with evidence of fees and expenses incurred. The Company's and Parent's obligation with respect to a Gross-Up Payment and reimbursement of related legal fees and expenses shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company or the Parent may have against the Executive or anyone else. Except where provided herein to the contrary, all amounts payable by the Company or the Parent hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company or the Parent 6 shall be final, and the Company and the Parent will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 8. The Executive agrees as consideration for the Company's and the Parent's entry into this Amendment that, effective upon consummation of the Offer, the Executive shall be deemed to have waived all rights the Executive may have pursuant to the Executive's Severance Agreement with the Company dated [ ] and that such agreement shall be terminated as of the date of the consummation of the Offer. 9. Except as amended hereby, all other provisions of the Agreement shall remain in full force and effect. 10. The validity, interpretation, construction and performance of this Amendment will be governed by and construed in accordance with the substantive laws of Delaware, without giving effect to the conflict of laws principles of such State. 11. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 7 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. /s/ Don J. McDermett, Jr. By ................................ Name: Don J. McDermett, Jr. Title: Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. /s/ Steven M. Woghin By ................................ Name: Steven M. Woghin Title: Senior Vice President & General Counsel ................................... [ ] 8 EX-10.13 17 EXHIBIT 10.13 SERP AGREEMENT THIS AGREEMENT (this "SERP Agreement"), dated as of February 15, 2000, by and among Sterling Software, Inc., a Delaware corporation (the "Company"), Computer Associates International, Inc., a Delaware corporation (the "Parent"), and Geno P. Tolari, and individual (the "Executive"). WITNESSETH: WHEREAS, the Executive is a participant in the Amended and Restated Supplemental Executive Retirement Plan II (the "SERP"); NOW THEREFORE, the Company, the Parent and the Executive agree as follows: 1. This SERP Agreement shall be of no force and effect if the Offer (as defined in the Agreement and Plan of Merger, dated as of February 14, 2000, among the Parent, Silversmith Acquisition Corp. and the Company) is not consummated. 2. The Company shall pay to the Executive, within five (5) days after the date of termination of the Executive's employment for any reason, a lump sum payment in cash equal to $3,527,640. Such amount shall be satisfaction in full for the Company's obligations to the Executive pursuant to the SERP. IN WITNESS WHEREOF, the parties have caused this SERP Agreement to be duly executed and delivered as of the first date first written above. STERLING SOFTWARE, INC. By: /s/ Don J. McDermett, Jr. ----------------------------------- Don J. McDermett, Jr. Senior Vice President & General Counsel COMPUTER ASSOCIATES INTERNATIONAL, INC. By: /s/ Steven M. Woghin ----------------------------------- Steven M. Woghin Senior Vice President & General Counsel /s/ Geno P. Tolari -------------------------------------- Geno P. Tolari 2 EX-12.1 18 EXHIBIT 12.1 EXHIBIT 12.1 COMPUTER ASSOCIATES INTERNATIONAL INC. RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED FISCAL YEAR ENDED MARCH 31, DECEMBER 31, ---------------------------- 1999 1999 1998 ------------- ----------- ----------- EARNINGS: Net income (loss) before income taxes................. $ 874,000 $1,010,000 $1,874,000 Interest expense...................................... 248,977 154,001 147,149 Amortization of debt expense.......................... 2,816 3,755 3,755 Portion of rents representative of an interest factor.............................................. 34,880 45,000 46,200 ---------- ---------- ---------- Total earnings...................................... $1,160,673 $1,212,756 $2,071,104 ========== ========== ========== FIXED CHARGES: Interest expense...................................... $ 248,977 $ 154,001 $ 147,149 Amortization of debt expense.......................... 2,816 3,755 3,755 Portion of rents representative of an interest factor.............................................. 34,880 45,000 46,200 ---------- ---------- ---------- Total fixed charges................................. $ 286,673 $ 202,756 $ 197,104 ========== ========== ========== RATIO OF EARNINGS TO FIXED CHARGES...................... 4.05 5.98 10.51
EX-23.1 19 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Platinum TECHNOLOGY International, INC. We consent to the incorporation by reference in the registration statement on Form S-4 of Computer Associates International, Inc. of our report dated March 29, 1999, with respect to the consolidated balance sheets of Platinum TECHNOLOGY International, INC. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the Form 8-K of Computer Associates International, Inc. dated May 28, 1999 and to the reference to our firm under the headings "Experts" in the Registration Statement. /s/ KPMG LLP Chicago, Illinois February 18, 2000 EX-23.2 20 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-4) and related Prospectus of Computer Associates International, Inc. for the registration of shares of its common stock and to the incorporation by reference therein of our report dated February 10, 1998 except for Note 14, as to which the date is March 14, 1998, with respect to the consolidated financial statements and schedule of Logic Works, Inc. as of December 31, 1997 and for each of the three years in the period ended December 31, 1997, included in the Annual Report (Form 10-K) of Platinum Technology International, Inc. for the year ended December 31, 1998 filed with the Securities and Exchange Commisson. /s/ Ernst & Young LLP Metro Park, New Jersey February 21, 2000 EX-23.3 21 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-4) and related Prospectus of Computer Associates International, Inc. for the registration of shares of its common stock and to the incorporation by reference therein of our report dated May 26, 1999 with respect to the consolidated financial statements and schedule of Computer Associates International, Inc. as of March 31, 1999 and for each of the three years in the period ended March 31, 1999, included in its Annual Report (Form 10-K) for the year ended March 31, 1999 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP New York, New York February 21, 2000 EX-23.4 22 EXHIBIT 23.4 EXHIBIT 23.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-4) and related Prospectus of Computer Associates International, Inc. for the registration of shares of its common stock and to the incorporation by reference therein of our report dated October 29, 1999, with respect to the consolidated financial statements and schedule of Sterling Software, Inc. included in its Annual Report (Form 10-K) for the year ended September 30, 1999, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Dallas, Texas February 21, 2000 EX-23.5 23 EXHIBIT 23.5 EXHIBIT 23.5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement on Form S-4 (expected to be filed by Computer Associates International, Inc. on February 21, 2000) of our report dated January 19, 1998, for Mastering, Inc. included in PLATINUM technology International, inc.'s 1998 Form 10-K and to all references to our Firm included in this registration statement. /s/ Arthur Andersen LLP Denver, Colorado February 21, 2000 EX-23.6 24 EXHIBIT 23.6 EXHIBIT 23.6 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants of Memco Software Ltd., we hereby consent to the incorporation by reference of our report dated March 25, 1999 included or made part of this Computer Associates International, Inc. Registration Statement filed on Form S-4, and to all references to our Firm included in this Registration Statement on Form S-4. /s/ Luboshitz & Kasierer LUBOSHITZ & KASIERER MEMBER FIRM OF ARTHUR ANDERSEN Tel Aviv, Israel February 21, 2000 EX-99.1 25 EXHIBIT 99.1 LETTER OF TRANSMITTAL TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF STERLING SOFTWARE, INC. FOR SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF COMPUTER ASSOCIATES INTERNATIONAL, INC. BASED ON THE EXCHANGE RATIO DESCRIBED IN THE PROSPECTUS ALONG WITH CASH UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, MARCH 20, 2000, UNLESS THE OFFER IS EXTENDED. THE DEPOSITARY FOR THE OFFER IS: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. BY MAIL: BY HAND DELIVERY: BY OVERNIGHT DELIVERY: Reorganization Department Reorganization Department Reorganization Department PO Box 3301 120 Broadway, 13th Floor 85 Challenger Road South Hackensack, NJ 07606 New York, NY 10271 Mail Drop-Reorg Dept. Ridgefield Park, NJ 07660 BY FACSIMILE TRANSMISSION: (for Eligible Institutions only) Fax: (201) 296-4293 CONFIRM BY TELEPHONE: (201) 296-4860
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders if certificates for Sterling Software Shares (as defined herein) are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of Sterling Software Shares is to be made by book-entry transfer to the account maintained by the Depositary at The Depository Trust Company (the "Book-Entry Transfer Facility"), pursuant to the procedures set forth under "The Offer--Procedure for Tendering" in the Prospectus. Stockholders who tender Sterling Software Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders" and other stockholders are referred to herein as "Certificate Stockholders." Stockholders whose certificates are not immediately available or who cannot deliver their certificates and all other documents required hereby to the Depositary on or prior to the Expiration Date (as defined in the Prospectus), or who cannot comply with the book-entry transfer procedures on a timely basis, may nevertheless tender their Sterling Software Shares according to the guaranteed delivery procedures set forth under "The Offer-- Procedure for Tendering" in the Prospectus. See Instruction 2. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY FOR THIS OFFER (AS DEFINED HEREIN). / / CHECK HERE IF STERLING SOFTWARE SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ____________________________________________ Date of Execution of Notice of Guaranteed Delivery _________________________ Name of Institution which Guaranteed Delivery ______________________________ / / CHECK HERE IF STERLING SOFTWARE SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: DTC Account Number _________________________________________________________ Transaction Code Number ____________________________________________________ DESCRIPTION OF STERLING SOFTWARE SHARES TENDERED NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) STERLING SOFTWARE SHARES TENDERED (PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) ON (ATTACH ADDITIONAL LIST IF NECESSARY) CERTIFICATE(S)) NUMBER OF STERLING SOFTWARE CERTIFICATE STERLING SOFTWARE SHARES TENDERED** NUMBER(S)* SHARES EVIDENCED BY CERTIFICATE(S)* TOTAL STERLING SOFTWARE SHARES
* Need not be completed by stockholders delivering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Sterling Software Shares evidenced by a certificate(s) delivered to the Depositary are being tendered. See Instruction 4. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby delivers to Silversmith Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Computer Associates International, Inc., a Delaware corporation ("Computer Associates"), the above- described shares of common stock, par value $.10 per share (together with the associated preferred stock purchase rights, each, a "Sterling Software Share" and, collectively, the "Sterling Software Shares"), of Sterling Software, Inc., a Delaware corporation ("Sterling Software"), pursuant to Computer Associates' offer to exchange shares of common stock of Computer Associates, par value $.10 per share (together with the associated preferred stock purchase rights, each, a "Computer Associates Share" and, collectively, the "Computer Associates Shares"), for all outstanding Sterling Software Shares based on the exchange ratio (and along with cash under specified circumstances) described in, and otherwise upon the terms and subject to the conditions set forth in, the Prospectus dated February 22, 2000 (the "Prospectus"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Prospectus and any amendments on supplements hereto or thereto, collectively constitute the "Offer"). Upon the terms and subject to the conditions of the Offer, subject to, and effective upon, acceptance of the Sterling Software Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Computer Associates, all right, title and interest in and to all of the Sterling Software Shares that are being tendered hereby and any and all Sterling Software Shares and other securities issued or issuable in respect thereof on or after February 14, 2000 (collectively, "Distributions"), and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Sterling Software Shares (and any Distributions) (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver such Sterling Software Share Certificates (as defined herein) (and any Distributions) or transfer ownership of such Sterling Software Shares (and any Distributions) on the account books maintained by a Book-Entry Transfer Facility, together in either such case with all accompanying evidences of transfer and authenticity, to or upon the order of Computer Associates, (b) present such Sterling Software Shares (and any Distributions) for transfer on the books of Sterling Software and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Sterling Software Shares (and any Distributions), all in accordance with the terms and the conditions of the Offer. The undersigned hereby irrevocably appoints Steven M. Woghin, Ira H. Zar and Michael A. McElroy, and each of them, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote in such manner as each such attorney and proxy or any substitute thereof shall deem proper in the sole discretion of such attorney-in-fact and proxy or such substitute, and otherwise act (including pursuant to written consent) with respect to all of the Sterling Software Shares tendered hereby (and any Distributions) which have been accepted by Computer Associates prior to the time of such vote or action, which the undersigned is entitled to vote at any meeting of stockholders (whether annual or special and whether or not an adjourned meeting), of Sterling Software or otherwise. This proxy and power of attorney is coupled with an interest in the Sterling Software Shares and is irrevocable and is granted in consideration of, and is effective upon, the acceptance of such Sterling Software Shares (and any Distributions) by Computer Associates in accordance with the terms of the Offer. Such acceptance for exchange shall revoke any other proxy granted by the undersigned at any time with respect to such Sterling Software Shares (and any Distributions) and no subsequent proxies will be given (or, if given, will not be deemed effective) with respect thereto by the undersigned. The undersigned understands that, in order for Sterling Software Shares to be deemed validly tendered immediately upon Computer Associates acceptance of such Sterling Software Shares (and any Distributions) for exchange, Computer Associates or its designee must be able to exercise full voting rights with respect to such Sterling Software Shares (and any Distributions). The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Sterling Software Shares (and any Distributions) tendered hereby and that when the same are accepted for exchange by Computer Associates, Computer Associates will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or Computer Associates to be necessary or desirable to complete the sale, assignment and transfer of the Sterling Software Shares (and any Distributions) tendered hereby. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of Computer Associates any and all Distributions in respect of the Sterling Software Shares tendered hereby, accompanied by appropriate documentation of transfer. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Subject to the withdrawal rights set forth under "The Offer--Withdrawal Rights" in the Prospectus, the tender of Sterling Software Shares hereby made is irrevocable. The undersigned understands that tenders of Sterling Software Shares pursuant to any one of the procedures described under "The Offer--Procedure for Tendering" in the Prospectus and in the instructions hereto and acceptance of such Sterling Software Shares will constitute a binding agreement between the undersigned and Computer Associates upon the terms and subject to the conditions set forth in the Offer. Unless otherwise indicated herein under "Special Issuance Instructions," please issue the Computer Associates Shares and the check for cash in lieu of fractional Computer Associates Shares and, if applicable, for any cash payment made pursuant to the election by Computer Associates of the cash option (as described in the Prospectus) and/or return any certificates for Sterling Software Shares not tendered or not accepted for exchange in the name(s) of the registered holder(s) appearing under "Description of Sterling Software Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the Computer Associates Shares and the check for cash in lieu of Computer Associates Shares and, if applicable, for any cash payment made pursuant to the election by Computer Associates of the cash option (as described in the Prospectus) and/or return any certificates for Sterling Software Shares not tendered or not accepted for exchange (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Sterling Software Shares Tendered." In the event that both the Special Delivery Instructions and the Special Issuance Instructions are completed, please issue the Computer Associates Shares and/or issue any certificates for Sterling Software Shares not so tendered or accepted in the name of, and deliver said certificates and/or return such certificates to, the person or persons so indicated. The undersigned recognizes that Computer Associates has no obligation to transfer any Sterling Software Shares from the name of the registered holder thereof if Computer Associates does not accept any of the Sterling Software Shares so tendered. - ------------------------------------------------ SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Sterling Software Shares are not tendered or not accepted and/or the Computer Associates Shares and the check for cash in lieu of fractional Computer Associates Shares and, if applicable, for any cash payments made pursuant to the election by Computer Associates of the cash option are to be issued in the name of someone other than the undersigned. Issue Computer Associates Shares and/or certificate(s) to: Name _______________________________________________________________________ (PLEASE TYPE OR PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) __________________________________________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 HEREIN) - ------------------------------------------------------------ - ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Sterling Software Shares are not tendered or not accepted and/or the Computer Associates Shares and the check for cash in lieu of fractional Computer Associates Shares and, if applicable, for any cash payments made pursuant to the election by Computer Associates of the cash option are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown above. Mail Computer Associates Shares and/or certificate(s) to: Name _______________________________________________________________________ (PLEASE TYPE OR PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) __________________________________________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 HEREIN) - ------------------------------------------------------------ - -------------------------------------------------------------------------------- IMPORTANT STOCKHOLDERS SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE) X __________________________________________________________________________ X __________________________________________________________________________ SIGNATURE(S) OF STOCKHOLDER(S) Dated: __________, 2000 (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificate(s) and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) Name _______________________________________________________________________ ____________________________________________________________________________ (PLEASE PRINT) Capacity (full title): _____________________________________________________ Address ____________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone No.: _______________________________________________ Tax Identification or Social Security No.: _________________________________ ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) FOR USE BY ELIGIBLE INSTITUTIONS ONLY, PLACE MEDALLION GUARANTEE IN SPACE BELOW Authorized Signature:_______________________________________________________ Name:_______________________________________________________________________ ____________________________________________________________________________ (PLEASE TYPE OR PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ (INCLUDE ZIP CODE) Name of Firm: ______________________________________________________________ Area Code and Telephone No.: _______________________________________________ Dated: __________, 2000 - -------------------------------------------------------------------------------- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) which is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program (an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (i) if this Letter of Transmittal is signed by the registered holder(s) of the Sterling Software Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Sterling Software Shares) tendered herewith and such holder(s) have not completed the instruction entitled "Special Issuance Instructions" on this Letter of Transmittal or (ii) if such Sterling Software Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES OR BOOK-ENTRY CONFIRMATIONS. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Offer--Procedure for Tendering" in the Prospectus. Certificates for all physically tendered Sterling Software Shares ("Sterling Software Share Certificates"), or confirmation of any book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility ("Book-Entry Confirmation") of Sterling Software Shares tendered by book-entry transfer, as well as this Letter of Transmittal or facsimile thereof, properly completed and duly executed with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein on or prior to the Expiration Date (as defined in the Prospectus). Stockholders whose certificates are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary on or prior to the Expiration Date or who cannot complete the procedures for book-entry transfer on a timely basis may nevertheless tender their Sterling Software Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth under "The Offer--Procedure for Tendering" in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form made available by Computer Associates must be received by the Depositary on or prior to the Expiration Date; and (iii) the Sterling Software Share Certificates for all tendered Sterling Software Shares (or a confirmation of a book-entry transfer of such securities into the Depositary's account at the Book-Entry Transfer Facility of Sterling Software Shares tendered by book-entry transfer), in proper form for transfer, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message) and all other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery. IF STERLING SOFTWARE SHARE CERTIFICATES ARE FORWARDED SEPARATELY TO THE DEPOSITARY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL MUST ACCOMPANY EACH SUCH DELIVERY. THE METHOD OF DELIVERY OF STERLING SOFTWARE SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, condition or contingent tenders will be accepted and no fractional Sterling Software Shares will be accepted. All tendering stockholders, by execution of this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Sterling Software Shares for exchange. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Sterling Software Shares should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Sterling Software Shares evidenced by any certificate submitted are to be tendered, fill in the number of Sterling Software Shares which are to be tendered in the box entitled "Number of Sterling Software Shares Tendered." In such cases, new certificate(s) for the remainder of the Sterling Software Shares that were evidenced by your old certificate(s) will be sent to you, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Sterling Software Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Sterling Software Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Sterling Software Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Sterling Software Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to Computer Associates of their authority so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Sterling Software Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless Computer Associates Common Share Certificates or certificates for Sterling Software Shares not tendered or accepted are to be issued in the name of a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder of the certificate(s) listed, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder or holders appear on the certificate(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Computer Associates will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale of Sterling Software Shares to it or its order pursuant to the Offer. If, however, delivery of the consideration in respect of the Offer is to be made to, or (in the circumstances permitted hereby) if certificates for Sterling Software Shares not tendered or accepted are to be registered in the name of, any person other than the registered holder, or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the tendering holder must provide satisfactory evidence of the payment of any applicable transfer taxes (whether imposed on the registered holder or such person) payable on account of the transfer to such person prior to the delivery of the consideration pursuant to the Offer. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter of Transmittal. 7. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If certificates for Computer Associates Shares and/or certificates for Sterling Software Shares not tendered or not accepted for exchange and check for cash in lieu of fractional Computer Associates Shares and, if applicable, for any cash payments made pursuant to the election by Computer Associates of the cash option (as described in the Prospectus) are to be issued in the name of a person other than the person(s) signing this Letter of Transmittal or if certificates for Computer Associates Shares and cash in lieu of fractional Computer Associates Shares and, if applicable, any cash payment made pursuant to the election by Computer Associates of the cash option and/or certificates for Sterling Software Shares not tendered or not accepted for exchange are to be mailed to someone other than the person(s) signing of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Stockholders tendering Sterling Software Shares by book-entry transfer may request that Sterling Software Shares not accepted pursuant to the Offer be credited to such account maintained at a Book-Entry Transfer Facility as such stockholder may designate hereon. If no such instructions are given, such Sterling Software Shares not accepted will be returned by crediting the account at the Book-Entry Transfer Facility designated herein. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to, or additional copies of the Prospectus, this Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be obtained from the Information Agent at its address and telephone number set forth below or from your broker, dealer, commercial bank or trust company. 9. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN"), generally the stockholder's social security or federal employer identification number, on Substitute Form W-9 below. In addition, payments of cash in lieu of fractional shares of Computer Associates Shares and, if applicable, any cash payment made pursuant to the election by Computer Associates of the cash option (as described in the Prospectus) that are made to such stockholder with respect to Sterling Software Shares accepted pursuant to the Offer may be subject to backup withholding of 31%. The box in Part 3 of the form may be checked if the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 3 is checked and the Depositary is not provided with a TIN within 60 days, the Depositary must withhold 31% of all payments of cash thereafter until a TIN is provided to the Depositary. In addition, the Depositary may backup withhold during the 60 day period under certain circumstances. The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Sterling Software Shares or of the last transferee appearing on the stock powers attached to, or endorsed on, the Sterling Software Shares. If the Sterling Software Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. 10. LOST OR DESTROYED CERTIFICATES. If any Sterling Software Share certificate(s) representing Sterling Software Shares has been lost or destroyed, the holders should promptly notify Sterling Software's Transfer Agent. The holders will then be instructed as to the procedure to be followed in order to replace the Sterling Software Share certificates. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed Sterling Software Share certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE COPY HEREOF (TOGETHER WITH STERLING SOFTWARE SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Certain stockholders (including, among others, corporations and certain foreign individuals) are not subject to backup withholding. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a Form W-8 or successor form, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed Guidelines for Certificate of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. Backup withholding is not an additional tax. Rather, the tax liability of person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS (SEE INSTRUCTION 9) - ------------------------------------------------------------------------------------------------------------------------- PAYOR'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. - ------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Part 1--PLEASE PROVIDE YOUR TIN ------------------------- FORM W-9 IN THE BOX AT RIGHT AND CERTIFY SOCIAL SECURITY NUMBER(S) BY SIGNING AND DATING BELOW OR ------------------------- EMPLOYER IDENTIFICATION NUMBER(S): ---------------------------------------------------------------------------- PART 2--CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY DEPARTMENT OF THAT: THE TREASURY (1) The number shown on this INTERNAL REVENUE form is my correct Taxpayer SERVICE Identification Number (or I PAYER'S REQUEST am waiting for a number to FOR TAXPAYER be issued to me); and IDENTIFICATION (2) I am not subject to backup NUMBER ("TIN") withholding either because (i) I am exempt from backup withholding, (ii) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me that I am no longer subject to backup withholding. - ------------------------------------------------------------------------------------------------------------------------- CERTIFICATE INSTRUCTIONS--You must cross out item (2) in Part 2 if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). - ------------------------------------------------------------------------------------------------------------------------- SIGNATURE ------------------------------------------------------------------------------------------------------------------------ DATE ----------------------------------------------------------------------------------------------------------------------------------- NAME (PLEASE PRINT): ------------------------------------------------------------------------------------------------------------------------ ADDRESS: ------------------------------------------------------------------------------------------------------------------------ CITY, STATE AND ZIP CODE: ------------------------------------------------------------------------------------------------------------------------ - -------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE AND IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATIONS OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (i) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (ii) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number within 60 days, 31% of all reportable payments made to me thereafter will be withheld until I provide a Taxpayer Identification Number. ________________________________________________________________________________ Signature Date ________________________________________________________________________________ Name (Please Print) Questions and requests for assistance or additional copies of the Prospectus, this Letter of Transmittal and other tender offer materials may be directed to the Information Agent at its address and telephone number as set forth below: THE INFORMATION AGENT FOR THE OFFER IS: [LOGO] 156 FIFTH AVENUE NEW YORK, NEW YORK 10010 (212) 929-5500 (CALL COLLECT) OR CALL TOLL FREE (800) 322-2885 EX-99.2 26 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF STERLING SOFTWARE, INC. TO COMPUTER ASSOCIATES INTERNATIONAL, INC. (NOT TO BE USED FOR SIGNATURE GUARANTEE) As set forth under "The Offer--Procedure for Tendering" in the Prospectus, dated February 22, 2000 (the "Prospectus"), this form or one substantially equivalent hereto must be used to accept the Offer (as defined herein) if certificates for shares of common stock, par value $.10 per share (together with the associated preferred stock purchase rights, each, a "Sterling Software Share" and, collectively, the "Sterling Software Shares"), of Sterling Software, Inc., a Delaware corporation ("Sterling Software"), are not immediately available, if the certificates and all other required documents cannot be delivered to the Depositary prior to the Expiration Date (as defined in the Prospectus), or if the procedure for book-entry transfer cannot be completed on a timely basis. Such form may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary, and must include a guarantee by an Eligible Institution (as defined in the Prospectus). See "The Offer--Procedure for Tendering" in the Prospectus. THE DEPOSITARY FOR THE OFFER IS: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. BY MAIL: BY HAND DELIVERY: BY OVERNIGHT DELIVERY: Reorganization Department Reorganization Department Reorganization Department PO Box 3301 120 Broadway, 13th Floor 85 Challenger Road South Hackensack, NJ 07606 New York, NY 10271 Mail Drop-Reorg. Dept. BY FACSIMILE TRANSMISSION: Ridgefield Park, NJ 07660 (for Eligible Institutions only) Fax: (201) 296-4293 CONFIRM BY TELEPHONE: (201) 296-4860
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. LADIES AND GENTLEMEN: The undersigned hereby tenders to Silversmith Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Computer Associates International, Inc., upon the terms and subject to the conditions set forth in the Prospectus dated February 22, 2000 and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged, the number of Sterling Software Shares shown below pursuant to the guaranteed delivery procedures set forth under "The Offer--Procedure for Tendering" in the Prospectus. Number of Sterling Software Shares ____________________________________________________________________________ Account No.: ____________________________________________________________________________ Certificate No(s). (if available): ____________________________________________________________________________ ____________________________________________________________________________ If Sterling Software Share(s) will be tendered by book-entry transfer: Name of Tendering Institution ____________________________________________________________________________ Account Number: ____________________________________________________________ at The Depository Trust Company Date: ______________________________________________________________________ ----------------------------------------------- Name(s) of Record Holder(s): ____________________________________________________________________________ ____________________________________________________________________________ Address(es): ____________________________________________________________________________ ____________________________________________________________________________ Area Code and Telephone Number(s): ____________________________________________________________________________ Signature(s): ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ 2 THE GUARANTEE BELOW MUST BE COMPLETED (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a financial institution that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program, guarantees (a) that the above-named person(s) "own(s)" the Sterling Software Shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) represents that such tender complies with Rule 14e-4 and (c) guarantees to deliver to the Depositary, at one of its addresses set forth above, certificates representing the Sterling Software Shares tendered hereby, in proper form for transfer, or confirmation of book-entry transfer of such Sterling Software Shares into the Depositary's accounts at The Depository Trust Company, in each case with delivery of a properly completed and duly executed Letter of Transmittal (or a facsimile copy thereof), or an Agent's Message (as defined in the Prospectus) in the case of book-entry transfer, and any other documents required by the Letter of Transmittal, within three New York Stock Exchange, Inc. trading days of the date hereof. Name of Firm: __________________________________________________________________ Address: _______________________________________________________________________ ________________________________________________________________________________ ZIP CODE Area Code and Tel. No.: ________________________________________________________ ________________________________________________________________________________ AUTHORIZED SIGNATURE Title: _________________________________________________________________________ Name: __________________________________________________________________________ PLEASE PRINT OR TYPE Dated: ___________________________________________________________________, 2000 NOTE: DO NOT SEND CERTIFICATES FOR STERLING SOFTWARE SHARES WITH THIS NOTICE. STERLING SOFTWARE SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.3 27 EXHIBIT 99.3 OFFER TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF STERLING SOFTWARE, INC. FOR SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF COMPUTER ASSOCIATES INTERNATIONAL, INC. BASED ON THE EXCHANGE RATIO DESCRIBED IN THE PROSPECTUS ALONG WITH CASH UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, MARCH 20, 2000, UNLESS THE OFFER IS EXTENDED. February 22, 2000 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: This letter relates to the Offer by Computer Associates International, Inc., a Delaware corporation ("Computer Associates"), through its wholly owned subsidiary, Silversmith Acquisition Corp., a Delaware corporation, to exchange shares of Common Stock of Computer Associates, par value $.10 per share (together with the associated preferred stock purchase rights, each, a "Computer Associates Share" and, collectively, the "Computer Associates Shares") for each outstanding share of common stock, par value $.10 per share (together with the associated preferred stock purchase rights, each, a "Sterling Software Share" and, collectively, the "Sterling Software Shares"), of Sterling Software, Inc., a Delaware corporation ("Sterling Software"), based on the exchange ratio (and along with cash under specified circumstances) described in, and otherwise upon the terms and subject to the conditions set forth in, the Prospectus dated February 22, 2000 (the "Prospectus"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), enclosed herewith. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE MINIMUM TENDER CONDITION, AS DEFINED IN THE PROSPECTUS. SEE "THE OFFER--CONDITIONS OF THE OFFER" IN THE PROSPECTUS. Computer Associates expressly reserves the right, subject to the terms of the related merger agreement, to (i) extend, amend or modify the terms of the Offer in any manner and (ii) withdraw or terminate the Offer and not accept for exchange any Sterling Software Shares if any of the conditions to the Offer are not satisfied. For your information and for forwarding to your clients for whom you hold Sterling Software Shares registered in your name or in the name of your nominee(s), or who hold Sterling Software Shares registered in their own names, we are enclosing the following documents: 1. Prospectus dated February 22, 2000; 2. A Schedule 14D-9 Solicitation/Recommendation Statement; 3. Letter of Transmittal (together with accompanying Substitute Form W-9) to be used by holders of Sterling Software Shares in accepting the Offer and tendering Sterling Software Shares; 4. Notice of Guaranteed Delivery to be used to accept the Offer if certificates for Sterling Software Shares are not immediately available, if time will not permit all required documents to reach the Depositary prior to the Expiration Date (as defined in the Prospectus) or if the procedure for book-entry transfer cannot be completed on a timely basis; 5. A letter that may be sent to your clients for whose accounts you hold Sterling Software Shares registered in your name or in the name of your nominee(s), with space provided for obtaining such clients' instructions with regard to the Offer; and 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. Computer Associates will not pay any fees or commissions to any broker or dealer or any other person (other than the fees of the Information Agent as described in the Prospectus) in connection with the solicitation of tenders of Sterling Software Shares pursuant to the Offer. Computer Associates will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding the enclosed materials to your clients. Computer Associates will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale of Sterling Software Shares to it or its order pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, MARCH 20, 2000, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined in the Prospectus) in connection with a book-entry transfer, and any other required documents, should be sent to the Depositary, and certificates evidencing the tendered Sterling Software Shares should be delivered or such Sterling Software Shares should be tendered by book-entry transfer to the account maintained by the Depositary at The Depository Trust Company, all in accordance with the instructions set forth in the Letter of Transmittal and the Prospectus. If holders of Sterling Software Shares wish to tender Sterling Software Shares, but it is impracticable for them to forward their certificates or other required documents prior to the Expiration Date, a tender may be effected by following the guaranteed delivery procedures specified under "The Offer--Procedure for Tendering" in the Prospectus. Any inquiries you may have with respect to the Offer should be addressed to the Information Agent at its address and telephone number set forth on the back cover page of the Prospectus. Additional copies of the enclosed materials may be obtained from the Information Agent, MacKenzie Partners, Inc. by calling collect to (212) 929-5500. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF COMPUTER ASSOCIATES, STERLING SOFTWARE, THE DEPOSITARY OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. EX-99.4 28 EXHIBIT 99.4 OFFER TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF STERLING SOFTWARE, INC. FOR SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF COMPUTER ASSOCIATES INTERNATIONAL, INC. BASED ON THE EXCHANGE RATIO DESCRIBED IN THE PROSPECTUS ALONG WITH CASH UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, MARCH 20, 2000, UNLESS THE OFFER IS EXTENDED. February 22, 2000 To Our Clients: Enclosed for your consideration are the Prospectus dated February 22, 2000 (the "Prospectus") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the Offer by Computer Associates International, Inc., a Delaware corporation ("Computer Associates"), through its wholly owned subsidiary, Silversmith Acquisition Corp., a Delaware corporation, to exchange shares of common stock of Computer Associates, par value $.10 per share (together with the associated preferred stock purchase rights, each, a "Computer Associates Share" and, collectively, the "Computer Associates Shares"), for each outstanding share of common stock, par value $.10 per share (together with the associated preferred stock purchase rights, each, a "Sterling Software Share" and, collectively, the "Sterling Software Shares"), of Sterling Software, Inc., a Delaware corporation ("Sterling Software"), based on the exchange ratio (and along with cash under specified circumstances) described in the Prospectus and otherwise upon the terms and subject to the conditions set forth in the Offer. Stockholders whose certificates evidencing Sterling Software Shares ("Sterling Software Share Certificates") are not immediately available or who cannot deliver their Sterling Software Share Certificates and all other documents required by the Letter of Transmittal to the Depositary prior to the Expiration Date (as defined in the Prospectus) or who cannot complete the procedure for delivery by book-entry transfer to the Depositary's account at a Book-Entry Transfer Facility (as defined in "The Offer--Exchange of Sterling Software Shares; Delivery of Computer Associates Common Stock" in the Prospectus) on a timely basis and who wish to tender their Sterling Software Shares must do so pursuant to the guaranteed delivery procedure described in "The Offer--Procedure for Tendering" in the Prospectus. See Instruction 2 of the Letter of Transmittal. Delivery of documents to a Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures does not constitute delivery to the Depositary. THESE MATERIALS ARE BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF STERLING SOFTWARE SHARES HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER OF RECORD OF STERLING SOFTWARE SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH STERLING SOFTWARE SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER STERLING SOFTWARE SHARES HELD BY US FOR YOUR ACCOUNT. Accordingly, we request instructions as to whether you wish to have us tender on your behalf any or all of the Sterling Software Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Please note the following: 1. COMPUTER ASSOCIATES IS OFFERING TO ACQUIRE EACH OUTSTANDING STERLING SOFTWARE SHARE IN EXCHANGE FOR 0.5634 COMPUTER ASSOCIATES COMMON SHARES (AND ALONG WITH CASH UNDER SPECIFIED CIRCUMSTANCES), SUBJECT TO ADJUSTMENT AS DESCRIBED IN THE PROSPECTUS. 2. The Offer is being made for all of the outstanding Sterling Software Shares. 3. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Monday, March 20, 2000, unless the Offer is extended. If Computer Associates elects to provide a subsequent offering period as described in the Prospectus, you will not have the right to withdraw Sterling Software Shares that you tender in the subsequent offering period. 4. The Offer is conditioned upon, among other things, the Minimum Tender Condition, as defined in the Prospectus. See "The Offer--Conditions of the Offer" in the Prospectus. 5. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the transfer of Sterling Software Shares pursuant to the Offer. The Offer is made solely by the Prospectus dated February 22, 2000 and the related Letter of Transmittal and any amendments or supplements thereto and is being made to all holders of Sterling Software Shares. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Sterling Software Shares in any jurisdiction in which the making or acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Computer Associates may, in its sole discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Sterling Software Shares in such jurisdiction. If you wish to have us tender any or all of your Sterling Software Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Sterling Software Shares, all such Sterling Software Shares will be tendered unless otherwise indicated in such instruction form. PLEASE FORWARD YOUR INSTRUCTIONS TO US AS SOON AS POSSIBLE TO ALLOW US AMPLE TIME TO TENDER STERLING SOFTWARE SHARES ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. INSTRUCTIONS WITH RESPECT TO THE OFFER TO EXCHANGE EACH OUTSTANDING SHARE OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF STERLING SOFTWARE, INC. FOR SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF COMPUTER ASSOCIATES INTERNATIONAL, INC. BASED ON THE EXCHANGE RATIO DESCRIBED IN THE PROSPECTUS ALONG WITH CASH UNDER THE CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS The undersigned acknowledge(s) receipt of your letter and the enclosed Prospectus dated February 22, 2000 (the "Prospectus"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") relating to the Offer by Computer Associates International, Inc., a Delaware corporation ("Computer Associates"), through its wholly owned subsidiary, Silversmith Acquisition Corp., a Delaware corporation, to exchange shares of common stock of Computer Associates, par value $.10 per share (together with the associated preferred stock purchase rights, each, a "Computer Associates Share" and, collectively, the "Computer Associates Shares") for each outstanding share of common stock, par value $.10 per share (together with the associated preferred stock purchase rights, each, a "Sterling Software Share" and, collectively, the "Sterling Software Shares"), of Sterling Software, Inc., a Delaware corporation ("Sterling Software"), based on the exchange ratio (and along with cash under specified circumstances) described in the Prospectus and otherwise upon the terms and subject to the conditions set forth in the Offer. You are instructed to tender for exchange in the Offer the number of Sterling Software Shares indicated below (or, if no number is indicated below, all Sterling Software Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Sterling Software Shares to be Tendered: ___________________________ Date: ________________________________________________________________________ SIGN HERE Signature(s): ________________________________________________________________ Name(s) (PLEASE PRINT): ______________________________________________________ Address: _____________________________________________________________________ _____________________________________________________________________________ Telephone Number: ____________________________________________________________ Taxpayer Identification or Social Security Number: ___________________________ Unless otherwise indicated, it will be assumed that all of your Shares held by us for your account are to be tendered. 3 EX-99.5 29 EXHIBIT 99.5 CHASEMELLON SHAREHOLDER SERVICES, LLC REORGANIZATION DEPARTMENT P.O. BOX 3301 SOUTH HACKENSACK, N.J. 07606 CONFIDENTIAL INSTRUCTIONS FOR EXCHANGE OFFER FOR OUTSTANDING SHARES OF COMMON STOCK HELD IN THE STERLING SOFTWARE, INC. SAVINGS AND SECURITY PLAN THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, MARCH 20, 2000, UNLESS THE OFFER IS EXTENDED. TO PARTICIPANTS IN THE STERLING SOFTWARE, INC. SAVINGS AND SECURITY PLAN Enclosed is a copy of the Prospectus, dated February 22, 2000 and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), and an Instruction Card relating to the Offer by Computer Associates International, Inc., through its wholly owned subsidiary, Silversmith Acquisition Corp., to exchange shares of common stock (together with the associates preferred stock purchase rights, the "Shares") of Sterling Software, Inc. for a certain number (as described in the Offer) of shares (and in specified circumstances, as described in the Offer, cash) of common stock of Computer Associates International, Inc. This material is being forwarded to you as the beneficial owner of Shares held by us for your account under the Sterling Software, Inc. Savings and Security Plan (the "401(k) Plan"). A tender of such Shares into the exchange can be made only by us, acting in our capacity as trustee of the 401(k) Plan, pursuant to your instructions. We request confidential instructions as to whether you wish to have us tender on your behalf any or all of such Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. To tender shares held by us for you under the 401(k) Plan, we must receive from you the enclosed Instruction Card by 5:00 P.M. New York City time on Thursday, March 16, 2000, unless extended. If you wish to have us tender any or all of your Shares held in your account under the 401(k) Plan, please sign and send to us the enclosed Instruction Card. If you do not return the enclosed Instruction Card we will not tender any of the Shares held in your account under the 401(k) Plan. IF WE DO NOT RECEIVE A PROPERLY EXECUTED INSTRUCTION CARD FROM YOU, WE WILL NOT TENDER YOUR SHARES INTO THE EXCHANGE OFFER. INSTRUCTION CARD RE: STERLING SOFTWARE, INC. SAVINGS AND SECURITY PLAN (THE "401(K) PLAN") To ChaseMellon Shareholder Services, LLC: I am a participant in the 401(k) Plan and, as such, I received a copy of the Prospectus dated February 22, 2000 and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") relating to the Offer by Computer Associates International, Inc., through its wholly owned subsidiary, Silversmith Acquisition Corp., to exchange each share of common stock of Sterling Software, Inc. for a certain number (as described in the Offer) of shares (and in specified circumstances, cash, as described in the Offer) of common stock of Computer Associates International, Inc. I hereby direct you to: / / Tender all shares held in my account. / / Tender ______ (insert number) of such shares only. / / Do not tender any such shares. ----------------------------------------------------- (Signature of Participant) ----------------------------------------------------- (Signature of Participant) ----------------------------------------------------- (Date) If shares are held in joint names, each co-owner must sign.
EX-99.6 30 EXHIBIT 99.6 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- --------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - --------------------------------------------------- 1. An individual's The individual account 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, any one of the individuals(1) 3. Husband and wife The actual owner of (joint account) the account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the account) minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor or guardian or committee incompetent person(3) for a designated ward, minor, or incompetent person 7. a) The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee); b) So-called trust The actual owner(1) account that is not a legal or valid trust under State law - --------------------------------------------------- GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - --------------------------------------------------- 8. Sole proprietorship The owner(4) account 9. A valid trust, estate, The legal entity (Do or pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable The organization or educational organization account 12. Partnership account The partnership held in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments.
- --------------------------------------------- - --------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) You must show your individual name, but you may also enter business or "doing business as" name. You may use either your SSN or EIN (if you have one). (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5. Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEE EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a), or an individual retirement plan, or a custodial account under Section 403(b)(7). - The United States or any agency or instrumentality thereof. - A state, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency, or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a nonexempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. PAYMENTS EXEMPT FROM BACKUP WITHHOLDINGS Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign corporations. - Payments to nonresident aliens subject to withholding under Section 1441. Section 404(k) payments made by an ESOP. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: you may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. Exempt payees described above should file a Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM. SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE NOT A NON-RESIDENT OR FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under those sections. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of tax returns. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE Unless otherwise noted herein, all references to section numbers or regulations are references to the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. -----END PRIVACY-ENHANCED MESSAGE-----